In 2018 there were 1.4 billion international tourist arrivals globally, according to the UN World Tourism Organization[1]. For many international tourists, duty-free shopping has become part of the travel experience, with 48 per cent agreeing to this statement in the Quarterly Global Shopping Monitor produced for the Duty Free World Council in March 2019.
For regular wine consumers from several key markets, including Singapore, China and the United Kingdom, purchasing wine through duty-free shopping continues to be one of the top 15 wine buying channels, according to Wine Intelligence. Airports alone represent 55 per cent of duty-free wine sales.
Taxation is a key sales driver
Singapore has high taxes on alcohol within its market and buying wine through duty-free was the most popular option compared to other wine buying channels asked in the Wine Intelligence survey (Figure 1 and 2), with 66 per cent of Singaporean semi-annual wine drinkers using this channel in the past 6 months.
Figure 1: Percentage of respondents who have purchased wine from duty-free in the past six months and the rank in wine-buying channels.
Source: Wine Intelligence
However, the trend is opposite in the United States of America (USA), where the average price of alcoholic beverages is low in relation to other commodities due to strong competition and lower tax rates (compared to other markets). Here, purchasing wine at the supermarket was the most common wine buying channel at 52 per cent for regular wine drinkers, followed closely by the liquor store at 49 per cent. The option to buy from duty-free was at the bottom of the list sitting in 13th place with 5 per cent using this channel in the past 6 months.
Figure 2: Wine buying channels in Singapore and the USA
Source: Wine Intelligence
Challenges lead to developing enhanced shopping experiences
Traditionally, duty-free has been considered a channel where a traveler could find lesser known and/or luxury brands at cheaper prices than back home. This provided additional bragging rights to friends and family when bringing back gifts from their holiday. However, in more recent times, consumers can use mobile technology to find products online and compare prices. Further to this, in several countries (including Australia), there are many instances now where buying wine in duty-free does not generate any savings and in some cases can cost more compared to other channels.
The former president of the Tax Free World Association (TFWA), Erik Juul-Mortensen, commented last year that the duty-free industry is facing a number of challenges including ‘geopolitical hurdles that can hamper people’s ability to travel and ramp up the price of goods’ and e-commerce, which have price under permanent scrutiny. To combat this, the duty-free industry is now looking to enhance the shopping experience through offering better service, improved convenience, high-end product merchandising and exclusivity.
The duty-free industry is working towards overcoming these challenges. The Quarterly Global Shopping Monitor March 2019 showing that the global customer satisfaction index has been increasing over the past 4 quarters and for the 48 per cent of duty-free visitors that interacted with staff, 45 per cent made a purchase. Service level itself was ranked as second in terms of impacting on overall satisfaction, behind value for money. Atmosphere/design of shops was ranked fourth and an out-of-the-box example of this was when the Singapore Changi Airport recently transformed all three terminals into various iconic scenes from the Harry Potter story universe.
Wine and spirits accounted for 15 per cent of global duty-free and travel retail sales
In 2018, the duty-free travel retail sector generated US$75.7 billion in global sales, which was up 9.2 per cent on the previous year, but this growth was driven mostly by perfumes and cosmetics in the Asia Pacific region.
Research conducted by Generation Research for the first half of 2018 reported that wines and spirits made up 15 per cent of global duty-free and travel retail sales to US$5.9 billion and grew by more than 13 per cent compared to the first half of 2017. In 2017, this category was worth US$11.6 billion for the full year.
Figure 3: Global duty-free and travel retail sales January to June 2018.
Source: Generation Research
Modelling conducted by Wine Australia estimates that wine contributed to almost a quarter of global wine and spirit sales in 2017, at around US$2.7 billion.
When looking at duty-free sales for wine, the volume of still wine sold through duty free has increased 3 per cent on average each year since 2013 to 6.5 million 9-litre cases according to the International Wine and Spirit Record (IWSR). Sparkling wine has grown at a greater rate at 6 per cent to 1.6 million 9-litre cases while fortified wine has grown 2 per cent to 212,000 9-litre cases. Total wine sold through duty-free represented 0.2 per cent of all wine sold globally based on volume.
Figure 4: Five-year average annual growth rate (2018 to 2013) and year-on-year change (2018 to 2017) for wine categories sold through duty-free based on volume
Source: The International Wine and Spirit Record (IWSR)
Europe was the largest region for duty-free sales of wine
When it comes to where the volume is consumed globally, Europe was the largest region for duty-free sales of wine at 6 million 9-litre cases, more than 5 times greater than Asia Pacific at 1 million 9-litre cases. While European countries collectively consume the most still wine through duty-free, North America and the Arab States consume a greater proportion of sparkling wine.
Figure 5: Proportion of volume purchased through duty-free in 2018 by region and wine category
Source: The International Wine and Spirit Record (IWSR)
More detail on duties and taxes for wine in a number of key markets is available through Wine Australia’s Market Export Guides, free for levy payers.