Fire up your sales

With many consumers still finding it tough to pay the bills, offering both quality and value is crucial.

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Despite being hidden from view, the tobacco market continues to light up sales for many c-stores across the land. In fact, the category is currently worth £14bn each year (before tax) [ITUK EPOS to w/e 29/08/21, P1 Retail & Wholesale] and is a valuable footfall driver. So it makes sense to keep your category in shape by understanding exactly which areas to focus on and how the market is changing.

The tobacco category provides a substantial sales opportunity for retailers, states Imperial Brands. “Looking at the sub-categories, Factory Made Cigarettes (FMC) currently hold the lion’s share of the market, worth 70% of tobacco sales, with Roll Your Own (RYO) accounting for 30% [ITUK Report on Trade, November 2023],” says Yawer Rasool, Consumer Marketing Director UK & Ireland at Imperial Brands.

While the UK rate of inflation fell to 2% in May, hitting the Bank of England’s target for the first time in nearly three years, many consumers are still struggling to make ends meet. In fact, analysis of Office for National Statistics (ONS) data by the Energy and Climate Intelligence Unit (ECIU) on the day new inflation statistics were released, shows that food prices have stayed near record levels.

For example, a bag of sugar is up 72% at £1.19 from 69p, while potatoes are up in price by 49%, with a 19% increase since just December 2023.

Therefore, it is no surprise that every penny counts and demand for lower-cost tobacco lines is high. “As the cost-of-living crisis continues to impact consumer spending, we’re seeing shopper demand for value rise across the entire tobacco category,” says Rasool. “As a result, products in the lowest pricing tiers now account for the majority of all tobacco sales. In fact, the value tier, combined with the economy sector, now make up a substantial 69% of all FMC sales and 54% of all RYO sales [ITUK Report on Trade, November 2023].”

Power ranger

So how can retailers really make the most of the tobacco opportunity? In order to capitalise on the significant sales opportunities presented by the tobacco category, it’s crucial that retailers are stocking a wide range of products that cater for this value trend, especially those within the value and economy priced tiers, notes Imperial Brands. “While having the right product range is key, it’s also important that both retailers and their staff are equipped with in-depth knowledge of the tobacco category to deliver a great customer experience for any shoppers seeking advice,” highlights Rasool.

Worth the biggest share of all tobacco sales (70%) [ibid], the FMC category holds a huge amount of value for retailers, states Imperial Brands. With products in the lowest pricing tiers (economy and value) now worth 69% of all FMC sales [ibid], it’s clear that sales in the category are very much driven by demand for value, observes the company. “With this in mind, we recently launched an upgraded version of our popular Regal Signature cigarettes range to help retailers tap into this trend and maximise sales. The Regal Signature range is positioned under the strapline, ‘The New Champion of Scotland,’ and offers adult smokers the quality you expect from Regal in a new signature blend that is tailored to modern tastes. Regal Signature cigarettes provide high-quality paper, a firm filter and a rounded-cornered box for a more contemporary and premium feel. The range, including Kingsize and Superkingsize formats, is available to buy now in packs of 20 at an RRP of £12.75.”

The Roll Your Own sub-category has continued to thrive as cash conscious shoppers count their pennies, with product sales within the value price sector increasing by an impressive 8% year-on-year [ibid], making it the fastest-growing segment that accounts for almost a quarter (24%) of all RYO sales [ibid].

Within RYO, by far the most popular format is 30g packs of rolling tobacco, which account for a whopping 69% of all RYO sales [ibid]. “With this in mind, it’s clear that value-focused customers are increasingly opting for budget-friendly RYO products that offer the lowest out-of-pocket spend,” adds Rasool.

To cater for this demand, it’s key that retailers stock the right RYO product offering and Imperial Brands recommends offering a wide range of leading brands, such as Regal Signature, Riverstone and Players JPS. Although 30g formats may be proving the most popular for shoppers, larger formats still account for 31% of RYO [ibid] sales ,so ensuring a range of 50g formats is available should also be a focus, urges the firm.

Despite the popularity of the value and economy price tiers, which account for over half of sales, the premium price sector in fact holds the largest share of the RYO market at 36% [ibid]. “This really demonstrates that, despite the focus on value, there are still many adult smokers who remain brand loyal and are willing to pay a more premium price for a brand that they know and trust,” claims Rasool. “With this in mind, we’d recommend that retailers stock a range of leading premium RYO brands, including Golden Virginia.”

This certainly rings true for Mohammed Omar, supervisor at Day-Today Salamander Place in Edinburgh. “We sell a mix of tobacco brands,” he says. “Some people ask for the cheapest, but most people ask for a brand.”

He lists Amber Leaf, American Spirit and Golden Virginia among his top sellers.

Imperial recently announced the extension of its Golden Virginia range with the launch of its first new rolling tobacco blend in 15 years, Golden Virginia Amber Blend (30g, RSP £21.35). The product features a smooth, rich and aromatic flavour profile, alongside lower moisture content from sun-dried leaf, designed to elevate the smoking experience. The blend benefits from a new zip click feature, ensuring freshness from the first to the last use.

Rasool says: “With the launch of our new Golden Virginia Amber Blend, we are helping retailers to meet the needs of both value-seeking and quality-conscious consumers, offering a premium rolling experience at a competitive price. This strategic move enables us to leverage the brand’s long-standing heritage and reputation to introduce a new product that aligns with current consumer preferences and market dynamics.”

Attractive accessories

Where Scotland is concerned, there’s everything to play for within the tobacco accessories market, which has seen double-digit growth over the past year, reaching a scorching £35m in value sales [Circana Total Marketplace 52 w/e 18/02/24].

Ensuring that you stock a broad range of products to meet a vast range of needs is crucial, according to Republic Technologies, which claims to account for 40% of total marketplace sales.

“Shoppers in this category have a range of different usage occasions and purchasing habits, so choice is absolutely key in maximising engagement and sales in tobacco accessories,” says Gavin Anderson, Sales & Marketing Director at Republic Technologies.

“Those retailers who offer a varied selection of product formats, from king size papers to eco-friendly filters are seeing the highest levels of repeat purchase which is a key driver for incremental sales.”

Papers remain the highest value subcategory in tobacco accessories, worth over £11m and growing year on year [ibid]. Republic Technologies states that its eco-friendly OCB range is the UK’s fastest-growing paper brand in the tracked market, at +40% [Circana Total Marketplace Paper Sales 52 w/e 18/02/23].

As shoppers continue to seek value in their everyday purchases, Anderson also highlights the benefit of stocking multipacks.

“Multipacks offer better value for both retailers and consumers at a time when rising numbers of cost-conscious shoppers want to get an even better return from their sales across the tobacco accessories category,” he adds.

Products with a more natural offer are also trending. Republic Technologies recently introduced OCB Authentic Real Rice Papers, which are organic and chlorine free. Made from a blend of rice and organic hemp, the unbleached, ultra-thin papers deliver a premium rolling and slow-burning experience in a natural, brown paper.

“We know that OCB Rice Papers will appeal to the growing number of roll-your-own consumers who are now looking more closely at products with natural ingredients,” adds Anderson.

Featuring 32 papers per pack, OCB Rice is available in both Slim (RSP £1.10) and Slim & Tips (RSP £1.73).

Imperial Brands has given a nod to both natural and value trends with its latest Rizla launch.

“Value-savvy consumers are increasingly migrating from king size into combi formats due to the added value and convenience they offer,” Rasool notes. “To help retailers tap into this trend, we recently extended our combi range to include a new Classic King Size Combi variant for our iconic Rizla brand.”

With an RSP of £1.30, the Rizla Classic King Size Combi includes 32 unbleached king size papers and tips to appeal to the rising number of smokers looking for papers with a more natural look and feel with the added benefit of tips in the same pack.

“With volume sales of combi formats expected to exceed those of popular standard format king size papers thanks to the great convenience they offer, we’d highly recommend that retailers stock up on Rizla Classic King Size Combi to tap into this trend and grow their sales with an iconic and market-leading paper brand,” he adds.

Pleasing profit margins

Another product appealing to value conscious consumers is the cigarillo, which has helped to drive the UK cigar category up 11.7% in value sales to £316.6m annually [IRI MarketPlace, Value and Volume sales, w/e 12/5/24].

Cigarillos account for the largest of the four segments in the cigar category and are worth £133m in annual sales [ibid]. In fact, they are responsible for just over half of total cigar volume sales across the UK.

“I’m pleased to say our Signature Action brand is currently the fastest growing cigarillo, experiencing sales growth of 40.6% across the UK versus the same time last year,” says Prianka Jhingan, Head of Marketing UK at Scandinavian Tobacco Group UK (STG UK). “Of course, the key thing cigars and cigarillos offer retailers that other forms of tobacco don’t is great profit margins. On average, they are three times higher than cigarettes, so for example, our Moments Blue brand offers up to 18% margin when sold at its RRP, and there’s not many products in the tobacco category that can match that.”

Cigarillos are shorter, usually about three to four inches long and narrower than traditional cigars. They typically take less time to smoke, which can often appeal to adult smokers. “Our Signature Action brand is currently the fastest-growing cigarillo, experiencing sales growth of 40.6% versus the same time last year [ibid],” she adds.

At the start of the year, the company announced a contemporary redesign for its Signature cigar range. The simple but smart design appears on packs of Signature Blue, Signature Original and Signature Red Filter where more focus has been added to the leaf icon to emphasise the unique nature of the product.

Hot stuff

Beyond traditional tobacco, a wealth of options are now available for smokers to transition towards. The shift towards tobacco alternatives has been reflected by a significant milestone for Philip Morris Limited (PML) in the UK and Ireland, which owns both Malboro and IQOS brands. “During PMI’s end-of-year 2023 financial results, our CEO revealed that IQOS had surpassed Marlboro in global net revenues, becoming the Company’s number one international nicotine brand,” says John Rennie, Director of Commercial Operations. “This success was replicated in the first quarter of 2024, where Philip Morris’ smoke-free business accounted for 39% of international net revenues, with IQOS maintaining pole position in 11 markets [Philip Morris International Reports First-Quarter 2024 Results and Updates Full Year Guidance, 23rd April 2024].”

While it took Marlboro 115 years to establish its dominance as the world’s bestselling cigarette, heated tobacco brand IQOS has surpassed the world’s most valuable cigarette brand in less than a decade since its launch [ibid].

“In the UK, as with many other markets, the growth of heated tobacco has been a sharp contrast to the decline in cigarette sales similarly to Europe where heated tobacco unit sales have increased by 9.4% during the first three months of 2024, reflecting continuous growth momentum for IQOS across the continent [ibid],” states Rennie.

“Nationally, the percentage of convenience retailers now selling our TEREA and HEETS tobacco sticks has risen by 42% in two years [Nielsen Total Coverage Dec 23 vs. Sep 21 in convenience retailers], while cigarette sales declined by 34% during the same period [ibid]. This trend is also reflected in grocery multiples, where sales of IQOS kits grew by 269% between September 2021 and December 2023 [Nielsen Total Coverage Dec 23 vs. Sep 21 in Key Accounts], while cigarette sales declined by 27% [ibid].”

PMI claims that IQOS ILUMA complements gantries because it offers a real tobacco taste and satisfaction, with 95% less harmful chemicals compared to cigarettes and enables savings of up to £3,000 a year.

Also vying for attention in the heated tobacco battleground is JTI’s Ploom X Advanced.

The device and heated tobacco sticks recently became available to independent and symbol group retailers in Glasgow, as the brand looks to build the category.

The Ploom X Advanced device was brought to the market in September 2023, boasting an optimised HeatFlow system and faster charging, now taking less than 90 minutes to achieve a full charge.

Ploom device sales have almost doubled since last year, and JTI hopes to build on this success with the highly anticipated expansion outside of Greater London.

With the heated tobacco category currently worth £120m in traditional retail [Circana Market Place, Value Sales, Total T-Vapour Category, Total UK, MAT Dec 2023] and growing 8.9% year on year [ibid], the staged roll out of Ploom X Advanced represents a significant sales opportunity for retailers.

Mark McGuinness, Marketing Director at JTI UK, says: “The Ploom brand has shown really encouraging growth, particularly over the last 12 months, and we have big plans to take this even further in 2024 with our expansion into the independent convenience channel outside of London.”

“Our estimates suggest the Heated Tobacco category will be worth £400 million by 2027 as more customers are seeking an alternative but familiar tobacco experience with devices that heat tobacco instead of burning it. We look forward to working closely with retailers in Sheffield and Glasgow to educate them on the Heated Tobacco opportunity and to see them benefit from such a thriving category.”