Opportunities in the Middle East global travel retail channel for wine and spirits - Market Intel

Global travel retailers are gearing up for a bigger presence in the Middle East. The opening late last year of the new Terminal A at Abu Dhabi International Airport – now Zayed International Airport – allowed some of them to showcase their prowess in delivering novel retail concepts.

In wine and spirits, Lagardère Travel Retail has been wowing passengers with its Le Club and Little Le Club formats, attracting enthusiasts of champagne, wine, spirits and tobacco sourced globally, and supported by activations to drive footfall.

Through a joint venture between Lagardère Capital and Abu Dhabi Capital Group, the French operator became one of the largest concessionaires at the Etihad hub in November by opening 12 duty-free and six food & beverage outlets. The company also runs a culinary concept with celebrity chef Todd English called the Todd English Pub & Market, which encompasses a 1,000sqm food hall featuring a licensed bar.

The opening of Zayed’s Terminal A was also an opportunity for Italy’s Bottega to launch its second prosecco bar in the region (below), following its debut at Dubai International Airport. “The Abu Dhabi bar is a direct consequence of the popularity of our format in Dubai,” says president Sandro Bottega.

“In the past decade, this region has become a primary hub for intercontinental flights connecting Europe, Africa, Asia and the Pacific.”

Well-connected

Those connections are key for international beverage alcohol brands looking for visibility at hub airports. In the Middle East, there are more coming, alongside expansions of existing locations, especially in Saudi Arabia. The kingdom has also hinted it could relax its anti-alcohol laws having opened duty-free alcohol sales to diplomats this year.

Germany’s Gebr Heinemann is prioritising the Middle East going forward. Bernard Schlafstein, director of the Middle East & Africa region at the Germany-headquartered operator, explains: “In addition to our existing MEA business, we signed 14 new clients in 2023, and are now preparing to enter the Saudi Arabian market. Our operation in Jeddah will open soon with our partners.

“We’re not aiming for pure revenue growth,” he adds. “It’s important for us to establish good long-term relationships and to minimise risks by diversifying our business both geographically and in terms of business channels.” To help achieve this, the company has opened a representative office in Dubai.

High-end GTR operator DFS Group is also “eager to grow” in the Middle East. “The region offers immense potential, with a burgeoning tourism industry and increasing investments in infrastructure and hospitality,” noted CEO Benjamin Vuchot. “We aim to capture a significant market share and forge long-lasting partnerships.”

These players will join very experienced GTR operators such as Dubai Duty Free (DDF), Qatar Duty Free (QDF) and Ireland’s Aer Rianta International (ARI). Indeed, ARI’s Middle East arm, Arime, has been in the region for decades with operations in Bahrain, Cyprus, Lebanon, Oman, Saudi Arabia and the UAE.

The company had a strong 2023 despite the challenges of the Israel-Palestine conflict in the final quarter. ARI’s business in Riyadh performed solidly, while Muscat in Oman was very robust and boosted by increased alcohol allowances in arrivals. Bahrain Duty Free also had a strong showing from its alcohol unit.

DFS can benefit from a long-standing relationship with the most premium operators in alcohol through its annual Masters of Wines & Spirits event. This year, for the first time, it took place outside Asia, in Los Angeles. This type of portfolio is exactly what many airports in the region would be comfortable promoting: lower volumes and higher margins.

For multiple markets, the reason for this is that due to religious and cultural sensibilities, wine and spirits have been frowned upon in the past – but the attitude is easing. In the UAE, for example, Dubai requires people who want to consume alcohol to buy a licence. However, last year, the government made these licences free and easier to obtain – applications can now be made quickly online or at any African + Eastern or MMI store with relevant ID. Such liberalisation is expected to influence other markets, with Dubai leading the way thanks to its focus on international tourism.

It’s little surprise, then, that Dubai Duty Free is the most significant GTR operator selling alcohol in the region. In 2023, the segment accounted for 14% (US$310m) of its sales, making the category the second-biggest behind perfume. But while the alcohol business exceeded 2019 sales, it has not rebounded anywhere near as fast as other top categories such as fashion and gold.

India’s influence

There are signs, however, that alcohol’s influence may start to wane, due to the changing spending patterns of Indians. The country’s travellers are currently the No.1 nationality at DDF, parting with $266m last year.

According to the retailer’s MD Ramesh Cidambi, alcohol – led by whiskey/whisky – is the top category for Indians, making up about 30% of their total spend. Within the category itself, India’s subcontinent travellers accounted for a huge 60% of all sales last year, followed by Russians at 11.5%.

With a much-improved wine and spirits offer at arrivals stores in airports such as Delhi and Mumbai, Indian travellers departing the Middle East are more likely to shop in their home market if pricing is competitive. Mumbai is a top-three route for Dubai International.

In the first two months of 2024, DDF saw year-on-year alcohol sales decline 2.5% – the only category to see a decline. Cidambi has pointed to price hikes from alcohol brand owners as having impacted purchasing. While 2023 showed alcohol sales to Indians topping $50m, using 2019 pricing those sales would have been just $42m.

Goan-produced Paul John Whisky has been available at several GTR locations in the Middle East for a few years. Paul John, the chairman of brand owner John Distilleries, tells Global Drinks Intel: “While the quality of airport shops in India has dramatically improved, we aren’t yet seeing an impact on our single malt sales in the Middle East.”

He admits, however, that the brand is still expanding in the region and therefore less likely to be hit by any purchasing switch to the subcontinent.

Experienced duty-free consultant Hannes Koch, who facilitated the entry of Douglas Laing into Middle East travel retail, says: “The region is still a growing market where spirits are still not a fully developed category for political and religious reasons. But it’s gradually opening up and there are extremely interesting airport projects in places like Saudi Arabia and Kuwait.

“All the retailers are doing good, profitable business. They’re probably generating more profit per square metre than in concessions in Europe or in Asia.”

Alcohol is a core category at Hamad International Airport for QDF and “represents a significant part of our business”, notes a spokesperson. While the operator keeps its wine and spirits business at a low profile, the spokesperson adds: “We’ve been seeing a trend within liquor driven by customers willing to trade up to quality products. As such, the premium liquor segment is a key driver, including malt whisky, premium cognac and fine wine. We also see a trend towards exclusives not available in local markets.”

Premiumisation still pays

As a popular transit hub for Qatar Airways, Hamad International has been a consistently strong home for QDF’s alcohol sales, with outbound travellers taking products to their destinations. A strategy of premiumisation is paying off, as are high-profile promotions for new launches, limited editions and special releases.

Recent examples include Brown-Forman’s Formula One activation for Jack Daniel’s, where passengers could play interactive games to win prizes, and a partnership with Pernod Ricard’s Chivas brand for the Chivas XV Diwali Festive Edition that capitalises on the strength of the Indian passenger profile.

QDF’s strategy is one of diversification and, while alcohol remains a departures-only category, Qatar Distribution Co – the country’s official and only licensed retail distributor of wine and spirits – was recently integrated with the operator.

This means QDF can expand alcohol at a local level and beyond the airport. Meanwhile, it continues to incorporate alcohol into its airport venues, including the Louis Vuitton Lounge by Yannick Alléno (below) and the Emporio Armani Caffè & Ristorante.

Cultural shift looms

Signalling possibly the biggest cultural shift in the Middle East is the dry state of Saudi Arabia, which in January announced plans to open its first alcohol outlet – but only for the diplomatic channel and non-Muslim shoppers. The shop is in Riyadh’s embassy quarter and users must jump through several hoops, including registering via an app, to shop there.

This is a small test of what many observers believe will inevitably lead to the wider availability of wine and spirits in channels such as airports and hotels, in line with the country’s massive investment in developing a hospitality industry from scratch. The tourism project is part of Crown Prince Mohammed bin Salman Al Saud’s series of liberalisations in the kingdom of which legalising alcohol is possibly the most controversial.

The prospect of alcohol sales at Saudi airports – only to transferring passengers who are leaving the country – was mooted as far back as 2022, when consultation began. Sensitivities around the issue have held back progress, but the opening of the diplomatic store is a sign that other channels could soon follow.