Products at the lower end of the pricing scale continue to dominate demand within the UK’s tobacco market.
by Gaelle Walker
In a year of continued economic uncertainty and muted consumer confidence, it will come as little surprise to learn that value priced tobacco products continued to win the vast majority of category spend in 2021.
In fact, according to Imperial Tobacco, the sub-economy segment now holds a 63% share of the total Factory-Made Cigarette (FMC) market and a 51% of Roll Your Own (RYO) tobacco – with both value segments growing at 4% year on year.
And, given the government’s latest round of tobacco tax hikes, the value trend certainly looks set to stay in play for the foreseeable future.
As announced in the Autumn Budget, the duty rate on all tobacco products rose by 2% above RPI inflation on 27 October, while the duty rate for RYO climbed by an additional 4%, to 6% above RPI inflation – a move which added 88p to the price of 20 of the cheapest cigarettes and 89p to a 30g pouch of RYO.
However, far from sitting back, recent months have seen the UK’s tobacco industry respond to the pricing predicament with an array of new products, formats and innovations in a bid to better meet the value needs of the UK’s almost seven million adult smokers who continue to choose to tobacco.
Just last month and following the success of its 30g pouch format, JTI revealed some ‘sterling’ RYO price-led innovation with the launch of a new 50g format for Sterling Essential (rrp £21.20).
With no filters and papers included, JTI’s new Sterling Essential Rolling Tobacco 50g format was designed to offer adult smokers a “less for less alternative,” and appeal to those smokers bent on value for money and happy to source their own accessories.
The manufacturer also vowed to keep the RRP low on Sterling Essential Rolling Tobacco 30g.
Commenting on the development which was revealed just a few days after the Budget, JTI UK marketing vice president Mark McGuinness said: “With more and more existing adult smokers purchasing value RYO brands over the past year, there has never been a better time to expand the Sterling Essential Rolling Tobacco range into a new format.
“With the demand for value RYO products a key trend in the market, we want to support our retailers and wholesalers so that they can meet this demand by offering a quality brand with competitive RRPs.
Despite travel bans and various other Covid-19 restrictions, illicit trade continued to dog the UK’s tobacco market in 2020 – diverting crucial funds away from responsible local retailers in the process.
Counterfeit and contraband cigarettes as a share of total consumption increased by 0.5ppt to 17.1% in 2020, with counterfeit cigarette consumption specifically, having risen by 9%, to hit a new five-year high, latest figures compiled by KPMG and commissioned by PMI show.
The development led to an estimated loss of £2.2 bn in tax revenue up £35.6m from 2019, with the highest levels of counterfeit and contraband cigarettes found in North East England, followed by Yorkshire and the Humber.
The figures prompted PMI to invite new applications for PMI Impact, its $100m global initiative to support projects dedicated to fighting illegal trade in all forms.
And JTI has certainly not been alone in driving value-led developments this year, with Imperial Tobacco having also launched JPS Players Easy Rolling Tobacco in 30g and 50g formats (including papers).
With a fine cut tobacco blend and lower levels of moisture, the RYO brand has been designed to offer an “easier rolling experience,” that appealed to existing RYO smokers and the growing number of dualists alike.
Meanwhile, keen to inject more growth into the value-priced FMC market, Imperial also made a number of key changes to its Richmond cigarette portfolio over the course of 2021 including a price reduction just ahead of the Budget.
Commenting on the price cut, Imperial Tobacco Trade Marketing Manager Tom Gully said: “Following a shift in the market with a rising number of smokers moving to more affordable price points, we have reduced the MRRP on several of our key brands to support retailers and their sales.
“Demand for value tobacco continues to play a major role in shopper purchasing decisions. By adapting the pricing on these leading brands, we can help retailers ensure they continue to offer customers great quality brands at great value price points.
The price cut also followed a revamp of Richmond’s outer packaging a few weeks earlier with a bold look and “more coherent design” introduced across the range.
The Richmond portfolio was also adjusted to offer a simplified range, all positioned within the new ‘value’ tier.
To truly take advantage of the sales on offer within the Tobacco category, Imperial recommends that retailers “take it back to basics” and focus on fundamental elements.
- Imperial advises retailers to make sure that range links into the key trends at play, such as the rising demand for value for money.
- However, with no two stores the same, retailers shouldn’t lose sight of the needs of their unique customer base.
- For example, stores with a really strong RYO customer base may want to consider offering a bigger range of filters, papers, flavour cards and lighters.
- While those with more cigarette shoppers than RYO, may want to offer a smaller range and focus this mostly on lighters and flavour cards.
- Retailers should also ensure that they maintain stock levels both on the gantry and in the stock room at all times. Tobacco smokers are very brand loyal meaning that out of stocks can be a costly error to make.
(Source: Imperial Tobacco)
And while demand for value-priced tobacco products will undoubtably remain strong as we approach the key festive season, it is of course important that retailers don’t lose sight of more premium-priced options which are likely to grow in popularity as adult smokers trade up to treat themselves – a trend which tends to be particularly prevalent within the cigar category.
Scandinavian Tobacco Group UK Country Director Alastair Williams said: “Typically at Christmas time adult smokers will treat themselves and ‘trade up’, but of course this doesn’t mean that retailers need to start stocking expensive Cuban cigars! It may be as simple as a Miniature cigar smoker opting to jump to a Panatella, for example, when they are in celebratory mood and typically have more time to enjoy it.”
Cigarillos, which continue to drive growth in the total cigar market, are also expected to shine brightly this festive season and beyond, especially thanks to the launch of innovative new products such as JTI’s Sterling Dual Capsule Leaf Wrapped 20s earlier this year and Imperial’s JPS Crushball Cigarillo variant prior to that.
JTI’s new 20 pack (one of the tobacco products to have made the shortlist for SLR’s Product Of The Year, New Product Awards) features a capsule filter that releases a peppermint flavour when crushed – an innovation that appeals to the many adult smokers still hankering for menthol flavours via more traditional tobacco formats following the ban on menthol cigarettes last year.
In the UK, the cigarillo segment now accounts for just over 41% of all cigars sold in volume terms according to STG, while in Scotland specifically, cigarillos account for just over 65% of all cigar volume sold in independent and symbol stores.
Buoyed by the value for money trend and the growing consumer desire for reduced risk tobacco products, the heated tobacco market has also enjoyed a positive year with demand for smoke free devices and heated tobacco sticks (such as PMI’s Iqos and Heets and JTI’s Ploom and Evo on the up.
PMI’s Heets have increased their market share by 75% in the past year and since 2018 the number of stores selling Heets in the UK has increased sixfold, with the brand now available in 18 new cities and regions.
And while Ploom is currently only available in accredited retailers in London and the EVO tobacco sticks for retailers within the M25, JTI says it has its “sights set high” with ambition to see Ploom become “the number one heated tobacco device in the UK.”
Tapping into the growing consumer trend for fruity and berry flavours seen in other key FMCG categories (soft drinks, spirits and vape to name just a few) PMI launched its tenth Heets variant last month as it sought to offer adult customers even more choice.
With an RSP of £5 for a pack of 20, new Mauve Wave Heets offer a “crisp menthol tobacco blend with a taste of dark forest fruits.”
