by Kevin Scott
As the plain packaging debate gathers steam, retailers and suppliers must work together to ensure that the category continues to do its job while it still can, and that means focusing on ranging, merchandising and being aware of new launches.
As this feature was being put together the Australian High Court rejected a legal challenge from tobacco manufacturers over standardised packaging for tobacco products. The ruling came just five days after the UK Government’s own consultation on the matter ended, with over 500,000 people voicing their opposition and over 200,000 backing the concept. For both these actions to take place so close to each other put the prospect firmly at the top of the media agenda. In the midst of all this, Jaine Chisholm Caunt, Secretary General of the TMA, commented: “Plain packaging is an assault on UK business in the midst of a double dip recession. Plain packs would be far easier to copy, and would therefore be a gift to the criminal gangs behind the illegal trade in tobacco and increase the £3.1bn – £8.5m per day – that is currently lost to the UK Treasury as a result of this crime.”
For Scotland’s local retailers, it is the potential increase in the counterfeit trade that poses the biggest threat to them in a world of standardised packaging – then there’s the clamour of staff to find that right brand while a queue builds up, because despite the packaging being plain, it would still need kept out of sight, though given the prominent health warnings on these ‘plain’ packs it begs the question of why they will still be subject to a display ban.
Legal Battle
This is a story with no ending in sight – we’ve barely just established the plot and the characters, but if the Westminster (and provisional) Government/s have any sense, they will await evidence from Australia before going in gung-ho over plain packaging – in fact, they could do well to await the results of the tobacco display ban before inflicting further restrictions on retailers. With a legal battle not set to be resolved until November at the earliest, Scottish retailers are continuing as normal, while evidence from England over whether small store are benefitting from the display ban in stores over 3,000 sq ft, is anecdotal for now, which means it is more open to interpretation. Jeremy Blackburn, Head of Communications at JTI confirms that all evidence so far is merely anecdotal and therefore no concrete conclusions can be drawn. He says: “If there are two shops close by one another and one has products displayed and the other doesn’t then people tend to go to the store where they can see the products, but that’s at a very local level.”
Greg Fuller from Imperial Tobacco adds: “The message for retailers is simply to sit tight and do what they’re doing. The display ban restrictions may not come to Scotland. If they do, evidence from England and Wales has told us that there is some movement towards smaller stores, but there’s so much going on, from high taxes to bad weather that have affected sales.”
Trends and topics
What is of utmost importance for retailers at the moment is to look at the present and not the future. That means continuing to focus on your ranging and merchandising and working with suppliers to ensure that your offering is tailored to the demands of your customers.
The tobacco market in Scotland is worth £1.6bn, which is around 10% of the UK market. There are 1.1m smokers in Scotland and Blackburn says that it is the value sector that is stimulating the market. “There’s a clear reason for this,” he says. “Price rises through duty increases have led more people to downtrade. RYO is growing for the same reason. It’s all being driven by price.”
The price of value
So what we know for certain is that value is the fastest-growing sector. In Scotland it accounts for 37.6% of the total cigarette market by volume and is growing at 7.4%. “To look at the size of cigarette market, the Sterling brand is the leading brand in Scotland in this sector of the market and it is worth more in gross sales than Walkers and Cadbury Dairy Milk combined.”
Okay, so the bulk of that ends up in the taxman’s pocket, but it shows just how vital the industry is to retailers.
The next sector is mid-price and JTI’s Mayfair is a main driver of the mid-priced range. Not only that, it has taken over Lambert & Butler to become the biggest cigarette brand in the UK, with a 16.8% market share. Blackburn says its success can be put down to the quality of the brand measured against the price. “There’s also the support we’ve had for the brand from retailers – that’s been key to its success. It is seen by everyone as a must stock brand.”
Moving onto the premium category and despite the swell at the lower end of the price-scale, Blackburn warns against being distracted. The higher the rrp of a product, the more money for the retailer of course. And the premium sector still takes an 18% share of the overall market. “Retailers need to look at the margins and the opportunity,” he says.
It’s in this area too that companies like JTI have been invested in new capsule technology because by driving customers back into the premium sector they stand to make more.
“That capsule market is growing. It gives adult smokers an alternative choice and based on European and Global sales it has huge potential. It is still establishing itself but shows we’re investing in the sector.”
Price Marked Packs (PMPs) have come to dominate the tobacco fixture as consumers seek the assurance of value. Fuller says: “The shopper looks for price marked packs these days. In an age of grossly high above inflation tax increases PMPs give consumers an assurance of value. A good range of PMPs makes a difference. It’s a shopper need and the expect it now.”
Fuller says that Imperial is also trying to add more value to the premium end of the market. “We’re innovating at the high end with glide pack on L&B for example. It’s an attempt to slow the downtrading trend.”
This is clearly something that retailers should be welcoming – for the greater the purchase price, the greater the return for the retailer, and in a world of lower prices and squeezed margins, every extra penny in the till counts.
The right range
“Retailers need to make sure that their products are there,” says Fuller. “In the tobacco category, availability is the single most important thing for customers. Eliminate out of stocks, ensure busy periods are covered etc. Don’t run out and then restock. Restock before you run out.”
On top of this essential advice, he adds: “Ensure you’ve got the right size of tobacco furniture for your shop, review your range, ensure planograms are up to date, use sales data to check orders are being made correctly and use your sales reps – they’re on hand to give advice and recommendations.”
Competitive market
Xavier Ducarroz – Director, Marketing & Sales at Philip Morris UK, adds: “The UK retail market is very competitive but independent retailers, through their proximity, know their customers best. A key principle of sales remains availability and price: Never run out of stock with a key brand and always remain competitive in your pricing or you run the risk of losing customers. It is not worth losing a customer by ignoring these two factors. Consumers today expect high quality at a competitive price. This applies to tobacco products as well as other consumer products. Independent retailers should therefore ensure that the products they sell meet these needs. This is the best guarantee for customer satisfaction and sales growth.”
Ducarroz also points to the growth of the lower price segment is gaining importance in the current economic climate, saying that consumers now expect more for their money without sacrificing quality. He adds: “Recognising the importance of this segment, we launched Chesterfield, a high quality cigarette with a flavourful taste and an rrp of £5.75 – a competitive offer in its segment.”
In addition, the firm has introduced Marlboro Gold Touch – which is the same tobacco, but in a slimmer format and at a competitive rrp of £6.35.
So there is still development within the sector and the clear message is that it is business as usual – and until the Government makes a decision on plain packaging or the courts decide whether a display ban is legal, that is how it’ll stay.
JTI’s Jeremy Blackburn says: “Recent innovations incorporating capsule technology, including new B&H Dual and Silk Cut Choice, have proved to be extremely popular with existing adult smokers, providing them with greater choice.
“Available in a standard King Size 20s Slide pack with an rrp of £6.93, B&H Dual is an innovative capsule cigarette, which by crushing a capsule embedded in the filter, allows existing adult smokers to customise their smoking experience by releasing a “fresh” taste.” [/next_message] [next_message styles=”3″ title=”Pall mall upgrade“] In just five years, BAT UK’s Pall Mall brand has become one of the top 10 cigarette brands in the UK. Having now broken 4% market share, Pall Mall is celebrating its on-going success by upgrading its packaging, improving both design and quality to provide adult smokers even better value for money. The company says the packaging upgrade allows Pall Mall to deliver enhanced quality to adult value for money (VFM) smokers not willing to compromise.
Moving to a more contemporary look, Pall Mall’s pack upgrade will occur across the full product range and will roll-out from the beginning of this month. Pricing remains the same as per BAT’s March 2012 price list. Existing Pall Mall adult smokers will be aware of the forthcoming upgrade via factual inserts in current packs. The biggest change will appear in the Pink pack design, which is changing to a silver colour.
Carla-Maria Streit, Brand Executive for Pall Mall UK & Ireland says: “Since day one of this best-selling product being launched in 2007, Pall Mall has been backed by the retail sector and is widely recognised to be a valuable addition to any gantry. This evolution of Pall Mall’s packaging provides our adult smoking customers with even greater value – a thank you for their loyalty. We are proud of what Pall Mall has achieved to date.” [/next_message] [next_message styles=”1″ title=”Room to accessorise“] Within every tobacco fixture there should be room for high margin accessories and sundries. That’s the message from Mark Alldred, the Marketing Manager at Republic Technologies. The company owns the leading filter brand in Swan and while Imperial Tobacco’s Rizla brand is the overwhelming market leader in papers, Republic’s Zig Zag and Swan brands enable retailers to offer consumer choice, according to Alldred.
He says: “The generic name in papers is Rizla, but that doesn’t mean it’s everyone’s preference. By widening their range retailers can offer more choice and increase their sales in a high margin sector. Zig Zag is a great brand. It’s a worldwide brand and that is where we want to position it in the UK. We’ve looked at what we need to do to achieve that and that has led to this new launch.”
The launch he mentions is Zig Zag filters. The range comprises of three SKUs, offering smokers Extra Slim and Slim filter tips in packs of 165 and 120, with rrps starting at £0.59.
Alldred adds that the rationale for this launch is that there is a trend for filters towards the value end of the market. Swan is the market leader but looking towards a more value proposition Zig Zag fits that. “The wider Republic Technology business is the number one in the world at filters. We can engineer the right products at the right prices,” he says.
In addition to this, retailers should note that multi-packs in pound shops are beginning to grow hugely. They are also bigger in supermarkets where around 80% of paper sales can come from multi-packs. In multiple convenience this can be around 40%, where as in some smaller independents the multi-pack figures are as a low as 5%. Alldred says: “The demand is clearly there so retailers need to stockl more multi-packs to meet that demand and create some competition.” [/next_message]
Cigars still have role to play
Despite sales heading in the wrong direction and seemingly no way of stopping them, the cigar market is still enormous and a huge part of the convenience mix. UK wide, it still brings in over £250m and that in itself is a major sales opportunity.
It continues to be driven by the Miniatures segment, which currently holds a 64% share and is growing at 1% in terms of volume, while the Smalls and Medium/Large segments are worth 33% and 3% respectively. This growth in Miniatures highlights the increasing trend for value for money products and offers retailers a key opportunity to increase sales. According to Scandinavian Tobacco Group UK, this value for money trend took longer to develop in cigars than other categories but there is now an established market for cigars that meet this need.
In response to this growing demand, STG UK launched Moments, a cigar range with a low price point that meets the needs of cash-conscious consumers. The range is available in two variants, Moments Original and Moments Blue, the latter of which has already taken up a position as the 10th leading Miniature cigar since its launch less than a year ago.
Elsewhere, STG UK recently launched new eye-catching limited edition packaging designs on its Henri Wintermans Half Corona and Henri Wintermans Corona De Luxe cigars to celebrate this year’s big events and help grow sales for retailers over the summer period. Available to retailers now, the two designs illustrate the London skyline, featuring iconic landmarks such as the London Eye and Wembley Stadium, as well as a Union Jack design in the brands’ trademark red colour.
The celebratory limited edition packs are running across the Henri Wintermans Half Corona and Henri Wintermans Corona De Luxe cigar ranges throughout the summer period with a rrp of £8.44 and £4.25 respectively. Beyond new releases the company’s Café Crème range remains critical to any shop’s cigar sales. “While Café Crème Blue, Café Crème and Café Crème Filter Arôme are three of the key selling SKUs in Cigars, STG UK’s Moments range, which we launched at the end of last year, is selling phenomenally well,” says the company.
Category advice
Although cigars sell in smaller volume than cigarettes, cigars generate more profit than cigarettes due to greater margins and are equally important to the tobacco category. The category can peak during key seasonal occasions, particularly around the summer and festive periods, so there are plenty of sales opportunities for retailers. It’s also possible that customers might smoke both cigars and cigarettes, rather than one or the other, so retailers should make sure they can talk knowledgeably about both and their differences.
According to STG UK, the most important thing retailers can do to increase their tobacco sales is to take time to speak to their customers and understand what tobacco products and ranges they’re looking for.
What retailers need to remember is that the profile of the cigar smoker is changing. In 2011, JTI surveyed 250 independent retailers and found that the UK is moving away from the traditional stereotype of older gentlemen cigar smokers, with over half of retailers surveyed citing 30-50 years as the typical age profile for cigar customers in their store:
In London and Scotland, the number of 30-50 year olds smoking cigars is greater than the national average. Whilst 63% of inner city and urban retailers are experiencing this shift in age, rural stores are not, with 53% of retailers citing 50 years plus as the typical age profile of their cigar customers.
As more cigar brands enter the market and the variety of pack sizes increase, JTI expects the popularity of cigars to continue growing amongst 30-50 year old, urban adult smokers. Particularly miniatures cigars, such as Calisto, which cater to this demographics’ demand for greater choice and convenience.
The research also identified an increased shift towards ‘dual smoking’. Over a quarter of retailers surveyed are noticing existing adult cigarette customers purchase cigars alongside regular cigarettes – in Scotland, one fifth of adult smokers are choosing to ‘dual smoke’. Inner city and urban stores (63%) are also more likely to witness dual sales vs. rural retailers (21%). JTI’s Jeremy Blackburn says: “This provides a real opportunity for retailers to sell more cigars to ‘dual smokers’ and generate incremental profits.”
RYO market matures into success story
Roll Your Own still provides a huge opportunity for retailers, and it is continuing to grow. To put the size of this category into context, JTI’s Jeremy Blackburn comments: “The average rolling cigarette is 0.4g in weight so if all the rolling tobacco sold in the UK is taken in that context, RYO is the bigger than any of the cigarette categories in terms of sticks sold.”
So that’s bigger than your mid-price, premium or even value sectors – so the message is clear: ensure you’re giving enough space to RYO products, and especially bigger pack sizes, which Blackburn says can help boost sales.
RYO too can be broken down into premium (29.3% share), mid-price (54.5%) and value (16.2%).
Within this it is the value segment that is growing quickest, but the major message for retailers is to ensure they give RYO the space it now merits on the gantry. It is the mid-price segment that is seeing a lot of activity – it is here that marketing leading brands such as JTI’s Amber Leaf and Imperial Tobacco’s Golden Virginia fit. And in this section too we’re seeing more and more cigarette brands being extended into RYO – such as Benson & Hedges and BAT UK’s Pall Mall.
Over at Scandinavian Tobacco, the successful launch of its Salsa range early this year, was followed by a PMP variant and multipack. The Salsa multipack represents STG UK’s first price marked pack format for RYO and is set to offer retailers even greater value with its competitive trade margins.
With each multipack containing 5×12.5g packs, each with an RRP of £3.35, retailers can now control cash flow better than ever before thanks to a smaller financial outlay. The combination of Salsa’s low price point and the price marked pack will drive sales for retailers by allowing them to demonstrate visible value for money to customers while reassuring them that they are getting a good deal.
The Scandinavian Tobacco Group UK (STG UK) has also been awarded the distribution rights for the Natural American Spirit brand. The deal provides STG UK with an increased presence in the growing Roll Your Own tobacco (RYO) market and also establishes itself more firmly as a player in the cigarette category.
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With the consultation on plain packaging now closed, we have to wait to hear what the UK Government’s plans are. Questions remain however over the legitimacy of the consultation – in terms of whether or not it was balanced. Greg Fuller from Imperial Tobacco comments: “Any consultation should be exactly that – a consultation process that sets out points in a balanced manner by gathering opinions – that’s not been the case with this consultation. It’s been imbalanced and we feel the tobacco industry has been excluded from a process that affects its future.”
What is clear is that Health Secretary Andrew Lansley wants the tobacco industry to have “no business” in the UK.
No tobacco in the UK would lead to the loss of thousands of jobs, says the tobacco industry, although there are legitimate health reasons behind Lansley’s desire. What he does though is aim to take away a democratic right from 12m smokers in the UK who choose to smoke. Fuller adds: “It will make life easier for the illicit trade. You add plain packaging to the display ban and no one really knows what the result will be. It is already a heavily regulated industry and the display ban isn’t complete yet. Let’s see what happens with that. Are targets being met? We’ll never know what is working and what isn’t – it’s legislation for the sake of it.”
JTI’s Jeremy Blackburn says: “We have serious concerns around illicit trade and ultimately its impact on retailers. Think about it: if you were a criminal – a cigarette smuggler – what would be on your wish list? Firstly, criminals target markets with high taxes and prices; the higher, the better, as their illegal products are cheaper, a lot cheaper. That is already the case in the UK. Governments take about 80% from every cigarette pack sold.
“Secondly, criminals with no excise to pay to Government, limited manufacturing costs or investments to make in their business would welcome display bans; the boot of the car or a stall at an open market becomes the new tobacco ‘kiosk’.
“And finally, plain packaging: because reproducing the pack is an expensive part of the criminal operation and the less they have to invest, the more money they will make.
Even though the consultation has closed, you can still voice your opinions. Visit, call, email or write to your MP to tell them how this would impact your business. If you’re unsure who your local MP is simply visit www.writetothem.com or telephone 0207 219 3000. By spreading the word, you’ll inform others in the trade about what’s going on and the negative impact that this could have on their business.
