Are Duty Free products always a bargain?

 

 

It is almost a compulsion for many of us to grab something, anything when we pass by duty free outlets particularly at airports.  Who can blame us, the packaging is so chic and it difficult to walk away from a “bargain”.  When visiting friends or family and we hadn’t had time to pick a gift, airport duty free outlets are often out last opportunity to get sometimes, again anything.

 

As the term implies, duty free outlets are exempt from imposing the customary taxes and are hence supposed to be cheaper than prices offered on the high street.  Is this always true, and is duty free exclusive items good value?

 

One first needs to understand the taxes levied by each country on alcoholic beverages. Singapore’s tax regime on alcoholic beverages is based on volume of the contents and its alcoholic strength.  To be exact it is $88 per litre of pure alcohol.  Hence the duty on a litre of 40% alcoholic spirit is $35.20 and this is independent of the price of the item.  As many duty free outlets use a simplistic markup system based on a fixed percentage, the fixed dollar savings from being duty free gives cheaper items an advantage in terms of value.  Looking at it from another perspective, percentage based markup ups means a higher dollar margin on more expensive items and so there will be a break-even point or tradeoff between the saving from not paying duties and the relatively high markups charged at airport outlets; which is close to 3 times in some cases.

 

Higher margins aside, how can we take advantage of our duty free entitlements and get value?  In Singapore’s context, it’s obvious that items that are high in alcoholic strength enjoy better savings on duties.   Also after taking into account volume and the product proves cheaper than town, one should use the full entitlement of one litre.

 

What about quality? If I was not familiar with a duty-free exclusive, I usually steer away from this category of items until I have had positive feedback from sources I trust. Exclusives mean that there are no comparisons with town prices, making it difficult to gauge its value and this can open doors to overpricing.  It is however very innovative marketing as purchases in duty free tend to be impulsive and based more on packaging since these items are often bought as gifts.  To many experienced whisky consumer, the duty free market is beginning to appear like a dumping ground for basic quality whiskies dressed up as premium products.  Fancy packaging says nothing about the whisky quality inside and in fact can actually arouse suspicion with seasoned duty free purchasers.   Increasingly, well know benchmark bottlings are being replaced with “no age statement” releases plastered with marketing verbiage but economical on product information. This is a clear sign that the marketing guys and not the distillers are running the show.

 

With over a billion international trips made annually and spending of over a trillion US$, the travel retail trade is big business. It is well marketed, it is spit and polish, convenient and it grabs your attention especially when you are killing time waiting for your flight to depart.  One must be disciplined at times to fight the temptation of making casual purchases on the assumption that all duty free items are bargains.  Check the tax structure of the country you are taking the item to and evaluate if it is worth the purchase.  This will be especially more so for wines as they are have lower alcoholic contents hence lower savings on duties and the range will usually be better in town.  For whiskies, try to stick to the know stalwarts.

 

By

Lewis Mitchell

Cask & Dram Magazine

24 July 2016