Category Insight – Lotte Duty Free outlines strategy and ambitions for wines & spirits sector

ASIA PACIFIC. When Lotte Duty Free celebrated the grand reopening of its Central Duplex wines, spirits & tobacco store at Changi Airport Terminal 3 and the formalisation of its fully open 19-store operation at the Singapore gateway in January, the retailer hailed the project as a milestone in its development.

The company said it was “ushering in a new era of innovation and luxury in travel retail”.

As the Korean travel retailer’s biggest overseas operation Changi is vital in commercial and reputational terms. There, Lotte Duty Free operates more than 8,000sq m of retail space across T1, T2, T3 and T4.

Addressing how it aims to propel the Changi business further forward, Lotte Duty Free says the focus will be on widening consumer choice, value and personalised experiences.

Lotte Duty Free has added its own design flourishes and concepts to the already strong wines & spirits offer at Changi Airport

Speaking to The Moodie Davitt Report for the May edition of Category Insight (our Magazine supplement series focused on travel retail’s major product categories), the travel retailer highlights the opportunity associated with the rebound in traffic at Changi, ranked fifth in the world for international passenger numbers at 58.4 million. Alongside this, Lotte Duty Free has also redeveloped the wines & spirits stores across all four terminals, which it says have been “reborn as shopping spaces”.

Of the company’s Changi ambitions, Lotte Duty Free Head of Merchandising Division Im (Edward) Hung-Il says: “Lotte Duty Free Changi Airport continues to grow based on our know-how and product sourcing capabilities from operating many domestic and international airport duty-free stores. Changi Airport has more than 430 brands, and we consistently introduce pop-up stores and limited editions for the first time in the world or in Asia.”

As a result of its initiatives, average monthly liquor sales at Changi Airport in the first quarter of this year increased by more than +30% compared to the same period in 2023. Within this, notably, baijiu sales doubled as Chinese travel came back, sparkling wine sales leapt by +63% and Japanese whisky has climbed +56%.

Developing experiences for shoppers that they rarely find elsewhere is also a core element of the retailer’s category strategy.

Toni the robotic bartender in action at Changi T3

Im says: “Customers can sample a variety of cocktails made by the robotic bartender at Changi Airport, and easily taste and purchase whisky, wine and more through our smart dispenser. We also increased customer satisfaction by allowing them to get personalised wine pairing recommendations from our sommelier based on their food preferences.

Penfolds is one of several exciting brand installations in T3

The Changi 1st programme, which features products introduced as regional or global launches at the airport, plays a big part in Lotte Duty Free’s planning.

“Based on our excellent product sourcing capabilities, we plan to enhance customer benefits by introducing various new brands and securing [more] popular limited-edition products,” says Im.

The completion of upgrading work on the stores and the grand opening has had a big impact on performance, says Lotte Duty Free.

“The average monthly sales in the last four months have increased by about +20% compared to the same period in the previous year, and the pop-up stores and experiential contents are loved by customers.”

Im adds: “In particular, Lotte Duty Free Changi Airport store has emerged as a ‘liquor pop-up’ mecca among liquor suppliers such as Diageo, Pernod Ricard and Moët Hennessy. In 2023, we opened nine pop-up stores and introduced limited editions from The Macallan and Johnnie Walker for the first time in Asia.

“We plan to continue opening pop-up stores this year. As of Q4 2023, the performance of exclusive or first-time items at Changi Airport store has been growing steadily, with an increase of about +80% quarter-on-quarter, reflecting the demand for limited edition items from customers.”

The retailer also addresses how it aims to set the Changi Airport experience and value perception apart, notably from the domestic drinks business, as well as to enhance its reputation through continued marketing.

Im says: “The Singapore market is currently facing increasing price competition between duty-free stores and the Singapore domestic market, so the Changi Airport store strives to enhance customer benefits that cannot be offered in domestic.

“Furthermore, Lotte Duty Free Changi Airport is making efforts to provide a differentiated shopping experience to global customers beyond just selling products – and to contribute to Singapore’s revitalisation of the tourism industry.”

Short-term examples of this include collaborating with payment and credit card companies to offer benefits to customers, plus evolved customer experiences in line with emerging trends.

Personalising the Singapore Changi offer with the digital sommelier

Im says: “In the long term, we will leverage our strengths to increase the number of visitors to Lotte Duty Free in parallel with the recovery of Singapore’s tourism industry. Lotte Duty Free is a leader in ‘entertourment’ marketing, which combines tourism and entertainment, and has been presenting content such as concerts, web dramas and fan meetings with K-pop and K-content stars since 2004. Lotte Duty Free Changi Airport store also plans to hold K-Pop concerts in the future to attract customers in Southeast Asia.”

Building overseas and at home

Lotte Duty Free also addresses the opportunity for wines & spirits across other markets in its network.

In Australia, notably at major airports such as Melbourne and Brisbane, product portfolios will be expanded to match changing consumer tastes.

The tennis-themed Aperol Bar was among the experiences introduced at Melbourne Airport in early 2024

“In the Australian market, unlike the Korean market, single malt whisky is more popular than blended whisky, and sales of wine, gin and vodka are also high. Accordingly, we will strengthen our liquor line-up around these popular items and create tasting spaces. We will also expand our Australian liquor brand offer with local flavours, and conduct tie-in marketing between stores in the Oceania region.”

Im also comments on the changing face of the category in Lotte Duty Free’s home market of South Korea.

“The ‘low sugar, low-alcohol, low-calorie’ trend is emerging in the Korean spirits market in response to the needs of health-conscious consumers. However, due to Korea’s duty-free limit, customers can only purchase a maximum of two bottles of liquor, so premium products that have a price difference from Korean domestic tend to be more popular than cheaper products.

“In particular, older and high-priced products that have a large price gap with domestic markets are popular. Additionally, as of 2023, 20-30-year-old customers accounted for 46% of spirits sales, up about +12% from 2019, the year before COVID-19. The MZ generation has also become more likely to purchase liquor at duty-free stores, and they prefer to try a variety of liquor. Accordingly, sales are expanding not only to currently popular items such as whisky and wine, but also to various items such as gin, Japanese sake and Chinese baijiu.

“Enjoy the best liquor shopping experience of your lifetime,” declared Lotte Duty Free in 2023 as it unveiled its online wines & spirits store

“These days, customers are more likely to buy wines & spirits for gifts and storage, even if the price is high. In response, Lotte Duty Free sells vintage expensive wines and high-end whiskies, which cost tens of thousands of dollars. We are also working to expand our liquor line-up by selling half bottles of Champagne that were previously sold only in bottles and we introduced various vintages of wine last year.”

The Korean business has also benefited from the introduction in July 2023 of rules that permitted the purchase of liquor via online duty-free. Lotte Duty Free developed a specialist online offer with the largest portfolio in the market.

“Today, online liquor sales are growing every month, and the proportion of domestic online sales within the liquor category is over 90%. As such, we expect liquor sales in duty free to continue to expand online. We plan to hold an online liquor exhibition every month to show a variety of products and identify our liquor line-up in line with rapidly changing trends. In particular, we are offering online-only liquor rewards, and creating online-only brands and products to give our customers more benefits.

“In particular we offer personalised shopping suggestions based on customers’ purchase and product search histories in the online store by using big data and AI technology, making it easier for customers to find products that suit their tastes. Many of these recommendations are leading to actual purchases, so we will continue to use these digital technologies to boost online sales.”

Assessing wider trends, Lotte Duty Free highlights the continuing dominance of whisky across its operations, led by Korea, though the balance of purchases in this segment is changing.

Im says: “According to the Korea Customs Service, whisky imports increased +13.1% year-on-year in 2023, and the top three brands among Lotte Duty Free’s liquor sales last year and this year are all whisky brands. Even within whisky, blends like Ballantine’s and Royal Salute used to account for more than 60% of sales, but this is now down to half, and customers’ purchases have diversified. As the demand for whisky increases after COVID-19, and the understanding of whiskies increases, sales are rising not only among famous brands but also across other brands.

“In overseas stores such as Singapore and Oceania, other items such as gin, tequila and vodka are doing well in addition to whisky, and the proportion of sales of these other items is likely to increase.”

With its range of investments and marketing initiatives, Lotte Duty Free says that wines & spirits sales should increase “steadily” across markets in 2024.

“This category has continued to grow even when tourist numbers did not fully recover last year, and the tourism market is expected to become more active around the world this year.

“Furthermore, if Chinese tourists fully recover to pre-COVID-19 levels, sales of Chinese-favoured items such as Cognac and baijiu are expected to increase significantly, and the demand for duty-free liquor purchases at home and abroad will steadily increase.”

In particular, Lotte Duty Free says it will strive to enhance and reinforce price advantages with the domestic market, notably in Korea. It says one step is to trade directly with some wine brands that were previously supplied through importers.

“This allowed us to significantly increase the difference between the duty-free and domestic market price, and we were able to secure more quantities,” says Im. “Furthermore, we have secured and sold a large quantity of products that are difficult to purchase domestically, and we have been able to dominate the mainstream market in Korea by selling many products exclusively or for the first time.

“Going forward, Lotte Duty Free will strengthen our capabilities at home and abroad to absorb the growing demand for wines & spirits and lead the global duty-free liquor market beyond Korea.”

*This feature first appeared in the May edition of Category Insight, a supplement to The Moodie Davitt Magazine. Click here for access and click on page 7 for the full story. ✈

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