The most influential Megatrends set to shape the world through 2030, identified by Euromonitor International, help businesses better anticipate market developments and lead change for their industries.Learn More
While global retail sales of confectionery are set to grow by nearly 2% in 2002 according to leading global market analyst Euromonitor, reaching over US$100 billion, other distribution channels offer more dynamic opportunities for food companies to improve not only sales, but also margins.
With increasing price pressure from multiple grocers and stronger competition, multinationals have been looking at opportunities to gain share from alternative distribution channels. Foodservice received greater attention during the last decade – at Nestlé for example, a whole division focuses on this area.
But with duty free sales on the rise – Asia-Pacific posted double-digit growth in 2001 – companies are increasingly turning their attention to develop revenues through this channel.
In 2001 duty free sales, comprising alcoholic drinks, cosmetics & toiletries, tobacco, luxury items (jewelry & clothing) and food, topped US$19 billion worldwide. Food alone generated sales of US$1 billion, of which confectionery accounted for the vast majority.
While global sales have remained stable for several years, health concerns are shifting the balance of duty free, affecting alcoholic drinks and tobacco, which together represented over 20% of global duty free sales in 2001. Travellers are tending to buy smaller volumes of such products and are increasingly compensating with food, and especially confectionery.
Consequently industry experts estimate that confectionery sales through duty free shop are likely to at least double over the coming decade. This compares to an increase in global retail value sales of 13% over the coming five years.
Although the travel industry has been affected by the events of September 11, it remains essentially healthy with the number of arrivals (ie people visiting another country for at least 24 hours) increasing by 14% between 1997 and 2001 to reach 689 billion. People travelling for leisure are more likely to purchase duty free than business travellers.
Europe is the largest region accounting for 42% of the global duty free (excluding intra-EU travellers who now pay duty) followed by the Americas and Asia-Pacific with over a quarter each, and Africa making the balance. In North America the average basket is about US$10, a low figure reflecting the fact duty free shops are not as attractive as main street shops and down town malls.
Asia-Pacific benefits from impressive tourist resorts as well highly developed business centres such as Singapore, Hong Kong and Kuala Lumpur. The region is expected to overtake Europe in the next 10 years. Japanese women are expected to drive duty free sales because they are expected to travel much more. As traditional working practices change, women are filling higher managerial positions, resulting in both higher purchasing power and more business travel.
Sales in the European Union (EU) have been declining since 1999 with the abolition of duty free purchases for intra-EU travellers, although shops remain active across the region. Europe lost over US$2 billion in revenues but the recovery has started. On a positive note, the Nordic & Baltic region alone accounted for nearly US$2 billion in 2001 thanks to ferries outperforming airlines, with growing crossings for both leisure and business.
In the region alcoholic drinks and tobacco represent the vast majority of ferry sales because the products are heavily taxed by governments on land. In Sweden for instance Systembolaget enjoys a domestic state monopoly on the sales of alcoholic products (the same model applies in Norway and Finland also). Yet confectionery helps fuel duty free sales across the region with key brands such as Marabou (Kraft) and consumers tempted to eat chocolate while travelling.
Key players in the confectionery industry such as Mars or Nestlé have responded to growing demand for chocolate in duty free shops by developing ranges of products targeted at travellers. Mars introduced M&M’s with toys, aimed at gift buyers, which are available across European airports.
Nestlé developed a whole range of chocolate confectionery based on existing brands like Smarties, built around key themes such as children’s gifting, speciality gift packs and sharing/self-consumption.
Ferrero launched Tic Tac Silver in 2000 and a striking plastic box, ten times bigger than the standard pocket format, was introduced exclusively for duty free shops.
The relationship between the duty free industry and confectionery companies can be qualified as multi-directional. Leading duty free operators such as Abu Dhabi Airport Catering, British Airlines Enterprises and Color-DFDS welcome this activity, benefiting from the shrewd marketing experience of companies such as Mars, Nestlé, Kraft, and Cadbury.
Likewise, the duty free channel represents a lucrative window for these companies. Products displayed in the busiest airports in the world such as London Heathrow, Singapore Changi, Paris Charles de Gaulle, Chicago O’Hare among so many others, are recognised by millions of travellers everyday. Ultimately travellers are another consumer group well worth targeting for higher confectionery sales.