From pouches and vapes to heat not burn tobacco, next generation products provide a wealth of opportunity for retailers who are prepared to put the work in.
By Sarah Britton
Tobacco remains a multi-billion-pound market in Scotland, but there’s no denying that it is in decline. Within the Scottish convenience sector, tobacco was worth 9.56bn in 2023, down 6.4% from £10.22bn in 2022, according to Imperial Brands’ latest figures [2023 ITUK Estimates from Retail Sales data (Epos) for Cigarettes and RYO in Convenience channel].
With the cost-of-living crisis continuing to impact on consumer spending and rising concerns over the health implications of smoking, many consumers are turning to alternatives for their nicotine fix.
“The UK is at a pivotal moment in its journey towards a smoke-free future; a downward trend in demand for combustible tobacco indicates a steady, but continuing decline in smoking itself,” says John Rennie, Director of Commercial Operations at Philip Morris Limited (PML) in the UK and Ireland.
During Philip Morris International’s (PMI’s) end-of-year 2023 financial results, CEO Jacek Olczak revealed that IQOS had surpassed Marlboro in global net revenues, becoming the company’s number one international nicotine brand. This success was replicated in the first quarter of 2024, where Philip Morris’ smoke-free business accounted for 39% of international net revenues.
“Over several years, cigarette sales have fallen in the convenience trade and in the grocery multiples, demonstrating that more smokers are abandoning cigarettes, which is always the best choice, or switching to smoke-free alternatives,” says Rennie. “This is a fundamental shift that all retailers should acknowledge and respond to.”
Guna Sud, Brand Manager at Racetrack Pitstop, which comprises 11 c-stores across Glasgow, has been doing his utmost to help smokers embrace next generation lines.
“Heat Not Burn [HNB] is not a huge market yet for us,” says Guna. “Customer education is not there yet.”
He sells HNB refills at all his sites, but only sells the actual devices in six. “We haven’t got kits in all our sites because it’s quite an upsell and in smaller sites we don’t have space for it,” he says. “We still have activations from IQOS, but it’s quite a lot of information for staff and there’s more uptake in vape. A lot of staff vape anyway so it’s easier to sell.”
For many retailers vaping has become a thriving category, with UK category value forecast to almost triple from £930m in 2019 to be worth almost £3bn in 2025 [ITUK estimates. Observable market = c34% of the total market including Key Accounts & Independents excluding Online and Vape Channels – Sept 2023].
“With around 35% of current vape volume sales already taking place in the traditional retail channel [May-22 ECigIntelligence Market Database Estimates], it’s clear that there will be continued demand from consumers for vaping products throughout 2024,” says Yawer Rasool, Consumer Marketing Director UK & Ireland at Imperial Brands. “To tap into this rising trend, retailers need to ensure they are dedicating sufficient space in store for vaping products and stocking the right range for their customer base.”
The biggest part of the category is disposables, firing up an incredible 88% of sales [Source: ITUK estimates November 2023].
“Probably around 65-70% of our [vape] sales are disposable,” says Guna. Six hundred puffs Crystal and Gold bar (sold at five for £20) are top sellers for Racetrack, while IVG 2400 has led the way for some time in terms of big puffs.
However, with Labour backing the UK Tobacco and Vapes bill, there will undoubtedly be major changes ahead for the vape industry, with the new government pledging to ban vapes from being branded and advertised to appeal to children.
Pre-empting that this could prove the end for the disposable boom in retail, in the last six months Guna has converted just under a quarter of his disposable vape customers on to rechargeables. “We’re really pushing customers of disposables onto rechargeable devices with free nicotine salt or refillable pods,” he explains.
“Disposables are just one element of the market, but the market is going into refillables and rechargeables,” he says, noting that big puff devices offer a neat transition into rechargeables. “The new IVG 5500 Puff is compliant for [a disposable] ban even though it’s technically single use. That’s roughly nine or 10 normal disposables in one device.”
After a successful trial of the IVG Smart 5500 Puff, he is rolling it out to all 11 stores. He is also selling IVG Air 4-in-1 devices featuring a refillable pod with 2400 puffs device, though he claims uptake of these has been slower than the latter.
He claims that rechargeable devices are a win-win for retailers and consumers. “For me as a retailer there’s more margin in nicotine salts and kits,” he says. “It’s better for the customer as they can save money… it’s just education.”
Guna is also working with Elfbar to grow sales of refillable lines. “We’ve signed an agreement with Elfbar. When customers buy a disposable we’ll give them a refillable kit free.”
He encourages his peers to expand beyond disposable vapes in order to stay ahead. “Retailers need to embrace the next stage,” he says. “Otherwise, the black market will get worse if retailers don’t educate on refills.”
Another big player looking to grow sales in rechargeables is Imperial Brands, which has just launched a vaping device which offers up to 1,000 puffs per pod. The blu bar kit is being rolled out to UK Wholesale and Independent Retail channels first and allows consumers to enjoy intense flavours in pod format. The kit initially launches in four flavours – including new Cherry and Pineapple.
The sleek device offers the easy use and portability of a disposable device, while the rechargeable 550mAh battery and USB-C charging port enables repeated use. In addition, liquid level visibility means users can easily see when their pods need to be replaced, and Imperial Brand’s innovative mesh coil delivers enhanced flavour.
Rasool says: “The all-new blu bar kit further extends the range of product features and benefits the vaping community is seeking. It offers up to 1,000 puffs per pod, while the liquid level is also visible through the translucent pod, making it much easier to see when the pod needs replacing. Meanwhile, enhanced safety offered through a security lock is another key benefit for retailers to share with their customers.
“As consumers search for vaping solutions that provide even more intense flavours, ease of delivery and competitive pricing, we believe the blu bar kit offers a significant sales opportunity for wholesalers and retailers alike, as well as providing another revenue stream ahead of the proposed disposable vape ban.”
Other consumers may get their flavour hit from the up-and-coming pouches market.
“Pouches are very good for us,” says Guna. “More people are coming in and asking specifically for them. Sales are growing month on month.”
But there’s plenty of room for improvement. “We have a 1m stand but again there’s a lot of education missing,” he says. “When we started stocking them, I was looking up online what’s compliant and what isn’t.” Guna points out that many retailers don’t realise the pouches have nicotine in them and therefore need to be sold using the Challenge 25 policy.
If managed correctly, Prianka Jhingan, Marketing Manager at Scandinavian Tobacco Group UK (STG UK) claims that the potential for the category is huge.
“When it comes to nicotine pouches, it’s fair to say that sales are really gathering pace in the UK and flavours are driving that growth, with mint being the dominant one,” she says. “In fact, in 2023, UK pouch sales accounted for a 10% share of global pouch revenue.”
The firm’s new XQS pouches come in Tropical, Blueberry Mint, Cool Ice and Arctic Freeze flavours with smaller-sized pouches to ensure a good fit under the lip.
“The nicotine market will only continue to grow so I’d encourage retailers to give it the focus it deserves,” says Jhingan. “It’s also worth noting that around 40% of all nicotine pouch sales take place in convenience stores, further reinforcing the fact it’s a category to understand and get right.”
