Tag Archives: Politics

Pent up demand in Global Duty Free markets, but there is caution

The global duty free retail market size was valued at USD 35.87 billion in 2021. The market is projected to grow to 72.23 billion by 2029, exhibiting a CAGR of 9.17% during the forecast period. The global Covid -19 pandemic saw the Duty Free Retail experiencing lower-than-anticipated demand across all regions compared to pre-pandemic market exhibited a decline of 42.38% in 2020 as compared to 2019.

This market generates significant revenue for airports, airlines, tourism, and other travel-related industries worldwide. Total income from duty free and travel retailing. Duty free goods’ sales typically happen within international zones, and these goods can also be sold on ships or onboard aircraft with shoppers/travelers in transit.

The duty free retailing market is majorly driven by increasing growth of travel and tourism industry coupled with rising penetration of low cost airlines. Increasing sales alcohol and confectionery is a major factor driving the growth of the global market.

Travel retail revenues make a functionally important influence to the overall financing of airports, the maritime companies as well as their infrastructure. All in all, these physiognomies of duty free retailing pose distinctive offerings for the travelers by meeting their needs, generating revenues and in turn supporting the maritime and aviation transport infrastructure and their services. Duty free retailing has emerged in parallel with the expansion of sea and air travel.

Although, the use of perfumes and cosmetics has a long history, increasing demand for premium fragrances and cosmetic products has raised the growth of the global duty free retailing industry. Rising investments by the governments of several economies to set up duty free retailing centres to cater to international tourists is another key factor driving the global market. Perfumes and cosmetics as well as tobacco goods are expected to register the fastest growth over the forecast period owing to increased demand for international tobacco and cosmetic products. Travellers prefer tasting tobacco and other products of different countries and prefer purchasing them from duty free retailing shops. This is expected to drive the overall market growth.

According to the research, in 2021-22 lower prices vs the domestic market and value for money are consistently quoted across all segments, whether age groups, genders or travel purposes. Good value for money is a particularly significant purchase driver for seniors at 49% and millennials, 34%.

Convenience is also an important purchase driver for both seniors, 36%, Gen Z shoppers and leisure travellers (both at 23%). Another common purchase driver in travel retail in 2021-22 is loyalty to the brand, especially for seniors (30%) and females (26%).

Travel retail revenues make a functionally important influence to the overall financing of airports, the maritime companies as well as their infrastructure. All in all, these physiognomies of duty free retailing pose distinctive offerings for the travellers by meeting their needs, generating revenues and in turn supporting the maritime and aviation transport infrastructure and their services. Duty free retailing has emerged in parallel with the expansion of sea and air travel.

Although, the use of perfumes and cosmetics has a long history, increasing demand for premium fragrances and cosmetic products has raised the growth of the global duty free retailing industry. Rising investments by the governments of several economies to set up duty free retailing centres to cater to international tourists is another key factor driving the global market. Perfumes and cosmetics as well as tobacco goods are expected to register the fastest growth over the forecast period owing to increased demand for international tobacco and cosmetic products. Travellers prefer tasting tobacco and other products of different countries and prefer purchasing them from duty free retailing shops. This is expected to drive the overall market growth.

The research also analyses the importance of sales staff in influencing shopper behaviour. Sales associates have a significant impact on the decision to purchase and this varies quite considerably by customer segment as well as by region. The research reveals that the impact of the interaction has increased considerably in the wake of the pandemic as travellers set to the skies again.

Recent years have witnessed considerable demand for duty free alcohol across countries, notably in Asia. The diversifying consumer buying habits, rapidly increasing international tourist arrivals, and rising spending among the rising demand for premium liquor is creating heightened consumer interest in duty free alcohol worldwide at a macro. The alcohol category has also witnessed significant developments, most notably product launches, in recent years.  At a macro level, the growing demand for retail will boost duty free alcohol sales and other product types during the forecast period. Furthermore, the alcohol category is likely to encourage market key players to offer luxury and premium products.

The proliferation and introduction of new international airports across countries are creating lucrative business opportunities, in February 2021, the Airport Authority of India (AAI), an Indian governmental body that operates 125 airports saw revenues of USD 135.07 million (`987 crore) for the first phase of an international airport named ‘Dholera’ in Gujarat. According to Civil Aviation Ministry’s ‘Indian Aviation’s Vision 2040 claims that by 2040, India will have 190-200 operational international airports, while the top 31 Indian cities will have two operating airports. The fleet of 622 airliners to more than double to 2,359 aircraft by March 2040.

Numerous airlines across countries are expanding their international networks and establishing new airports as post the Covid-19 crisis.

Duty free markets are sensitive to exchange rates among countries. Although they operate in several countries with currencies including Euros, Dollars, and Pound, which have specific exchange rates, they are subject to global market changes exchange rate of a particular day. The currency exchange fluctuations in the global market may positively or negatively including retail chains that offer luxury goods, depending on the fluctuating exchange rate.

Based on type, the global market is segmented into perfumes, cosmetics, alcohol, cigarettes, and others. Internationally reputed distribution channels offer luxury perfumes worldwide. Affluent global travellers typically visit duty free retail chains that offer perfumes of internationally reputed Gucci, Giorgio Armani, Al Haramain Dazzle Intense, Belle, Signature Rose, Signature Silver, and Khulasat Al Oud. Perfume types, including Perfume or De Perfume, Eau De Perfume (EDP), Eau De Toilette (EDT), and Eau De Cologne.

Based on sales channel, airports, onboard aircraft, seaports, train stations, and others constitute the market segment worldwide. The mushrooming number of domestic and international airports across countries is favouring products. Various developments within the ‘airports’ category highlight the increasing number of duty free stores across airports in 2022, Flemingo, a Dubai-based global travel retail operator, and Adani Group, an Indian integrated business establish a duty free shop at the Thiruvananthapuram International Airport by mid-May 2022. This strategic move intensifying competition in the Indian market.

As the duty free & travel retail industry had hoped, 2022 has so far brought real signs of hope that the recovery in international travel is under way. The pent-up demand for travel, so often alluded to during the darkest days of the pandemic, is evident in all markets. But that demand is putting severe pressure on airport and airline capacity. And the reopening of some countries, notably in Asia, is only taking place at a gradual, even glacial, pace.

The duty free and travel retail market was hit hard in 2020 due to the sudden fall in tourism amid the Covid-19 pandemic. The tourism sector has already felt the negative impact of the pandemic on its performance much earlier. Globally, travel restrictions and measures started as early as January 2020. Domestic and international tourists limited their travel due to fear of contracting Covid-19, which reduced the number of domestic and international customers for this retail channel.

Duty-free and travel retail comprises a category in a growing list of ancillary offerings by airlines. For some low-cost and ultra-low-cost carriers, the growth in the scope and magnitude of ancillary revenues has become key to their operations, allowing them to offer lower ticket prices and stimulate the overall demand for air travel as a result. Furthermore, when compared to airport duty-free and travel retail, the duty free and travel retail sales generated by airlines are substantially smaller, both in magnitude and relative to the financial performance of the respective recipient.  

Excise takes a hit in Delhi; Political battle between AAP and BJP

• Delhi government discontinues Excise Policy 2021-22 from August 1, 2022

• 468 private liquor shops operating in the city, shut from August 1 as licenses expire on July 31

•  Mad rush at liquor vends as supply chain affected

It is a massive political battle out in the National capital between the Bharatiya Janata Party (BJP) and the Aam Aadmi Party (AAP) and the casualty has been the liquor industry. While the battle rages on, there is short supply of liquor and with private vends closing down, there is mad rush for liquor of whatever that is left.

As such Delhi was experiencing short supply of liquor for some months now, but the government did not really pull up its socks.

While the situation was such, came another shocker for the AAP government when its Chief Secretary on July 8 reported that there has been ‘deliberate and gross procedural lapses to provide post tender undue benefits to liquor licensees for the year 2021-22’. The Chief Secretary’s report also pointed out to prima facie violations of GNCTD Act 1991, Transaction of Business Rules 1993, Delhi Excise Act-2009 and Delhi Excise Rules – 2010. 

Based on the Chief Secretary’s letter and the corruption murmur in the capital, the Delhi Lieutenant Governor,
Vinai Kumar Saxena recommended a probe by the Central Bureau of Investigation (CBI). 

Alcobev industry at its wits end

The alcobev industry which had hailed the Delhi Government’s new Excise Policy 2021-22 is at its wits end with the political battle going on. Many industry experts had hailed the policy but had complained that implementation was the stumbling block.

AAP blames BJP for the crisis

However, the Deputy Chief Minister of Delhi, Manish Sisodia in a press conference has put all the blame on the BJP for the excise crisis, stating that private vendors were threatened by the Enforcement Directorate and the CBI, forcing them to shut shop. The BJP, on the other hand, has alleged that the Delhi Government had doled out licenses to private vendors on a quid-pro-quo basis, charging AAP of large scale corruption. The two parties are leveling charges against each other while the alcobev sector and the end-consumer has to bear it all.

Government vends would be revived: Sisodia

Manish Sisodia said that the government vends would be back from August 1 as private vends were ‘scared’ to venture into this business. The number of government vends, would not exceed 850. Stating that there was an orchestrated campaign by the BJP to fail the new excise policy, he said only 468 shops were running and that number would further reduce drastically from August 1. “Their (BJP) plan is to stop legal sale of liquor and promote illegal sale of liquor in which the BJP has stake of thousands of crores of rupees,” he said and referred to the Gujarat model where there is prohibition, but illegal liquor trade is strong, leading to illicit liquor, consequently to hooch tragedies.

Citing that the AAP government had planned it’s vends to cater to the population without exceeding the number of vends from 850, he cited how in BJP-ruled States the number of vends was higher, thus encouraging liquor trade, both legal and illegal. There was one outlet for over 4,000 people in Gurugram; one for over 12,000 people in Bangalore; one for over 700 people in Goa, while in Delhi it was one outlet for over 22,000 people.

Another reason for the BJP to derail the Delhi policy, he said was as the former feared that the state revenue would jump from `6000 crore to `9,500 crore which would mean the success of the new policy.

BJP holds Sisodia responsible

Meanwhile, the BJP has upped its ante charging the AAP led government of corruption to which the Delhi Chief Minister has termed it as ‘false and that the BJP was afraid of AAP’s growth’. The BJP said the Excise Department, which is headed by Sisodia, reportedly gave a waiver of `144.36 crore to the licensees on the tendered license fee citing pandemic as an excuse. 

Policy was to give enriching customer experience, now going back to government vends

The 2021 policy was to pave the way for a range of sweeping reforms to boost excise revenue, crack down on the liquor mafia and to improve customer experience. The Government wanted to provide a ‘decent standard of customer experience commensurate to the stature of the National Capital’ and one of the most noticeable changes was abolishing the iron grills in front of the shops. The policy amendment also allowed for online sales in sync with the ‘new normal’.  There is no mention of what would happen to online sales, considering that the supply chain itself is adversely affected.

Framework for grant of licenses

The process of granting of the license was to ensure equitable coverage so that there is no instance of un-served and underserved areas in Delhi including Non-Conforming Areas. The number of retail liquor vends had been limited to 849, including five super premium retail vends, but absolutely no Government owned liquor vends for IMFL/FL.

The policy had ended on May 31 but extended by two months offering the retail licensees chance to renew their licenses paying fees on the pro rata basis for the extra period. However, many license holders did not opt for the extension and shut shops as they were already finding it difficult to reach break even after paying high license fees, some liquor traders have claimed.

Then there was the issue of some retailers giving massive discounts up to 40% to consumers while some big players offered ‘buy one, get one free’ schemes. The government intervened and capped the discount at 25%, but some retail shops went beyond that, some in the trade have complained.

Excise policy extant vs Delhi Master Plan rules

Under the excise policy extant, each licensee had to open three stores in each municipal ward. However, out of 272 municipal wards, 100 were non-conforming where the shops could not open due to action by civic bodies against violations of Delhi Master Plan rules, officials said thus leading to inadequate liquor stores.

CIABC hopes the policy will be tweaked

As mentioned there were many good features in the policy but the government failed to implement. The Director General of the Confederation of Indian Alcoholic Beverage Companies (CIABC), Mr. Vinod Giri has said that the industry had taken up the matter with the Delhi Government to reduce the size of the zones as to make the trade viable. He said by doing that it would have reduced the financial stake of licensees, improved loss bearing capacity and prevented monopolies. He attributed the failure of the policy to bureaucratic apathy towards trade, while the policy per se was good, befitting a modern metropolis such as Delhi. He was hopeful that the policy would be tweaked, but right now the political din has taken over.

There have been many such niggling issues that the Delhi Government did not iron out, while it kept patting itself on its back that it had come up with a ‘great policy’ that eliminated corruption and sale of seconds liquor. But the reality on the ground has been different, where actions did not match the words the AAP government kept bandying about. The capital is going to be mired with this controversy for some time now. The alcobev sector awaits new directives, till then the end consumer will have to find ways to quench his or her thirst.