You can roll your own way

Across the UK, the Roll Your Own (RYO) category is worth £1.9bn. That figure is too large to quantify to the sale in an individual local retailer in Scotland, but what is of huge importance is that sales are growing by +13.2% year-on-year. That is key. Not every shop will be witnessing growth of that rate, but the potential is clearly there – if that is the category growth then the stores who are perfecting their merchandising and offering the most appropriate range for their customers are the stores most likely to be seeing double digit uplift.

And when RYO takes around 26% of the entire tobacco category, it importance becomes even clearer. Within the sector there are shifting dynamics also. Where once RYO was simply that, its full emergence has seen premier, mid-price and value sub-sectors develop, and for retailers to make the most of the potential, they must ensure their range accommodates all. For example, value RYO products are estimated to have grown by 30% year-on-year, so while the price is lower, the demand is certainly there and so you simply must provide customers with an offer in this area – and there’s an added incentive these days too.

As retailers look at their tobacco gantry these days, they find themselves at a distinct advantage to supermarkets – thanks to the fact you can see the products you’re selling. Of course, the dark market is coming to smaller stores too, but in that two year window there exists an opportunity to gain new customers, and keep them long after the ban encompasses all stores.
For now, there’s no real insight into how sales have been effected, but from looking south of the border where the ban has been in place for longer, a picture is beginning to emerge from the fog of confusion.

JTI research from England suggests that there has been a minimal shift in sales but a tangible impact on in-store operations, which include:

• Store choice – 10% of existing adult smokers have now added the convenience store to their choice of where they buy tobacco from
• Queue times have increased as people buying tobacco will often question staff about firstly the availability and then the price of a brand; questions that would not usually be asked where the tobacco display unit and price barkers are visible
• Store loyalty – Availability is more crucial than ever as him! research highlights that 27% of existing adult smokers will buy elsewhere if they are unable to purchase their intended item.

In short, this is good news for convenience stores, providing they have an offering that will ensure customers who do come in, can find what they’re looking for.
Alan Graham, Head of Marketing at Scandinavian Tobacco Group (STG) UK, says that the display ban in larger stores does present an opportunity for local retailers. He says: “As a result of the ban, we may start to see independent retailers gain share of tobacco sales as consumers change their buying habits. This has been evidenced by recent figures that show a 1.6% reduction in the major multiples’ share of RYO sales over the last four weeks, while the independent sector’s sales have grown by 1.4%. While it’s too early to categorically say if this can be attributed to the introduction of the display ban, it is possible shoppers are changing their tobacco buying behaviour to the advantage of independent retailers.”

For local retailers, if you do want to try and take advantage of this, the best place to start is by understanding the market, and then your role within it – and that is determined by the type of store you operate and the type of customers you get.

ARTIST
When it comes to ensuring that you’ve got the right range in place it pays to pay attention to the sales reps in your local area – that said, this needs combined with the demands of your customers, and as JTI’s Head of Communications, Jeremy Blackburn says, “retailers know their customers and that means that there’s no ‘one size fits all’ solution for retailers. Instead they should look at the planograms and compare with their own local knowledge.”

Doing this is the key to driving sales in any category, and tobacco is certainly no exception. “Speak to our reps when they come in and it’s the same message as retailers will have heard before but it’s about getting the ranging and merchandising right. 30% of customers will leave if they’re product isn’t in stock,” adds Blackburn.

Like many aspects of retail getting the ranging and merchandising right is critical – of course, with tobacco products not within the reach of the consumers while they browse it’s even more important that they can see that their chosen product is in stock. Blackburn says: “The key principles of tobacco category management have never been so important – it’s now vital that retailers in small shops north of the border make the most of this sales opportunity and maximise tobacco in store over the next two years, particularly when it comes to growth areas such as RYO.”

Blackburn uses the ARTIST acronym when encouraging best practice. And if you’re not sure what that means, don’t worry – it’s a novel approach devised by JTI to give retailers a marker to help them stay on top of their fixture. Truth be told, applying these principles to any area of the store isn’t a bad idea. So, write this down and give it a go: Availability, Range, Training, Innovation, Sales and Technology.

Put those aspects together, work consistently to improve on each front, and you’re almost certain to make more money. And for a bit more detail, over to JTI:

• Availability – It’s vital that the tobacco gantry remains well stocked – 100% availability 24/7 is key. Remember to review stock levels each morning and prior to peak trading times. Out-of-stocks will only lead to lost sales as 59% of shoppers choose to buy elsewhere if their intended item is unavailable
• Range – Offer a wide choice of cigarette, RYO and cigar brands. A range of pack sizes, as well as price marked and non price marked packs, will demonstrate to adult smokers that they are getting the best possible choice and value
• Training – Ensure staff are well trained on the law surrounding the sale of tobacco and are kept up-to-date with the latest regulatory and legislative changes. Visit www.tobaccoretailing.com for further information, support and guidance on retailing tobacco responsibly
• Innovation – Support new tobacco products and pack innovations in store. These have been developed in line with trends in the market place. Look out for educational point of sale material in cash & carry depots, which is designed to highlight product development and help decision making
• Sales – Take time to understand what’s happening in the tobacco category. Make sure you know which areas are in growth, what the most popular pack formats are and what sells well in your region
• Technology – Data and information is vital for the retailer of today. The key to profitable tobacco is range and availability so running out of stock could be a critical error. Understanding what is happening in your store and being able to pinpoint key sales trends is a priceless insight. A good EPoS system will help get the balance right.

JTI also happens to have the biggest RYO brand in the country, with Amber Leaf, a position it wrestled from Imperial Tobacco’s Golden Virginia brand. In Scotland, Amber Leaf has with an impressive 40.7% volume share of the RYO market and a 10.6% share of the total UK tobacco market, including cigarettes. Amber Leaf continues to hold onto its position as the biggest overall seller in tobacco and has recently capitalised on its status with the launch of Amber Leaf Blonde, designed to offer a smoother taste.
Back at STG UK, and while the company is best known for its huge Café Crème cigar brand, it has a growing presence in the RYO sector with its Salsa and Natural American Spirit brands.
Alan Graham says that in the last year the company has seen growing consumer demand for value for money products throughout the tobacco industry. “We expect this to continue in 2013 and beyond. For many RYO tobacco smokers, price is a key factor when deciding which brand to purchase so delivering this value to consumers is essential in the current economic climate,” he says. “Consumers are now taking more time to consider their purchases, often comparing prices of brands or weighing up promotional offers before making a decision.”

The price mark is right
When it does come to harnessing these shoppers, Graham believes that price marked packs (PMPs) continue to push the perception of value to shoppers. He says: “Price marked packs are becoming a more trusted way of delivering visible value for money as consumers feel reassured that the pricing is clearly labelled on pack for all to see and backed by the manufacturer. As a result, PMPs are vital to Scottish retailers as a way of demonstrating visible value for money in an economic climate where consumers are increasingly cautious about how and where they spend their money.”

In terms of total cigarette volume, PMPs accounted for 30.8% to date in 2013 compared to 26.6% over the same period in 2012. This trend is mirrored in Scotland with volume increasing to 36.6% to date in 2013, from 32.6% in the same period in 2012. The value of cigarette PMPs in independents and symbols is even greater, reaching 58.2% of total volume to date this year versus 52.7% over the same period in 2012. However, the biggest percentage uplift in tobacco product PMPs has actually been seen in RYO in Scotland. Within this growing category PMPs have accounted for 40.8% of volume to date this year, an increase of 7.2% compared to the same period in 2012. When we take the UK as a whole, we see that RYO PMP volume has grown at a slightly lower rate to 30.1% to end February 2013, up from 26.1%.

Dualling
While ensuring that value is illustrated to retailers, the trend for dualling is one which has helped RYO sales grow – this is the practice of smokers buying RYO products during the week and then switching to sticks at the weekend. “Dualling is definitely still happening more,” says Blackburn. “It’s another aspect of the fact RYO is becoming a more acceptable way of smoking.”

This is one of the reasons that manufacturers have begun to migrate cigarette brands into RYO – instead of diluting sales, they are ensuring that there is a complementary portfolio of products for consumers.

“We’ve had success with launching Sterling and Benson & Hedges in an RYO format, but it only works if the brand message is right,” says Blackburn. “For example, if you’re pulling together a value proposition in the RYO sector then there is a market for it now, and customers will trust a brand they already know, but as we’ve shown with the success of Amber Leaf and the renewed commitment to Old Holburn with the launch of Holburn Smooth, RYO brands can be hugely successful in their own right.”

BAT UK’s RYO brands have grown particularly well within independents, with volume up over 2.4% to date this year vs the same period in 2012. In particular, Pall Mall RYO has seen impressive volume growth of 71% in independents. Ronald Ridderbeekx, Acting Head of Corporate and Regulatory Affairs at BAT UK&I, says: “Offering the right brand, the right blend, at the right price, Pall Mall RYO meets the growing need for value for money quality tobacco from an internationally recognised brand.”

Ridderbeekx is another to eulogise on the benefits of PMPs. He says: “The economic downturn has also driven an increase in the popularity of PMPs, which astute retailers recognise as a growing trend.”

The thinking is the same at STG UK, where the company has just launched its lowest price point yet for its Salsa brand, with the launch of a new £3.15 PMP, which positions Salsa as the cheapest RYO product in the impulse channel. Available in a half outer of 5 x 12.5g packs, the Salsa PMP provides retailers with a strong option in order to take advantage of the afore-mentioned demand for value RYO products. Graham comments: “With this new price point, not only are we delivering this visible value that consumers are looking for but we’re also offering the greatest value with the cheapest RYO product for Scottish independent retailers. As well as being extremely attractive to consumers with its low price point and, as a result, benefiting from a strong rate of sale, the Salsa half outer has the cheapest out of pocket spend for retailers on a 12.5g RYO variant. With this in mind, any Scottish retailers looking to make the most of the growing demand for value RYO should make sure they stock up on the new £3.15 Salsa PMP while stocks last.”

It’s not only Salsa that STG are banking on of course. Graham says that the company is seeing a growing trend develop among consumers for natural or additive-free products, which leaves the company’s Natural American Spirit (NAS) brand in the right place. Initially launched into the UK in 1997, NAS was the first additive-free tobacco range to be launched onto the UK market and is still the number one selling additive-free tobacco range in the UK today. Graham says: “Its presence provoked a different way of thinking for many smokers and since then, this trend for discerning consumers looking for high quality additive-free tobacco has continued to grow year-on-year and we expect it to continue to do so over the next year. In line with this, we’ve seen the NAS brand significantly grow its distribution in convenience stores to emerge with double digit growth in the RYO variant.”

Made from premium grade tobacco and completely additive-free, the NAS RYO range comprises of three SKUs that are available at an rrp of £4.42 per pack for an outer of 10 x 12.5g, an rrp of £8.51 per pack for an outer of 5 x 25g and an rrp of £10.95 per pack for an outer of 5 x 35g.

In fact, getting the pack sizes right is as important to optimizing sales as anything else with consumers increasingly looking for value through buying larger pack formats.
According to Imperial Tobacco’s Trade Communications Manager Gayatri Barua-Howe, Scottish retailers should offer a wide range of RYO brands and pack sizes. She says: “With RYO shoppers spending more in store than the average shopper, demonstrating both choice and value will help increase shop loyalty. Currently smaller packs (8g to 12.5g) account for around 45% of all RYO sales within independent stores. Addressing roll your own (RYO) tobacco consumers’ requirement for convenience, freshness and tidiness, GV Smooth 8g Handy Packs contain a zip-lock tobacco pouch, rolling papers and filter tips – all in one convenient flip top box at a competitive rrp of just £2.58. Providing great value to consumers whilst maintaining trade margins, the combo packs will be the lowest priced RYO offering available on the UK market.”

Is bigger better?
Looking to bigger pack sizes and they are growing too. One in five packs of RYO tobacco sold is a 50g variant and larger pack sizes are becoming more prevalent as they offer adult smokers added value during these tough economic times. Furthermore, larger RYO packs, such as Golden Virginia Classic 50g also come with papers included which further reduces out of pocket spend.

While there has been much discussion over the growth of the value sub-sector, the mid-price and premium ends have much to shout about, with 58% and 28% of the market, respectively.
With the second most popular brand in Golden Virginia, Imperial Tobacco is well-placed to know how the category is moving.

Barua-Howe, says: “When it comes to product choice, 60% of shoppers say cost is their key priority. Consumers are becoming more disciplined and spending longer shopping so they can ensure they get the best deals. Price transparency is also extremely important, for example consumers prefer clear price points and money off promotions rather than multi-buys.”
In Scotland, Imperial Tobacco’s RYO portfolio in Scotland has seen its market share grow to over 51% (ITUK Feb 2013 estimates). GV Smooth has seen its share of the RYO market increase from 6.23% in February 2012 to 7.44% in February 2013. Golden Virginia Classic currently occupies over 30% of all RYO sales. In total, Imperial Tobacco’s RYO range accounts for almost half the market, a figure that has remained steadfast from 12 months ago.

Imperial Tobacco recently unveiled a new design to Golden Virginia. Now known as Golden Virginia Classic, this brand has a new, premium, design. The rrp for have remained unchanged. Golden Virginia Classic will also maximise profitability with high POR margins of between 10.9% and 11.4% for retailers. Golden Virginia Classic will continue to be available in 12.5g, 25g and 50g pack sizes, with papers included in the 50g pack size. The 12.5g Handy Pack, which includes papers and tips, will continue to offer consumers added convenience. At the same time as the GV Classic relaunch, the company introduced the rebranded GV Smooth. The smooth market has grown by 16% in volume terms within the last year, and Golden Virginia Smooth volume has grown 24% year on year.

Of course, the most important thing Scottish retailers can do to increase their RYO tobacco sales is to stock a range of the best-selling products, in all size segments and price bands and take the time to speak to their customers and understand what products they’re looking for. “Talking to customers and showing them that they’re valued and understood will go a long way to helping grow their tobacco sales,” says STG’s Graham.

Getting the fixture right
BAT’s Ridderbeekx adds: “The RYO category has changed. Retailers should not assume that offering the same range they have had for years will maintain their RYO sales. The category is evolving and retailers must regularly review sales rates and growing trends to ensure they are offering the right mix of products. Allocating a good amount of prominent gantry space to this category is also important to ensure adult smokers can easily see the range available. More and more adult smokers are choosing RYO products and this should be reflected in the space allocated on the gantry. We also recommend retailers stock as full a range as they can afford. For example, it is important to stock both Virginia blends, such as Cutters Choice and Pall Mall RYO and Halfzware blends, such as Samson. This will allow smokers to make an informed decision from a comprehensive range of products.

Ridderbeekx urges retailers to take advantage of the sales insights available from their BAT Trade Representatives to help them identify trends and the best products to stock.
Imperial’s Barua-Howe says: “It’s important for retailers to be aware of the profit margins of RYO lines; RYO tobacco generates more profit for the retailer than items such as batteries, stamps and medicines which are often merchandised within sundry sections of a tobacco gantry.”

She says that retailers need to ensure that their RYO range is in a prominent position for customers to see and purchase. “Visibility is key in this category; Scottish independents currently have a distinct advantage over large stores who have had to implement display restrictions since April with their tobacco units. Adult smoking customers need to see what they are buying and being unable to do so will either send to straight into the arms of the illicit trade or to competing retailers.”

STG’s top RYO tips

• Clearly display your full tobacco range so customers are able to see what’s available
• Enable your customers to offer consumers visible value for money by displaying price marked packs
• Pay attention to the latest trends and stock up accordingly whether that is meeting the needs of cash-conscious consumers through value products or taking advantage of the growing additive-free trend
• Keep an eye out for new products and limited editions, which can help liven up your display and maximise your sales
• Take time to get to know and understand your customers. They know what they want, it’s up to you to stock it
• Ensure your tobacco display is always fully stocked at all times. If it’s not on display, it’s likely your customers will go elsewhere to buy.

 

Know your RYO
As the RYO market has expanded, it has divided into three distinct sectors – Value, Mid Price and Premium. It is important for retailers to stock a comprehensive range of Value, Mid Price and Premium brands to make the most from the opportunity RYO represents:

• Value RYO currently accounts for 19.6% of Scotland’s RYO market. It’s Scotland’s fastest growing RYO price segment and represents a good profit opportunity for retailers
• Mid Price is the largest RYO sector in Scotland; it accounts for 57.3% of volume.
• The Premium RYO segment accounts for 23.2% of the total RYO sector in Scotland

 

Profit through papers
The continuing success of the RYO sector has also led to an increase in sales of papers and accessories. Among the companies well-placed to benefit from this is Republic Technologies, which distributes the Swan and Zig Zag.

Eleni Koulara, Marketing Manager at Republic Technologies, is clear on how to maximise profits from RYO accessories. “The key is to stock major growth lines such as multi-packs and combi-packs for these market-leading ranges. These provide smokers with the choice and premium quality they’re seeking at affordable prices. In particular, combi-packs have grown 19.6% in 2012 (versus 2011) in the impulse market,” she says.

With regard to stocking, Koulara says retailers should use the Swan brand to signpost the category. The side of the gantry is the best location for RYO accessories as the more visible they are, the greater the sales. “Smokers are also looking for brands they know and trust and if their preferred choice isn’t available, they’re likely to buy elsewhere,” adds Koulara.
Beyond the key volume drivers, retailers with enough space should also consider more niche products. A good example is menthol filter tips, which now account for one in 10 of all filter tips sold, and combi-packs which are likely to be bought by seven out of 10 smokers, if stocked.

Over at Imperial Tobacco, the Rizla portfolio currently occupies just under 90% of the Papers category; this has remained consistent over the last 12 months, which highlights Rizla as the preferred paper of choice for RYO adult smokers. Rizla also brought £80m last year into UK retailer’s coffers.

Imperial Tobacco’s UK Communications Manager, Gayatri Barua-Howe, says: “Late last year the Rizla brand was given a face lift and is now available to buy in nine stylish new packs. The new designs illustrate both the varying levels of thickness amongst papers as well as contain a taste intensity scale. There has been a shift within the UK RYO market in the last 20 years from dark – strong flavoured blends to a fuller and smoother flavour.”

While Imperial’s Rizla brand dominates paper sales, combi-packs are proving increasingly popular. Golden Virginia Classic and GV Smooth + Papers have been available since March in 50g and since June only in 25g packs, offering consumers a premium product in a convenient format. The papers also come with cut corners to maintain its relevance in today’s marketplace.

Cutting corners
Last month, Imperial Tobacco announced Golden Virginia Classic and GV Smooth 25g packs would include quality cut-corner papers.
The rrp at launch for Golden Virginia Classic 25g and GV Smooth 25g will remain the same, ensuring current robust margins are maintained whilst providing further value for the roll-your-own (RYO) consumer.

Imperial Tobacco’s Golden Virginia Senior Brand Manager Ryan Hopkins comments: “Our ongoing consumer research shows that 62% of RYO tobacco shoppers prefer their tobacco to come with papers so Golden Virginia and GV Smooth, the world’s number one RYO brand, combined with quality cut-corner papers really is the perfect combination.”

Cutters Choice cuts out additives
This month sees BAT launch Cutters Choice with no artificial flavours. Made from a modified Virginia blend, the brand new Cutters Choice line extension is a ‘true blend’ that allows adult RYO smokers to experience its tobacco without any taste additives. The new line does include humectants however, to ensure the tobacco maintains a higher level of moisture (21.5%) than other currently available 100% additive free blends. This move comes due to a higher moisture level being preferred by adult UK RYO smokers, says the company.
BAT says the rustic look and feel of the launch campaign reflects the nature of the tobacco itself. Adult consumers can also discover the story of Cutters Choice tobacco: how it is made and what makes it different from other Virginia blends on the back of the pouch. Unlike some other traditional RYO blends, Cutters Choice A True Blend does not contain any artificial flavours.

Claire Bodiguel, OTP Brand Executive at British American Tobacco UK&I, explains: “Rolling tobacco is a personal experience. We wanted to give adult RYO smokers an insight into the creation of their preferred tobacco blend – with no artificial flavours altering the original tobacco taste. We’ve maintained the exacting standards of the Cutters Choice brand to give adult RYO smokers a new way to enjoy the taste of their preferred tobacco. We’re offering a true and honest tobacco option for discerning RYO smokers – a true blend.”
Cutters Choice – A True Blend is priced at £3.99 (parity to core range) and is available in 12.5g, PMP and Plain Pouches. The original Cutters Choice continues to be available in 12.5g (£3.99), 25g (£7.82) and 50g (£15.50) pouches.

Holburn Smooth set to boost RYO sales
This month sees JTI extending the range of its Roll Your Own brand Old Holborn with the launch of new Holborn Smooth. Available across all channels from 8th July in modern blue packaging, new Holborn Smooth will be available in 10g and, in a first for the UK tobacco market, 20g pack formats, with respective rrp of £2.90 and £5.70, appealing to existing adult smokers who want a credible value RYO brand at an affordable price point.

Holburn Smooth highlights the faith the company is putting in the RYO sector. It’s an entirely new blend and Blackburn says that the success of Amber Leaf Blonde shows that there is huge consumer demand for products of this nature. “The round pack sizes make it a unique product,” says Blackburn. “The RYO market continues to grow and as customers seek value and different blends of tobacco, this new product can help retailers offer something different.

And the company’s sales team will be ensuring that retailers know all about the launch, and that stock is available. “The team will be out in force and that will be backed by a campaign in wholesalers to drive awareness among retailers,” says Blackburn.

Think thin
Republic Technologies is targeting ‘RYO connoisseurs’ with the launch of an Ultra Slim Swan-branded filter. The new filter is the thinnest Swan filter ever, providing RYO smokers with a smoother taste and an enhanced tobacco flavour.

The Swan Ultra Slim filter is a premium, quality product aimed at the more discerning RYO smoker,” says Eleni Koulara, Marketing Manager of Republic Technologies (UK). “One of the reasons people choose RYO is that it enables them to make thinner cigarettes which in turn means they smoke less. Size of filter is becoming more important in the RYO sector, particularly among people looking to reduce smoking for health or cost reasons, and the Swan Ultra Slim filter is the product that addresses those specific consumer needs.”
The new Swan pack will contain 126 filter tips and has an rrp of 95p. Launch support includes an extensive digital media campaign focussing on the key areas of sport and music.