The ARI view: Maximising the UK-bound duty free opportunity

For Irish state-owned travel retailer Aer Rianta International (ARI), the return of air travel at scale to the UK, pent-up consumer demand alongside duty free pricing and a new allowance regime has driven spirits spending to new heights over the past year. Demand has been fuelled by the reintroduction of a duty free regime between Ireland and the UK from 1 January 2021, enhanced by a four-litre UK inbound allowance on spirits. In an interview last September, ARI Director of Retail Ireland Paul Neeson told us that liquor in particular has shown “spends significantly above overall growth”. Now, in early 2022, he says that the picture remains positive for spending on UK routes as airport traffic in Dublin and Cork has become busier. “We have seen significant growth in Passenger Average Spend (PAS) across the three big categories of alcohol, beauty and confectionery since travel returned, but alcohol has outstripped the others. “When you look at the pure numbers on UK routes, they are indisputable. On liquor we have seen a lift in spending of between +124% and +253% versus 2019 on certain routes, where in beauty those increases have been +48% to +67%, and in confectionery it’s +30% to +40%. Obviously prices on liquor have moved while on the other two categories they have not.”

Other indicators are also positive, adds Neeson. “We have seen average transaction values (ATV) rise between +9% and +50% depending on the territory as well. But the biggest thing for me is probably our penetration which has risen by eight points in 2021. That gives me real hope for the future as that is happening with more people coming back into the shops. “That penetration number, whereby we are getting more customers into stores, is the real long-term win.” Pricing and promotions for travellers who can purchase duty free spirits & wines have each played a role in driving the increases. Last year ARI introduced a €13 duty free price on key spirits lines, ranging from Smirnoff to Captain Morgan to Gordon’s gin, which has proved a strong draw for UK-bound travellers. While this has resonated, Neeson says that most of the drinks category growth has come at higher price points, on which the retailer is offering -20% discounts. “With a €13 bottle of duty free, it’s easy to assume that most growth will come at that entry level. We have done well and it’s a great price point to tell a story around, but it hasn’t been the main driver. “Our -20% off on key lines, including premium expressions, has been a bigger driver, with spending coming in at three to four times the sales we see at the entry level. What that tells us is that people are pocketing the saving but investing it in a higher priced product. And that is great because ultimately it is where we want our longer term offer to be – more premium products sold at higher price points, which is good news for us and for the brands.”

“The combination of new brands, really well trained staff and more time in-store has meant significantly higher spends.”

– Paul Neeson

Travellers have also become more experimental in the return phase, ARI has found. This chimes with a recent PI Insight report on the UK shopper (also featured in these pages), which found that they are more interested in buying ‘non-regular brands’ than before the pandemic. In 2019, among British duty free buyers, 40% purchased a non-regular brand, a figure that rose to 59% in 2021. Pre-planning has changed too. In 2019, 80% were planning to buy a specific brand and that has now dropped to 55%. Neeson says: “This is good news because an experimental customer tends to spend more time in-store and seeks out new brands. “We saw this over the Christmas period in particular. In December, there were days when over 20% of our total sales in alcohol came through tastings, which is phenomenal in our industry. Some of these were well-known, established brands such as Baileys but many were niche products too. “That combination of new brands, really well trained staff and more time in-store has meant significantly higher spends.” Supplier innovation has also helped, even amid tough recent times, with Irish whiskey makers in particular stepping up with new collections. Neeson says: “The brand offer is improving all the time. Over the Christmas there were new expressions from Redbreast, Bushmills, Walsh Whiskey and others. Compared to the early days of The Irish Whiskey Collection we can now do so much more, and do it quickly, with brands to satisfy the demand that exists. And they have been great at working with us to produce exclusive lines that are relevant and unique to ARI.”

Marketing the value message

The marketing message around both pricing and allowances continues to resonate with travellers who understand the value that duty free represents. The extended four-litre limit on spirits for UK-bound travellers (enshrined in UK Customs rules since 1 January 2021) strikes a chord, although few travellers avail of the offer in practice, says Neeson. “We have seen a lift in items sold per transaction but not close to four litres,” he says. “It’s a lot to carry, and some people have concerns about what they can take onboard. It might make sense for someone travelling one way to visit friends and family in the UK and need to take some gifts but for most people it’s not what they want to do.” Even so, the allowance message is an important one to broadcast alongside value as part of the marketing tool-kit.

Neeson says: “We have kept our marketing clear and unambiguous. Like any messaging, it’s about getting people across the threshold of the store initially. Once you are in you make your choice from there. And that is where we have always prided ourselves; once we get somebody into the store, let them taste or let them talk to the team, and we see real success in converting them.” Looking ahead, as travel returns the UK market will grow in scale and importance to ARI at Dublin and Cork airports, and has always been a big factor in driving its business in Cyprus. In January 2022, over a quarter of passengers from Dublin Airport flew to the UK, but with the return of some US flights in November and frequencies increasing to the Middle East, the proportion of travellers that can buy duty free will edge closer to 50% in time. Neeson says: “Put the UK together with the US and the duty free opportunity becomes very important in Dublin. When the US opened back up, even with reduced travel numbers we saw spend levels doubling straight away compared to what they used to be. “With the US, UK and other markets now offering that price advantage on spirits, it helps to turn the dial for us. We can really draw out the messaging on duty free whereas before, especially in Ireland, we were challenged by the high rates of duty on duty paid spirits on UK routes. So longer term that is a real positive.”