EUTPD2: it’s the final countdown

As the EUTPD2 legislation comes into full effect on May 20, time is now running out to ensure your business is fully compliant come D-Day.

by Iain Hoey

As SLR readers may recall, the Scottish Government first launched its latest tobacco control strategy, ‘Creating a Tobacco-Free Generation’, way back in March 2013. That strategy document had tobacco retailers running for cover with a raft of proposals that would have profound implications for the local retailing industry in Scotland. The strategy set a target to reduce smoking prevalence rates to 5% or less by 2034. The final and most significant step in that strategy kicks off on the 20th May 2017, the deadline beyond which retailers cannot legally supply tobacco stock that does not comply with Tobacco Products Directive (TPD2) regulations.

By now, all retailers should be familiar with what that means for the business, but it’s worthwhile taking one last run through the key points. The regulations coming into effect state that retailers cannot sell any branded tobacco products. Packets of cigarettes must contain no fewer than 20 sticks, and rolling tobacco pouches must contain no less that 30g of tobacco. Retailers who fail to comply with the new regulations do so at their own risk. If found guilty of selling non-compliant products after 20th May, they face a fine and/or a prison sentence in extreme cases.

Fortunately for retailers, the big tobacco players in the UK have proven to be extremely helpful over the last few years in helping the trade prepare for this sea-change – and will continue to be so. Andrew Miller, Head of Field Sales at Imperial Tobacco UK, says that tobacco companies are there to help ensure the supply chain runs smoothly during the transitionary period. “We inform all of our wholesalers in advance when lines are likely to disappear so as to ensure they can advise their retailers accordingly,” Miller says.

He recommends that retailers keep in regular contact with their cash & carry depots concerning up-to-date information on all SKU lines and their predicted run-out dates. He also advises that they fill any gaps on their gantries with the new standardised stock that has replaced previous lines, as this will ensure they are able to fulfil demand as consumers’ purchasing patterns may potentially shift to meet the new legislative requirements.

Miller asserts that Imperial are working work closely with retailers to help them manage the transition, including encouraging them to focus on stockroom management to ensure they can navigate the new standardised format when all brands have transitioned, merchandising their gantries using Imperial’s ‘one brand, one shelf’ solution and prioritising selling through any remaining branded packs before 20 May.

Regarding performing range reviews, Miller advises that retailers stock a wide range of their usual bestselling tobacco products when the deadline hits. “After an initial settling-in period of a month,” he says, “it might then be sensible to conduct a range review in conjunction with their designated Imperial representative to evaluate whether said products are selling through and evaluate/act on any changes in their adult smoker consumers’ purchasing habits.”

As the standardised packs come into effect, it is important, says Miller, to make sure all staff are appropriately trained to engage their adult smoker customers in conversations around the legislative changes, including the loss of price marked packs (PMPs) and new minimum pack sizes. Imperial provides retailers with a suite of educational materials in their Partnering for Success Start packs.

The changes are likely to have significant impact on tobacco sales considering pricing will become the most obvious differentiator between brands. “Convenience stores will need to manage their own pricing strategies particularly carefully during this period of significant legislative change,” Miller says. “Wholesalers pricing at recommended retail price or below and retailers making customers aware that they also sell tobacco products at these competitive price points, for instance, is a great way to foster loyalty and minimise any potential channel shifts – a scenario which occurred in Australia when they switched over to standardised packs in 2012.”

Roll your own profits

Just over 1 in 3 tobacco sales in the UK involve a roll your own (RYO) product (ITUK estimate January 2017). Owing to the current consumer trend towards the best possible value for money, Imperial’s Gold Leaf economy brand is performing well, particularly in 25g and 50g weights, according to Andrew Miller. He says that Drum continues to be a popular value proposition, while Golden Virginia classic remains the UK’s number one premium RYO brand, with a sector share of over 92%.

RYOs are about more than just the tobacco, and could not exist without suppliers of rolling papers, filters, lighters and matches. Republic Technologies (UK) Ltd is enabling retailers to offer consumers the choice, value and quality they’re looking for in Scotland’s £25.6m roll your own accessories market.

“The key to increasing sales of RYO accessories is to offer shoppers the leading brands they’re looking to buy, but also to take account of the new product developments that reflect the way the market is evolving,” says Gavin Anderson, General Sales Manager for Republic Technologies (UK) Ltd.

One such development, and currently exclusive to Scotland, is the recent introduction of the combined Zig-Zag Silver Slim Papers and Tips (RRP £1.19). The combined packs of 32 papers and 32 filter tips are designed to be displayed vertically, taking up less shelf-space vs. competitive packs.

“Retailers also need to take account of those RYO accessories which are experiencing the strongest levels of shopper demand,” Anderson adds.

He says that Swan Extra Slim Menthol filters and Swan Ultra Slim filters are popular, with both showing strong growth in all channels, but stresses that many retailers are yet to capitalise on the sales opportunity by listing these ‘in-demand’ products, with filters continuing to prove a booming sector in the UK accessories market, valued at over £71.6m (IRI sales data December 2016).

Anderson also highlights the role that matches and lighters can play in Scotland to signpost the RYO accessories and tobacco category. “The increasingly regulated environment means that retailers must think carefully about how best to signpost the category which matches and lighters can do effectively” he adds.

In addition to its range of Swan and Zig-Zag RYO accessories, Republic Technologies (UK) Ltd supplies a comprehensive range of lighters and matches under its Cricket, Poppell, Cook’s, Bryant & May, Ship, Scottish Bluebell and Vulcan brands.

Honest trading

The illicit trade of tobacco continues to be a scourge on the UK’s retail sector. 1 in 8 independent stores (Tobacco Retailers Survey 2015) are under threat from the damage being done to sales and associated basket spend by illegal tobacco, and illicit tobacco purchases cheat UK shops out of around £3.4 billion in lost revenue each year (Tobacco Manufacturers’ Association 2016). Illicit trade can have a devastating impact on UK wholesalers, from whom the vast majority of honest independent retailers originally buy their tobacco, Peter Nelson, Anti Illicit Trade Manager at Imperial Tobacco, claims.

In response to this continued threat, Imperial Tobacco and trade industry body the Federation of Wholesale Distributors (FWD) have collaborated on a new, wholesale-focused instalment in the ‘Suspect it? Report it!’ campaign.

The poster, which appears in the trade press and in cash and carries across the UK, depicts a depot empty of any tobacco-buying retailers alongside the message: “Have you noticed anything’s missing?” Nelson says it was inspired after evidence from Imperial’s wholesaler partners suggested sudden drops in tobacco sales in depot might indicate a spike in illegal sales in a locality.

“Wholesalers can be a valuable barometer in terms of detecting increased illicit trade and identifying whether organised criminals may potentially be targeting specific regions or communities,” Nelson explains. “For instance, by using information about a drop in cash and carry sales when established retailers either markedly reduce or actually stop purchasing their tobacco products through this legitimate supply chain, tobacco manufacturers like Imperial can commence investigations.

“Any reports of suspicious activity provided by wholesalers and independent retailers to Imperial Tobacco’s dedicated AIT team are handled with the upmost sensitivity and passed on to the appropriate authorities.”

James Bielby, Chief Executive of FWD, adds: “Wholesalers are often the first to know if there is a rise in illicit trade in their area, because their own sales drop as their retail customers are selling less due to the availability of illegal product. Retailers who visit cash and carries often pass on information about illegal sources near their stores. The sooner criminal activity is detected and reported the sooner it can be stopped, and this campaign aims to remind wholesalers and retailers that any information passed on to the authorities, including unexpected drops in sales, supports the legitimate, responsible and duty-paying supply chain.”

Nelson emphasises the blight of illicit tobacco, calling on action from local businesses at every stage of the supply chain. He urges that “If any wholesalers or independent retailers have suspicions around its sale in their area,” to “please act by contacting either the Customs Hotline on 0800 59 5000, or your local Trading Standards or Police”.