Comment: Will the liquor industry cope?

Joe Bates

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It's the news every duty-free liquor retailer dreaded hearing. Last week's last-minute foiling of a sophisticated terrorist plot involving "liquids" smuggled onboard as many as ten trans-Atlantic flights has put the long-term future of the travel-retail liquor business in jeopardy

Liquor still represents almost a fifth of the global $27bn duty-free and travel-retail market and nearly 16% of sales at airports. Its market share has been shrinking in recent years as other product sectors have prospered. Yet operators still view it as a core category and a key footfall driver. It is difficult to see how airport retailers could remain in business if the worst-case scenario happened, and liquor was removed from the shelves completely.

This is unlikely to happen, but the current muddled situation is making long-term forecasts difficult. "It's too early to predict the long-term implications for the liquor category," said Maxxium Global Travel Retail president Erik Juul-Mortensen, echoing the view of many suppliers. "We are seeing a confusing picture with different airports around the world reacting differently. I am hoping things calm down quickly and sanity prevails."

There is little sign of this happening yet. At UK airports the security threat was downgraded from "critical" to "severe" today, but confusion remains about what travellers can and cannot take into the aircraft cabin. BAA has confirmed to DFNI that passengers on all but US-bound flights can take duty-free liquor, bought after security, onto their flights, but as yet this message is not filtering through clearly to TV and radio bulletins. Clearly, the liquor industry has an interest in long-term clarity.

The outlook at US airports, where duty-free liquor sales totalled $178m last year, is considerably bleaker. While the Transport Security Administration (TSA) has given airports such as Miami and Los Angeles employing planeside deliveries the green light to continue selling liquor, the majority of airports have stopped sales completely. Many stores have been deserted and expensive bottles of spirits bought by customers unaware of the new regulations have been dumped in the trash.

The current restrictions within the US and on US-bound flights are unlikely to remain in place indefinitely, but every day they continue it is costing operators and suppliers tens of thousands of dollars. More worrying still is what long-term decisions the transport authorities on both sides of the Atlantic will take with regards to how duty-free liquor at airports will be sold.

"The viability of liquor sales in the air has been up for discussion for a long time," noted Yngve Bia, president and ceo of duty-free industry analyst Generation. "It's often been argued that a bottle of spirits could be a potentially dangerous weapon. With last week's events, that issue will be back on the agenda in Europe and the US with much more urgency."

A high-profile industry defence of the airport retail business has already started with leading operators stressing the security of the duty-free supply chain and the close vetting of shop staff, but more placatory action from retailers and suppliers might well be needed in the coming months. Given its inherent volatility, itÕs likely that liquor rather than fragrances or cosmetics that will receive the most flak.

In the US, for instance, it has already been suggested that planeside rather than gateside deliveries of duty-free liquor (and fragrances) may have to become the norm. Suppliers may also have to put tamper-proof seals on all bottles to ensure their integrity. Measures such as these will undoubtedly increase costs, but may appease public concern and overzealous authorities considering a total ban.

Airports and operators are already marketing their arrivals stores, collection and home shipment services much more forcibly and this trend is bound to continue and intensify. The duty-free liquor category at airports will surely survive this scare, but a proud business which can trace its roots back to the first duty-free shop at Shannon airport in 1947, may have to jump through a few hoops to do so.

Facts & figures (2005)

UK duty-free liquor sales: $228.6m

US duty-free liquor sales: $178m

Wine & Spirit Sales by Channel

Airports: 46.9%

Airlines: 6.5%

Ferries: 15.2%

Other: 31.3%

Source: Generation

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