For a category that still delivers a massive percentage of most local retailers’ turnover and a big chunk of their cash profits, tobacco risks becoming a forgotten category – and this is a risk that the trade cannot afford to run.
It’s hard to believe, but tobacco is rapidly at risk of becoming the forgotten category of local retail, a remarkable situation given its size and importance to local retailers in terms of footfall, sales and profits.
With more and more stores choosing to move their tobacco under the counter there is a real risk that retailers take their eye off the ball in what remains a massively resilient and important category. Yes, there are strong arguments for reclaiming the valuable space traditionally dominated by the tobacco gantry and it’s clearly an issue that many retailers are grappling with – but the bigger danger is the ‘out of sight, out of mind’ risk that comes with de-prioritising tobacco in the minds of local retailers and their in-store teams.
“The tobacco category remained bullish last year,” according to Duncan Cunningham, Head of Corporate & Legal Affairs at Imperial Tobacco UK&I. “The European Tobacco Products Directive II (EUTPD2) and standardised packaging regulations have brought challenges, but numerous opportunities still exist to bring products to the market that meet evolving consumer demand. This ensures that adult smokers continue to enjoy innovative new tobacco experiences.”
The challenges that Cunningham refers to are extensive and complex, from continuing tax hikes to the implementation of Track & Trace (T&T), and they are not to be underestimated – but they are also not a reason to mentally walk away from a hugely important category.
“Relentless tax hikes have contributed to the ever-rising cost of tobacco products and pushed growing numbers of UK adult smokers towards the illegal market,” says Cunningham. “Latest HMRC figures (2016/17) estimate that this is costing the Exchequer £1.8bn in cigarette revenues and £700m in hand-rolling tobacco revenues – a combined all-time high.”
Similarly, T&T has been fraught with problems thanks in no small part to the undeniably clumsy way the legislation was implemented. So yes, challenges abound, but Cunningham believes there are still grounds for optimism for retailers willing to embrace the opportunities that remain.
“Downtrading is one notable current trend,” says Cunningham. “At Imperial, we continually monitor and – if necessary – reposition our portfolio to react to movements in the market. For instance, earlier this year we announced plans to reposition Embassy from its traditional home in the Premium price sector to the more popular Economy price sector due to a consumer trend towards downtrading. Embassy’s repositioning now means that it is available to retailers in King Size 20s, with an RSP of £9.35 for Embassy Red and Bright Blue, providing a competitive new price point that will appeal to adult smokers seeking premium quality at an affordable price.”
Downtrading is hardly a new phenomenon but the focus on it has never been greater for both shoppers and manufacturers. Cunningham also cites another long-term trend as offering opportunities: the growth of RYO.
He says: “In the UK, RYO has been consistently growing its share of the overall tobacco category. However, since the introduction of EUTPD2 in May 2017, the speed of the shift from FMC to RYO has increased significantly. Between 2014 and 2016 Imperial estimates that RYO saw an average monthly gain in White Stick Equivalent (WSE) share of 0.07%. However, through 2017, RYO’s share of WSE grew by an average of 0.18% per month – almost triple the rate of overall category growth. UK RYO market share in relation to FMC stood at almost 39% in November 2018. Current trends suggest this pattern is set to continue.”
- Continued focus on new product development (NPD) is critical, but in a challenging post-EUTPD2 environment it’s vital to communicate that innovation to adult smoker consumers.
- Organise tobacco products by brand, range and price segment – sub economy to premium ensures availability is consistently maintained.
- Take note of your bestselling FMC and RYO SKUs and always ensure stock rooms contain enough backups to replenish gantries should supplies run low.
The third key trend that has morphed into another fact of life in the category is the growth of crushball. Cunningham again: “The crushball (capsule) sector also continues to flourish, currently standing at over 15% of the overall FMC market. If they don’t already do so, wholesalers should consider stocking our award-winning JPS Players Crushball (£8.70 RSP) and JPS Crushball (£9.35 RSP). We have also recently released an exciting new Rizla Crushball filter tip.”
Rizla Polar Blast is the first ever RYO filter tip to contain a crushball. The squeezable filter tip means adult smokers will be able to ‘click’ to enjoy the taste of mint whenever they roll their own. Rizla Polar Blast is available in pack sizes of 60 tips with an RSP of 99p.
Cunningham highlights that it’s more important than ever that retailers stock Imperial’s best-selling Imperial cigarette and RYO brands like Players, L&B Blue and Gold Leaf, as well its range of Rizla papers. These have recently been repackaged with a soft-touch finish and a ‘tuck in’ closing mechanism designed to reduce wastage.
Relatively new from Imperial is the Riverstone RYO brand aimed at cigarette smokers moving over to the RYO sector as well as dualists. Riverstone offers a smooth taste at a value price point.
Ross Hennessy, Head of Sales at JTI UK, agrees that retailers cannot afford to lose focus on the tobacco category: “The value of tobacco in the UK totalled £14.6bn in the last year with the cigarette market accounting for £11.2bn , making it a key profit driver for retailers. JTI is currently the number one tobacco manufacturer in the UK with a combined market share of 43.2%. JTI’s cigarette share stands at 41.4% and 45.7% for rolling tobacco.”
Hennessy advises retailers to consider their pricing carefully if they want to make the most of the category. He comments: “Adult smokers on the whole want value for money, so price is a key factor when choosing where to shop for tobacco products. Retailers should look to remain competitive by selling at RSP or below.
“They can take advantage of the trend for value products by stocking Kensitas Club Rolling Tobacco, JTI’s lowest-priced offering in the category, and the new B&H Blue Dual Double Capsule, which launched as the UK’s lowest-priced double capsule offering in January of this year.”
He also highlights the critical role of availability: “Research has shown that nearly a third of smokers will choose to buy elsewhere if their preferred brand is unavailable. It is therefore crucial for retailers to maintain good availability across their range. If they don’t, they could be in danger of losing sales.
“Retailers should make sure to adapt their range to reflect trends if they hope to maximise sales in the category; stocking new products that meet the needs of existing adult smokers.”
Homing in on the capsule sector, Hennessy says JTI has been working hard to help retailers meet demand for this growing opportunity. He explains: “So far this year we’ve extended our Capsule range with the addition of two new products – Sterling Dual Triple Green and Benson & Hedges Blue Dual Double Capsule.
“Sterling Dual Triple Green is the first triple menthol cigarette to launch in the UK tobacco market. The innovative, mentholated cigarette has two capsules, one peppermint and one spearmint, offering an exciting new proposition for existing adult smokers from the UK’s number one capsule brand.
“The B&H Blue Dual Double Capsule brings a more intense flavour option to the UK’s fastest-growing cigarette brand. Launched as the UK’s lowest-priced Double Capsule offering in January 2019, the product allows retailers to tap into the growing value segment.”
JTI’s Kensitas Club also continues to be popular and is now the fastest-growing cigarette brand in Scotland.
When all is said and done, it’s a vital category, concludes Hennessy: “Our advice would be to continue to invest in the tobacco category to take advantage of the profit opportunity it presents. Ultimately, those retailers who are focused on stocking a full range, and who are competitively priced, will reap the rewards.”
There aren’t many parts of the tobacco category in growth but cigars is one of them. Alastair Williams, Country Director at Scandinavian Tobacco Group UK (STG UK), comments: “IRI data shows that the cigar market in the UK is worth £198m, reporting a minor increase of 0.9% overall, with the Miniatures and Medium/Large cigar segments reporting an increase of 4.6% and 2.7% respectively.”
Miniature cigars continue to dominate the market, with 73.2% of the total cigar volume and STG UK’s miniature brands contributing 67.5% of the value sales to the segment.
This includes the Signature brand, formerly known as Café Crème. Signature Blue accounts for 30.4% of the market while the original Signature contributes a further 11.3%. Moments Blue, another STG brand, claims a 17.6% share.
Across the UK this means that STG UK’s miniature brands collectively represented £72m in value sales over the last 12 months – that’s over two times bigger than all the other miniature brands combined.
When looking specifically at value for money within miniatures, Moments Blue is bigger than the total of all the other miniature brands together, at a value of £14.9m, making it an important must stock for any tobacco stockists.
Within Scotland, the total cigar market is valued at £17m. STG UK is the clear market leader with a 58% volume share.
Williams says: “Our research from our Let’s Talk campaign into shopper purchasing habits of tobacco showed that most smokers are actually very open to trying to cigars and willing to consider switching given the right factors.
“The research findings highlighted that 59% of male smokers who don’t normally smoke cigars would be willing to buy them. The research also showed 79% of smokers who regularly visit a convenience store would try an alternative tobacco product, such as cigars, if it was recommended by store staff.”
Williams advises retailers to grow their – and their staff’s – understanding on the different cigars available in each segment, and what type of consumer they are most suited for. “In doing so, retailers will be able to offer customers the all-important guidance they need and desire, to help them make informed choices on what cigar would be right for them,” he says.
Combine these insights with the fact that cigars have double the profit margin of cigarettes (potentially an extra £250 profit for each consumer that switches to cigars), there is a clear opportunity for retailers to cash in. Make the most of a key category
