Jeremy Blackburn, head of communications at JTI, comments: "Consistent with many FMCG products, there are a number of variables which define the purchasing behaviour of existing adult smokers when making their tobacco purchases. These will typically include the availability of their preferred brands and range of SKUs, the convenience to them of visiting a store, their disposable income and tobacco price. What is clear following the introduction of the display ban in 'large' retail stores, is that these variables still apply whether the tobacco display unit is covered up, or not.
"Our research into the impact of the display ban which is currently in force in just 6% of the UK retail environment, and of which supermarkets are the vast majority 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 to buy their tobacco from.
Queue times: these have increased as people buying tobacco will often question staff about 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."
Blackburn continues: "Customer service and product availability are vital to achieve store loyalty among existing adult smokers.
"Monitor and respond to trends," he advises retailers, "And don't run out of key brands."
Over at Imperial Tobacco, UK communications manager Gayatri Barua-Howe, says that while there was a small decrease in sales volumes to start with in larger stores when the display ban first came in, those volumes swiftly returned to their pre-April 6 levels.
"In our UK trials, serving times tended to increase at the start but once staff became accustomed to the modified units, they reduced. This illustrates the need for smaller stores to ensure on-going staff training to avoid increased customer transaction times."
She agrees with Blackburn on availability: "Demonstrating best practice in terms of availability is a key lesson that smaller retailers can learn from larger stores. Having stock on the tobacco unit, not hidden away in the store room, and having an effective stock-replenishment system, and scheduling when to re-stock the shelves, will not only ensure excellent availability but also maximise tobacco sales opportunities in the dark market. Being out of stock and having to replenish the shelves during peak periods will not only be a difficult task for staff to manage but they will risk losing custom."
To take advantage of the fact that they can still openly display tobacco products, Zoe Smith, marketing manager at Philip Morris UK, says retailers in smaller stores should ensure they are well stocked up with a range of quality brands. "In addition, staff need to be knowledgeable so that, when requested, they can advise customers and provide quality customer service. Finally, they should offer a broad range of products at competitive price points including price-marked packs."
As well as the display ban, tobacco retailers have got to face the fact that it looks like plain packing could be introduced in the UK. This has already happened in Australia, where over three-quarters of cigarette pack fronts are devoted to health warnings and graphic pictures (which are so grotesque they look like they have been photo-shopped). The cigarette branding is limited to two lines of text in basic font at the bottom no logos. The backs of packs have no branding at all, with space used for more health warnings and information on the country's Quitline. There is the brand name on the top and bottom of the packs too with the two other sides devoted to another warning and a barcode and place of manufacturer.
One of the major concerns about plain packaging on cigarettes is that it will make it much easier for counterfeiters to produce them.
"With all packs looking identical, and having no distinguishing features, any criminal with a laptop and a printer will be able to reproduce fakes," says Smith. "Tobacco products are already more expensive in the UK than any other country in Europe. High taxes combined with excessive regulations, such as plain packaging, will boost the black market. And an increase in the black market will have an impact on retailers, manufacturers, law enforcement and the government."
The UK government's consultation on standardised plain packaging for tobacco products closed last August; the industry is now waiting for a post-consultation report.
Says Smith: "Philip Morris did participate in the consultation and is of the view that there is no evidence that plain packaging will reduce youth smoking. We encourage retailers to continue to share their views with their local MP."
Imperial's Barua-Howe says: "Almost a quarter of a million people have used the 'Hands Off Our Packs' campaign to voice their concerns about plain packaging. This figure does not include retailers and members of the public who have shared their views through postcards provided by Imperial Tobacco and other organisations. The Tobacco Manufacturers' Association has estimated that the final number was closer to half a million.
"It is vital for UK retailers to be aware that just because the consultation has closed, this does not mean views cannot be expressed to local MPs who are waiting for the publication of the full report in the spring before making up their own minds."
JTI's Blackburn says that according to IGD research and JTI estimates, the tobacco category is worth a whopping £1.3bn to forecourts, representing around 30% or more of their sales.
Blackburn says these sales are dominated by ready-made cigarettes, which account for £1.1bn in turnover. "More specifically, it's premium cigarettes, with the premium price sector currently accounting for over 30% volume share of cigarette sales in forecourts. But, as the economic downturn continues to bite, an increasing number of existing adult smokers are looking for both quality and value for money when purchasing tobacco. As a result, value is currently the fastest-growing price segment in forecourts."
Imperial's Barua-Howe adds that one in four adult cigarette smokers now chooses brands from the economy-priced sector. "This has seen sales of the economy priced JPS Silver range increase with the brand now holding a market share of over 9% (Imperial estimates)."
While Marlboro remains the top premium cigarette brand in the UK, even it has made concessions to the value market.
Smith explains: "Affordability is important, which is why we launched Marlboro Gold Touch, and why we plan to offer retailers the option of stocking Marlboro Gold original in price-marked packs later this year."
Marlboro Gold Touch is a slightly thinner cigarette than normal designed to give adult smokers a quality product at an affordable price point currently £6.60 for 20.
Likewise, Rothmans cigarettes are now available in two lower-price formats: full-flavour gold and the smoother silver.
BAT's head of trade, Andreas Nicolaou, says the new lines gained 0.6% market share in six months within independent outlets (Nielsen).
"Research has shown an overwhelmingly positive response from adult smokers to this new low-price offer from Rothmans, which retains all the heritage and quality of the brand in contemporary packaging."
Meanwhile, Smith says Philip Morris UK is focusing on the value segment with its Chesterfield offer. "It not only delivers a competitive price but provides the consumer with a high-quality product. The Chesterfield range also taps into the importance of superkings in the value segment."
The range was recently extended with the launch of superkings red and menthol.
Says Smith: "Two out of three adult menthol smokers prefer superkings to king-size formats so it was a natural extension to add a superking menthol cigarette to the Chesterfield range which continues to grow month on month. The brand uses the finest Virginia tobaccos and offers value for money for the adult smoker, with a rrp of £5.75 for 19 sticks."
Rolling with it
Roll-your-own (RYO) tobacco has also benefited from the economic downturn as smokers have either switched from factory-made cigarettes to cheaper RYO or 'dual' between the two.
Imperial's Barua-Howe says growth in the market has been "particularly impressive".
"RYO tobacco products accounted for £1.5bn of all tobacco sales last year, with sales in UK retail outlets increasing by around 12%. The increased sales of RYO look certain not to be a short-term trend. Over four million adult smokers in the UK currently 'dual' between the cigarette and RYO segments of the tobacco category. That means they may smoke RYO tobacco during the week but 'trade up' to their preferred cigarette brand at the weekend. This group represents a significant consumer set and their preferences need to be addressed by the retail trade to protect their turnover."
JTI's Blackburn says that in recent years, the RYO market has evolved into three price segments value, mid-price and premium.
"Value is at present the strongest growing sector, representing a real sales opportunity for forecourt retailers. Brands such as Sterling Rolling provide forecourt retailers with a great opportunity to capitalise on the increasing trend towards value.
"Mid price (58%) and premium (28%) hold a substantial share of the RYO market and include brands such as Amber Leaf and Old Holborn.
"With over one in three adult smokers choosing to smoke RYO, it is more important than ever for forecourt retailers to stock a comprehensive range that includes products from all three price segments."
Nicolaou reports that Pall Mall RYO saw "incredible volume growth" of over 100% from January to November last year versus the same period in 2011 (Nielsen).
"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. Nationwide research conducted by Kantar last year showed that adult smokers wanted a quality RYO product priced at under £3. In direct response to this, Pall Mall RYO introduced a new 11g pack format priced at £2.99. By moving its 12.5g variant into the 11g pouch, the gramme for gramme price was reduced to satisfy the value-seeking needs of adult smokers."
Just last month Pall Mall RYO became available in new-look packs to bring it into line with the rest of the Pall Mall family.
Back to cigarettes, and capsule technology has taken the market by storm, proving popular with smokers. A capsule in the cigarette filter is squeezed to release a fresh burst of flavour.
Chris Halford, JTI's multiple forecourt trading director, comments: "A key trend to be aware of in 2013 is definitely the growth of capsule technology. Globally, it accounts for over 380 million packs of cigarettes sold, and in only 10 months the capsule cigarette segment in the UK has generated over £30m in retail sales value (Nielsen). Recent innovations, including Silk Cut Choice, B&H Dual and most recently Sterling Fresh Taste on Demand, have proved to be extremely popular with existing adult smokers, providing them with greater choice."
JTI's Blackburn adds: "Sterling Fresh Taste on Demand combines the popularity of Sterling with the demand for capsule cigarettes, providing forecourt retailers with a new revenue stream with the UK's fastest-growing tobacco sector. The new cigarette offers the same quality and blend as Sterling kingsize smooth, but gives existing smokers the option to change the taste to Sterling Fresh Taste on Demand by simply bursting the embedded filter ball."
Since its launch last summer, B&H Dual has already achieved a significant 18.5% volume share of the UK's capsule cigarette segment (Nielsen).
Imperial offers smokers Lambert & Butler Fresh Burst cigarettes. Barua-Howe says the product was launched as a result of Imperial's research, which found that smokers wanted more control over the taste and aroma of their cigarette, while a significant number of loyal Lambert & Butler smokers wanted to gain even more value from their brand.
But it's BAT UK which claims to have been the first to introduce capsule cigarettes to Europe with Lucky Strike.
Pall Mall Click On followed then Vogue Perle Capsule a demi-slim capsule cigarette with a spearmint-flavoured capsule rather than menthol-flavoured.
"We have seen particularly impressive growth from Pall Mall Click On in 2012 and we expect this to continue throughout 2013 as more adult smokers become aware of this innovation," says Nicolaou.
The 'e' route
Many smokers are, of course, trying to kick the habit, turning to electronic or 'e' cigarettes to help them. There are now lots of brands on the market from which to choose.
The good thing for retailers is that many are available on a sale or return basis, plus they offer good profit margins.
First though let's look at what an e-cigarette actually is.
It's a battery-powered device that turns liquid nicotine into a vapour that the user inhales.
There's no ash and no smokey smell, plus e-cigarettes do not contain carbon dioxide or tar.
Vapestick has the V2 disposable. It comes ready to use and offers the consumer 300 puffs, which is equivalent to 25-30 cigarettes.
It is available in a counter-display unit holding 12. The unit currently costs £38.88 plus VAT and each V2 then retails at £5.99. They are available on a sale-or-return basis until February 22.
Vapourlites too are available on sale or return. There is also a special offer for new customers.
Anyone buying the CDU one (£86.70 plus VAT, rrp £187.79) will receive 5x5 packs of 'cartomizers', worth £49.95 at rrp. The CDU1 contains 10xVL3 disposable e-cigs, 5x5 cartomizers, two VL7 premium starter kits and four VL4 rechargeables.
The e-cigs are available in tobacco, menthol, cherry and vanilla flavours with various nicotine strengths.
Finally, Skycig offers single use e-cigs which have a rrp of £6.75 and are the equivalent to 40 cigarettes, as well as rechargeables which retail at £11.95 and are equivalent to 90 cigarettes. Cartridge refills are available in three flavours: tobacco, menthol and cherry.
the big Cover up
With the tobacco display ban in smaller stores now only two years away, retailers will have to start thinking about their gantries.
Birley Manufacturing has teamed up with JTI to supply tobacco display kiosks within supermarkets, petrol stations and convenience stores.
The Sheffield-based company developed its range of secure cigarette display units so that they can be modified to comply with the new restrictions on the display of tobacco products. Birley is currently installing the specially-designed units into outlets across the country, with around 400 set to be in place by November 2013.
Birley managing director, Steve English, says: "The new-style equipment makes it easier for staff to locate and obtain product while maintaining a safe and secure display that adheres to current regulations. The unit dimensions have been revised and the sundries unit is located separately on the right-hand side. The units have also been converted to LED lighting making them more economical to run."
He adds that reaction to the new kiosks has been very positive.
In the news
Tobacco smuggling is big business across the UK, with stories appearing in the media every month. Here's a round-up of a few of the latest:
An operation within shops in Lincoln city centre last month found 7,000 illicit cigarettes and hand rolling tobacco, totalling £2,467 in lost duty. Some of the items seized from shops were concealed in specially adapted compartments under the counter. Some were stashed in carrier bags. The operation was a joint initiative between HMRC, Lincolnshire Trading Standards and Lincolnshire Police.
The majority of cigarettes seized were "illegal whites", such as Jin Ling, L&Ms and Master (www.thelincolnite.co.uk).
Ten people have been arrested in the UK and Luxembourg in a suspected £50m tax fraud by an international tobacco smuggling ring. HMRC believed the gang used white goods to smuggle tonnes of illegal tobacco into the UK. Officers seized 4,800kg of tobacco, worth £1.5m in evaded duty (www.bbc.co.uk).
A huge haul of tobacco, which could have cost taxpayers £36,000 in lost revenue, has been seized at the Port of Hull. Border Force officers found more than 200kg of hand-rolling tobacco hidden in the luggage of eight passengers (www.thisishullandeastriding.co.uk).
A Hatfield Heath man is facing a crown court trial accused of attempting to evade duty on 279,000 cigarettes brought into the UK through the port of Dover (www.hertsandessexobserver.co.uk).
A Co Antrim man has been jailed for three years after being caught with 310,000 illicit cigarettes (www.u.tv).
From next month, Winston will be available nationally in a £5.79 price-marked pack (19 sticks) in both blue and red variants, helping forecourt retailers to capitalise on the growing demand for value products. The new format also comes within a newly-designed global pack for Winston Red. Standard packs will also be available with rrps of £6.03.
JPS Silver has been extended with the launch of JPS Silver superkings 10s and 20s, and JPS Blue Superkings 10s. According to Nielsen, over 47% of cigarettes in the economy-priced sector, sold by retailers, are above kingsize.
The Amber Leaf range was recently extended to include a blonde variant. This uses a pale-coloured cigarette-like blend of premium quality Virginia tobacco to provide a smooth taste.
Since its launch last year, Sterling Rolling has shown strong performance across the UK, particularly in London, the Midlands, the North and Northern Ireland. This has led to a 1.7% volume share of the RYO market in just nine months (Nielsen).
The government has approved an online petition against the illicit tobacco trade which is featured in the Lancashire Evening Post.
The petition urges the government to toughen up the penalties for criminals involved in the illegal tobacco trade and recognise the grave threat it poses to our communities. It also asks it to tackle the discrepancies between the punishments for drugs smuggling and tobacco smuggling.
A further aim of the petition is to get the government to acknowledge that the profits, made by criminals in tobacco smuggling cases, are often much more than those made from selling drugs with less serious consequences for the criminal. The petition needs to generate 100,000 signatures for the government to debate it in Parliament.
Peter Nelson, Imperial Tobacco's anti illicit trade manager, comments: "Selling counterfeit or illegally smuggled tobacco is not a victimless crime and it impacts on society in many different ways. Community spirit is eroded with the intimidating presence of criminals operating on our streets, threatening the livelihoods of legitimate retailers and the reputation of famous tobacco brands."
Conrad Davies, BP/Spar Glandon, Pwhelli:
"Tobacco sales are up on our forecourt site but there have been price increases. We don't offer any price-marked cigarettes there. Premium lines sell well, especially in the summer when we get lots of tourists in buying Marlboro and Camel.
"I have two EuroSpar stores too. These went dark in December (when the display ban came into force in Wales). In one store, total sales are up 2% but tobacco sales are down 7% I think that's because people don't think we sell cigarettes any more.
"I think the idea of plain packaging is ridiculous. The bigger problem for us is illegal imports. We are near Holyhead so it's a huge problem round here."