INTERNATIONAL. Swedish-Swiss joint venture research house m1nd-set Generation has forecast that the duty free industry will double in value between now and 2025 (from a preliminary estimate of US$62.05 billion in 2015).
Based on its new forecast study* the company said: “Despite a drop in global sales in 2015, the industry is set for new heights; m1nd-set Generation is forecasting a compound annual growth rate (CAGR) over the next decade of +6.8%, which will mean the industry will double current sales between now and 2025.”
That growth, which is +0.5% higher than the average over the previous two decades since the mid-90s, will be achievable thanks to a number of external factors, said m1nd-set Generation.
They include an acceleration in the growth of travellers from emerging countries and in international travel generally; innovation from within the industry; and improved marketing and premiumisation of the offer.
“Better analytical tools to understand traveller behaviour and the means to target travellers at all stages of the journey through technological progress is another of the contributing factors to this projected growth,” it noted.
Traffic forecasts from IATA and other key sources estimate annual traffic to grow at +4.1%-4.2%. Duty free sales growth is expected to outstrip that of passenger traffic due to price increases, inflation and the factors mentioned earlier.
Both the Middle East and Asia Pacific are predicted to achieve above-average growth with CAGRs of +9.2% and +8.5% respectively, the company said. The Middle East will represent 11.7% of global sales (up from 9.4% in 2015), reaching US$14 billion in 2025. Asia Pacific will grow from current sales of just over US$25 billion to an estimated US$57 billion, representing just under 50% of global sales by 2025.
Europe, the Americas and Africa will all experience below average growth over the next decade, m1nd-set Generation said.
In terms of sales channels, ‘other shops’ such as border stores, port and cruise ship outlets as well as downtown shops will see the fastest growth with a CAGR of +7.7% ahead of airports at +7.1%. Airlines, however, are predicted to experience negative annual growth at -2.0% and -1.5% respectively between now and 2025.
m1nd-set Generation said: “In the years ahead, it is likely that airports and other travel retail outlets will shift their category focus in terms of space allocation as non-core categories such as fashion & accessories and watches & jewellery are forecast to experience the fastest growth at +8.5% and +7.9% respectively.”
Confectionery and beauty, will also see above average growth while tobacco will only grow by +3.1% per year over the next decade, the report said.
Generation CEO Fredrik Lindh said: “We are obviously encouraged to see the trends as it is clearly a high ROI industry and attractive to investors, which is also evident by the consolidation we have seen in the business in recent years. We hope the industry will sit up and take heed and address the areas that we have identified as underperforming.”
m1nd-set Generation strengthens team
In related news, m1nd-set Generation has boosted its analytics and forecasting capacity with the appointment of leading business analytics expert Professor Alex Seret.
Seret, who joins as a consultant specifically on the sales forecasting aspects of the business, has a Ph.D. in Decision Science from KU Leuven University and is a Professor at the University of Los Andes in Santiago, Chile.
Lindh commented: “Generation has been providing industry sales and forecast data for over three decades now and our analytics tools and the methodologies used are extremely complex. Despite this, we recognise the need to constantly improve and provide excellent service when it comes to data accuracy.
“The collaboration with Professor Seret brings a wealth of experience in business analytics, data science and quantitative marketing across different industries, including retail. Alex Seret is a recognised expert in analysing and forecasting data in ultra-complex environments such as ours where data is often missing. We look forward to his proficient perspective on the way we operate.”
m1nd-set owner and CEO Peter Mohn added: “We are delighted to welcome Alex on the m1nd-set Generation team as he will play a key role in our joint ‘Big Data’ service. This relationship will enable m1nd-set Generation to provide much improved data, enriched by our consumer insights, best in class air traffic forecasting and macro-economic data, which will help put the sales data trends and forecasts into a much clearer perspective.
“Sales data estimations and forecasting in travel retail is exceedingly different compared to the domestic market, due to its unique structure, dynamics and diversity, and we therefore think it is essential to continuously invest in providing the travel retail industry with the best and most precise possible data today and in the future.”
*NOTE: The full Forecast report with detailed analysis of each sub-section (per category, region and channel) is available to Generation’s Best & Most subscribers. For more information, please contact info@generation.se
