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Across the Middle East, beverage alcohol sales have long been robust in global travel retail. However, a recent tax change in the UAE, coupled with an ongoing difficult economic climate, has set a challenging precedent for 2023.
A speedy recovery in passenger traffic bodes well for global travel retail wine and spirits sales in the Middle East where the category is allowed, in Bahrain, Egypt and the United Arab Emirates [UAE], for example. Airports trade association ACI World recently ranked the world’s busiest airports in 2022, placing Dubai International fifth, after languishing in 27th place in 2021. It is the only Middle East airport in the top ten.
Meanwhile, a recent duty-free study from Euromonitor says that three Middle Eastern countries – the UAE, Saudi Arabia and Egypt – feature among the 12 top outbound spending countries in GTR worldwide. Only in Saudi Arabia – where duty-free alcohol is not currently sold – is the average spend set to grow in the coming years.
Dubai Duty Free sees strong sales rebound in 2022
At Dubai International, a target destination for the region’s wine and spirits suppliers, Dubai Duty Free [DDF] is the core retailer and the biggest GTR operator in the Middle East by far. The company enjoyed a strong rebound in sales last year, jumping 78% year-on-year to US$1.74bn, albeit still some way off the record $2.03bn set in 2019 before Covid.
After perfume, liquor remained the second-biggest product category, generating $280m, or 16%, of 2022’s total sales. However, the 66% year-on-year growth meant that the liquor category lost share.
Last year’s decline could be a longer-term concern after the UAE scrapped a 30% alcohol tax on 1 January; it also dropped the annual charge to have a liquor permit, while also making applying for a new permit almost instantaneous. Theoretically, the tax move makes local market liquor cheaper for consumers, assuming retailers and on-premise outlets pass on the reductions.
It also erodes the price advantage in GTR. Domestic retailers undertook a big social media campaign to publicise the change, and there was an immediate impact. Dubai Duty Free’s chief operating officer Ramesh Cidambi tells Global Drinks Intel: “As soon as the announcement was made, sales of liquor dropped by about 10%. In arrivals, in particular, liquor is a very significant business for us, as it constitutes about 80% of revenue. In arrivals, the business is split roughly 50/50 between tourists and residents.”
Liquor sales from arrivals equated to about $126m last year, and the likelihood is that returning residents will be less compelled to buy – at least in the short term – until the dust settles and they can understand what the new price differentials will be between downtown and the airport. Duty-free liquor still has a big advantage over the local market thanks to its range of spirits and channel exclusives that are available, even if pricing does become more competitive. “We’re keeping a close eye on what promotions domestic retailers are running,” says Cidambi. “Our challenge in arrivals has always been penetration.”
Maritime & Mercantile International [MMI] is less concerned about the removal of the 30% alcohol tax on its duty-free business. As well as operating more than 20 liquor stores in the local market, MMI has ten high-end Le Clos-operated outlets at Dubai International, including a boutique for The Macallan. MMI’s head of corporate & retail marketing Manjot Riyait tells Global Drinks Intel: “Le Clos witnessed record sales in January. We expect this to continue to grow in line with tourism. Le Clos prides itself on curating the world’s finest wine and luxury spirits with exclusive offerings.”
Some of the latter have been sold by auction, including a Château Palmer, 2014 Bordeaux for $1,400 [3-litre] and a Bowmore 1988 Vintage for $400. Le Clos’ direct relationships with higher-end wineries and distilleries enable it to maintain a selection that appeals to collectors and connoisseurs.
For parent MMI, the tax changes are seen as “extremely positive”, not least because the company is one of only three official distributors of beverage alcohol in Dubai, the main rival being African+Eastern.
Volumes poised to level up
Looking at wine and spirits in the wider region, the GTR manager at IWSR Drinks Market Analysis, Jairo López Suárez, says: “Volumes in African and Middle Eastern travel retail are forecast to exceed 2019 this year, while value sales in 2022 are expected to have been on par with 2019.” This points to significantly higher spending per traveller last year, given that traffic volumes were still playing catch-up to pre-pandemic levels and closed the year down by about 26% on 2019 [according to ACI World data].
IWSR forecasts that between 2022 and 2026, GTR liquor volumes in the region will rise at a CAGR rate of 9%. “Whisky/whiskey is the largest category in Africa and the Middle East,” adds López Suárez. “It accounted for over 50% of beverage alcohol travel retail sales in 2021 and is forecast to grow in line with the total market to 2026.”
The rising profile of Indian travellers
One of the reasons for whisky/whiskey’s disproportionate weighting is the sheer size of Dubai International Airport as a hub compared to other airports in the region – coupled with its reliance on travellers from India. They are now the airport’s top nationality and their preference, when it comes to duty-free alcohol, is whisky/whiskey. The segment is also well diversified with single malts, blends and channel exclusives.
One influential player is William Grant & Sons, whose brands include Glenfiddich, The Balvenie, Hendrick’s Gin and Milagro Tequila. “Glenfiddich leads the market in malts, thanks to our superb coverage at all age statements and price brackets,” says GTR MD David Wilson. “More specifically, we know that Dubai International’s Indian passenger demographic is the top nationality for Glenfiddich purchases.”
The wide range of price positions and age statements across Scotch not only gives shoppers plenty of choice, but also an easy path to premiumisation. DDF’s senior VP of purchasing, Sharon Beecham, says: “As we welcome an increasing number of passengers, driving penetration and trade-up are more important than ever.”
Another nationality buying spirits in high numbers are Russians. Despite the country’s invasion of Ukraine in February 2022 – along with the subsequent sanctions applied by many Western nations – the UAE has kept key air routes to the country open, allowing Dubai International to benefit from Russian travel and spending.
A hazy horizon: spending power of the growing middle classes
India’s influence on GTR in the Middle East is growing – and changing. The country’s citizens have long been key to driving sales in the channel – especially for chocolate and standard whiskies – because they’ve been a source of cheap labour throughout the region. Today, India’s growing middle classes are travelling to places like Europe, the US and the Middle East, with an ability to spend much more.
This segment of middle-class Indians – and Chinese who are slowly starting to travel again – needs to be nurtured in Middle Eastern duty free. Indeed, while the spend-per-passenger in liquor looks to have hit new highs last year, helped in part by the Russian effect, the picture is different this year, certainly for local UAE residents.
There is evidence of tougher economic conditions that could filter through to traveller spending. The World Bank projects growth in the Middle East and North Africa will decelerate to 3.5% this year and to 2.7% in 2024. Shoppers’ priorities in some local markets have already altered. “Inflation and the resulting price rises are putting pressure on consumers in the UAE,” says Kantar Worldpanel’s consumer insights director, Imtiaz Hashem. “Spending has remained high since 2019, but ongoing financial strain is leading consumers to change the way they shop.”
The UAE economy ended 2022 in reasonable shape, partly thanks to the expansion of the expatriate population in the latter part of the year. In general, expats are bigger buyers of alcohol than locals. However, Kantar believes the rate of growth will slow in the first half of 2023.
Based on consumer panel data representative of 85% of the population, the research company thinks the FMCG sectors that will be worst affected are beverages and personal care, as shoppers prioritise the basics like food. “Beverage and personal care brands face tougher competition and should consider differentiation and fresh marketing strategies,” Kantar advises.
Focusing on the right demographic will also help. Data from travel retail consumer analyst m1nd-set at the end of 2022 indicate that Millennials were the biggest alcohol buyers in the Middle East and Africa at 44%, far higher than the global average of 22%, and they were far more likely to buy for themselves than others.
One bright prospect for alcohol sales in the region’s GTR channel lies – unusually – in Saudi Arabia. Alcoholic products are prohibited in the kingdom, but zero-alcohol brands, most notably beers such as Heineken, Holsten and Barbican are active in the market. While there is no official intention to overhaul alcohol regulations, well-placed sources have speculated that this will change as Saudi Arabia opens up to tourism.
Indeed, the country is spending billions on tourism infrastructure projects such as Neom and other resort developments, and there is an expectation that alcohol licences might be granted at these locations.
If that happens, the door will inch open for departures duty free.
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