If you're a fan of the Seinfeld show, you might remember the scene from a particular episode where George and Kramer discuss the duty-free shop on their way to the airport to pick up Jerry. By the end of the scene, Kramer is singing about stopping at the duty-free shop. It's the usual stuff about nothing. However, travel retail is serious business, and that goes doubly so when it comes to booze. The world's biggest liquor companies generate a great deal of revenue at the airport, and this presents a buying opportunity of sorts. Read on and I'll explain.

IN PICTURES: Learn To Invest In 10 Steps

A Huge Market
In 2008, the top 50 spirit brands sold 17.4 million cases of liquor in the travel retail segment. That's approximately $10.4 billion in sales and is likely a conservative estimate. It's a huge amount of business, and the liquor companies know it. Win there, and you probably also win when your customers aren't traveling, which is a much bigger piece of the pie. There's a lot at stake. Diageo (NYSE: DEO) is the largest player in travel retail with a 25.8% market share, 280 basis points ahead of second-place Pernod Ricard. Together they control almost half of the market. Johnnie Walker (Diageo), the No.1-selling brand in travel retail in 2008 with 1.6 million cases sold, leads No.2 Absolut (Pernod Ricard) by 500,000 cases. However, of the top 10 selling brands, the biggest growth in case volume between 2003 and 2008 came from Brown-Forman's (NYSE: BF.B) Jack Daniels brand, which grew by 10.3% in the five-year period. Look for it to continue to make some headway as others in the bourbon whisky category, like Fortune Brands' (NYSE: FO) Jim Beam, take market share from weaker competitors.

Opportunities Abound
The travel retail business suffers just like every other segment of liquor sales due to the recession. This is especially true because it relies on people traveling to generate sales. Airport traffic is down, and that combined with an overall reduction in spending for liquor worldwide has made it difficult to grow. This reality can be your friend. How so, you ask? Figure out which stock presents the most value, and then wait for airport traffic to pick up. That's as good a sign as any that the economy is improving, and sales of liquor will surely follow. But don't take my word for it. Here's what Phil Humphreys, managing director of travel retail at Diageo, said back in February about its potential: "...We're going to double the category in total beverage alcohol from six billion dollars to twelve billion in five years." If it does this, you can bet Diageo's lead as the world's biggest liquor company will increase substantially as this positively impacts the rest of its business.

Overall Winner
Companies like Central European Distribution (Nasdaq: CEDC) and Constellation Brands (NYSE: STZ), as well as other regional players, can still do well in their respective domestic markets. However, to win in travel retail you need to own premium brands like Diageo and Pernod Ricard do. If you want to own Pernod, it's best to find a global ETF that owns the stock because it trades on the Paris exchange. Diageo trades on the New York Stock Exchange and is readily available. Investopedia's Aaron Levitt points out that Diageo sports a 4.4% yield and the world's No.1-selling spirit in Smirnoff, making it an attractive sin stock. Add to this the fact Johnnie Walker is the No.1-selling spirit in travel retail, and you have a winning combination.

Bottom Line
The economy will eventually improve. When it does, Diageo should achieve substantial gains in travel retail, which can only help the world's largest liquor company continue to grow. (For more, see Travel Smart By Planning How You'll Pay.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  7. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  8. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  9. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  10. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
Trading Center