India: Delhi Duty Free Targets Increased Demand Following Tobacco Allowance Cut

Source from:  dfnionline.com  07/15/2014

Travel retailer Delhi Duty Free Services (DDFS) is hoping the hike in excise duty on tobacco products in India will help offset the sudden cut of the inbound duty-free tobacco allowance to 100 sticks or 25 cigars duty-free by half. The decision to halve the inbound duty-free tobacco allowance follows the announcement of the "sin tax" proposal by finance minister Arun Jaitley in last week's budget. The changes were notified through the Baggage (Amendment Rules) 2014 a day after the budget on Friday July 14.

According to reports, regular length cigarettes are increasing 12% to 14% in price with excise duty rising 11-21%. Prices of smaller 64mm cigarettes will rise from Rs2 per stick to Rs2.5-3 per stick due to a mammoth 72% increase in excise duty in this particular segment.

DDFS CEO Duncan Lawley (pictured) told DFNIonline that tobacco may only represent a small proportion of its arrivals duty-free business― liquor being the most dominant product category― but this latest development will still have an impact on sales. He said: "This came absolutely out of the blue and certainly doesn't help but there are two things to consider following the hike in excise duties.

"Firstly there will be more demand because the differential between duty-free and downtown will be bigger, but the downside is the arrivals allowance. The question is can we drive penetration in-store because of the demand for cheaper prices compared to downtown?"

Offering single-packs at till-points could be one way of doing this. Lawley said: "If we start offering single-packs at all till-points, which we obviously won't be able to do in the main tobacco area, I would probably expect the business to increase. We have been in contact with our suppliers and need them to start with packs of 100 sticks, bundles and single packs as soon as possible."

Despite this latest tobacco-related set-back Lawley and his team can draw comfort from this month's Associated Chambers of Commerce and Industry of India government proposal to raise the duty-free liquor allowance for incoming international travellers from two litres to four. This was on the basis that 75% of purchases was comprised of wines and spirits. "Customers purchasing arrivals duty-free tobacco can save 20% to 30% on the domestic market, but on liquor, the saving is something close to 60%. Maybe arrivals duty-free tobacco is a small business for us because everyone is purchasing before they get in"

Lawley added: "I guess it is the guys selling packs of 200 to passengers departing for India that will be affected the most."

Meanwhile travel retailer Flemingo International, which runs the duty-free stores at Mumbai International airport in partnership with DFS Group is unsure what exactly the effect will be. Flemingo International Group director and board member Paul Topping told DFNIonline: "Because this is so sudden we haven't analysed what we think the effect will be. It obviously means we have to move away from 200 carton to 100 cartons and that there will be downturn on our sales in arrivals. But our departures tobacco business will obviously be bigger because a lot of people will continue purchasing on the basis it is better value doing so in the Indian sub-continent than it might be in Europe or wherever they are going on to." Enditem