The latest tobacco market data suggests it’s all about price these days as shoppers continue to shift into RYO and value cigarettes – but the category remains resilient, and profitable, for retailers.
It will come as a surpise to no one that the tobacco market remains heavily price-driven as consumers increasingly shift towards the value end of the market. “We’re seeing an uplift in consumers switching into Roll Your Own (RYO), as well as value Factory Made Cigarettes (FMC),” says Duncan Cunningham, UK Corporate Affairs Director at Imperial Tobacco & blu. “We’re also seeing a rise in dual users buying both RYO and FMC for different occasions, as more shoppers move to a nicotine portfolio approach.”
In fact, Imperial Tobacco figures show a quarter of consumers are now dual smokers, so retailers must be well-equipped with a strong product range across all categories to cater for this trend.
The RYO segment has rapidly expanded its market share and now accounts for around 45% of all tobacco sales, according to Imperial, with recent data showing volume sales are growing by 30%.
Despite this, Factory Made Cigarettes still account for the majority of tobacco sales with a 55% share of the market and are actually experiencing volume growth of 4% YOY, according to Imperial, albeit featuring a continued shift towards value products that offer the lowest out of pocket spend.
The major FMC manufacturers have embraced this shift with Imperial Tobacco, for instance, repositioning some of its leading brands into the sub-economy sector, such as L&B Blue and Embassy.
Ross Hennessy, Sales Vice President at JTI UK, is equally bullish about the tobacco market: “Even with everything that has happened this year, the tobacco market continues to be one of the biggest and most resilient FMCG categories in the UK and a category that drives footfall and revenue for convenience stores nationwide.”
Hennessy also shares the view that value is a critical focus for local retailers, alongside great availability. He says “Price remains a key factor for existing adult smokers when choosing where to shop for tobacco, so local retailers should look to remain competitive by selling at the RSP or below to help drive sales.
“With research showing that nearly a third of smokers will choose to buy elsewhere if their preferred brand is unavailable, maintaining a full range and availability of tobacco brands across the pricing scale is important if retailers are to maximise the profit opportunity.”
Embassy Signature
Imperial Tobacco has launched a new Embassy Signature range offering a premium product without the premium price tag. Unveiled at the end of last month, the range comprises Gold and Silver variants.
Ploom revealed
To capitalise on growth in the heat-not-burn sector, JTI has launched Ploom S, offering adult smokers and dualists (smokers and vapers) an alternative but familiar tobacco experience by heating tobacco instead of burning it. Available initially in London, the device can be used exclusively with EVO tobacco sticks which are available in four different flavours with an RSP of £4.50.
Crush options
As value continues to be the main purchase driver in tobacco, Imperial Tobacco has launched new crush variants for JPS Players and L&B Blue with a new Superkings variant that lasts 35% longer.
Teak HEETS
IQOS, the leading heat-not-burn player in the UK, has launched new Teak Selection HEETS tobacco sticks to provide the taste and satisfaction of real tobacco offering “a toasted tobacco blend with nutty aromas” with an RSP of £5.
So what profit opportunities lie ahead? For Imperial Tobacco’s Cunningham, Christmas may offer a bigger boost than normal to local retailers, as he explains: “As we prepare for a Christmas like no other before, retailers may be in a strong position to benefit. We’ve seen more consumers choosing to shop locally and this is a trend that is likely to continue throughout the traditional festive season.”
Another profit opportunity is in smoking accessories off the back of both the Menthol Ban in May an the continued growth of the RYO market.
Cunningham again: “This shift towards RYO products presents new sales opportunities for tobacco-related accessories.
“To tap into this trend, retailers should make sure they’re fully stocked at all times of filters, papers, lighters and other flavour-related innovations like Rizla Flavour Infusions Cards and Rizla Polar Blast Crushball filters, to cater for the rising number of consumers buying into the RYO segment.”
Imperial Tobacco says its currently selling around 900,000 packs of Rizla Flavour Infusions a week. as consumers look to recreate the menthol experience.
Another factor benefitting local retailers is the restriction on international travel under Covid-19 which is reducing the amount of tobacco bought abroad for consumption in the UK.
Cigar market polarises under lockdown
Traditionally, the cigar category sees a pronounced peak around Christmas and, after the year we’ve all had, this year could see a bumper opportunity for local retailers as shoppers add a little luxury to their festivities after a tough year.
The category is performing well this year with total sales volumes in Scotland actually in growth by 2.1%. Interestingly, sales of medium and large cigars in Scotland have risen – by an even chunkier 6.5% in volume and 10.2% in value. So is there a major opportunity to grow sales of larger cigars over the next month or so?
Alastair Williams, UK Country Director at category captains Scandinavian Tobacco Group comments: “What we’re seeing under lockdown is more people spending more time at home. Medium and large cigars obviously require a little longer to enjoy so it could simply be that more consumers have more occasions available to them to enjoy a larger cigar. It would be no surpise if that trend carried on throughout the Christmas period.”
At least some of the growth in the larger cigar market has been driven by a special limited edition introduced in August by STG. The Union Jack-bedecked Henri Wintermans Half Corona Limited Edition saw sales spike hugely and annual retail sales value in Scotland hit a chunky £1.9m, so it’s a good pack for retailers to focus on this Christmas.
The bulk of the market remains smaller cigars however with STG’s Moments Blue leading the value for money offering. Sales are up 1.7% by volume in Scotland.
“It appears that there is a bit of polarisation,” says Williams. “The areas we’re seeing the biggest growth are in the premium end and the value for money end and that’s something that retailers should be aware of when they’re checking their range this Christmas.”
