Diageo sees stronger growth potential in travel retail than current forecasts suggest, with the drinks company expecting international travel to create further opportunities for its spirits brands.
The company believes the travel retail market can deliver more than the low growth currently expected by some industry forecasts. Its more positive view reflects the continued importance of international travel and the opportunities to reach consumers through airports and other travel locations.
Travel retail gives Diageo access to customers from different markets in one sales channel. This provides the company with an additional route to consumers outside traditional domestic retail and creates opportunities to build sales around international passenger traffic.
Premium spirits are particularly relevant to the channel, with travellers able to discover and purchase brands while passing through airports and other international travel locations. Diageo sees scope to use its portfolio to benefit from this demand.
The company’s view also reflects the potential to improve how brands are presented and sold through travel retail. Greater focus on the products that appeal to international travellers can help increase the value generated from passenger traffic.
Diageo’s more positive assessment challenges the idea that travel retail is approaching a period of limited growth. Instead, the company sees opportunities to expand the channel and increase its contribution to the wider spirits business.
The outlook is also relevant as Diageo works to improve performance across its broader operations. The company is implementing measures to reduce costs and improve the performance of the business, making potential areas of growth increasingly significant.
Sales are linked to international passenger numbers and consumer spending while travelling, giving Diageo exposure to a customer base that cuts across individual countries.
Finsbury Growth & Income Trust holds Diageo in its portfolio, giving the trust exposure to the global drinks company’s spirits business and its potential growth in travel retail.
Finsbury Growth & Income Trust Plc (LON:FGT) invests in the shares of predominantly UK-listed companies, with the objective of achieving capital and income growth.
