The Mechanism Of NAS, Travel Retail And Whisky Price Inflation

by Oliver Klimek on February 22, 2014

Let’s try to put together some puzzle pieces that have emerged in the recent blog carnival about NAS whisky.

The very interesting albeit anonymous guest post by a whisky industry insider on Whisky Israel justifies the ongoing releases of NAS bottlings in Travel Retail with “shocking demands” by the TR companies. A few days ago I compiled a chronological list of NAS Travel Retail Exclusives which shows that this trend really took off only around 2012.

It is an interesting fact that the UK market leader in Travel Retail, World Duty Free, was formed in its current incarnation in 2011 when Autogrill, the Italian owners, regrouped their TR empire under the global WDF brand. Now could it be that at this moment with their increased market power WDF decided to tighten the screw on whisky producers, if they wanted to have shelf space in their shops? Entirely possible, if you ask me.

The article exlpains very well how these demands cut into the profit margin and how the producers reacted by “using younger, thus cheaper, NAS whiskies, which are less of a cost burden to them” in order not to lose too much profit. And as we see from experience, the TR end prices for those whiskies are usually no bargains in order to compensate for this as well. But there is another interesting point which is mentioned on Caskstrength:

“A distiller once told us that unless they came up with a new product to put on the shelves as an exclusive, the shelf space available to them would effectively cease to exist or rapidly evaporate. This resulted in a fairly hastily assembled NAS whisky, which whilst youthful, was still filled with personality.”

So we see that coming up with new Travel Retail exclusive bottlings on a regular basis appars to be essential for decent shelf space in Travel Retail.

But as we know, not all of the replaced exclusive bottlings are discontinued. Instead they will now be sold on the general whisky market. Now remember that the Travel Retail price goes along with only a small profit margin for the producer, partly compensated by a fairly high price. But when those whiskies hit the High Street, do they become cheaper, now that the pressure on the profit margin has eased? Not that I would have noticed.

Now is the time when the producers can really compensate for the loss they experienced because of the bad profit margin in Travel Retail. “Younger, thus cheaper, NAS whiskies” are sold for a higher price than the older regular entry level bottlings with an age statement that, according to the industry insider, have higher production costs. Result is a profit margin that is expanded both on the cost and on the revenue side when compared to the regular expressions. Or have I got my maths wrong?

This was my last article about NAS whisky for the time being. I’ve had it now with this.

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