Forecourt Trader - 30 years at the heart of the fuel retailing community

Slow burn

29 May, 2009
The government continues to chip away at the tobacco market
Page 45 

Unfortunately the wheels have not come off the lumbering Health Bill and the tobacco display ban that features within it looks likely to go ahead. Last month the House of Lords defeated an amendment to remove the ban from the Bill by 204 votes to 110, and now the Bill will go to the House of Commons for consideration.

In the debate before the vote in the Lords, both the Conservatives and Liberal Democrats argued that the evidence to support the government's position on the ban was weak.

According to Imperial Tobacco, the level of debate within the House of Lords shows that the ban is still an important and topical issue for all political parties. "Retailers still have the opportunity to voice their concerns by contacting their local MP to ensure that their views are represented in Parliament at the next stage," says Iain Watkins, trade communications manager at the company. He believes that there is no evidence that the Bill will further the government's objectives to reduce youth smoking. Instead, he says it will harm small businesses and increase the illicit trade in tobacco products.

"It is important for retailers to understand that the vote in the House of Lords was still a preliminary stage in the progress of the Bill. Their local MP has not yet had the opportunity to vote on the government's proposal. Therefore we would still encourage retailers to ensure that their local MP is made aware of their concerns."

Not surprisingly, ACS chief executive James Lowman agrees: "Our focus is on making the case to MPs that the cost of the display ban, imposed on retailers at the worst possible time, is being pushed through in the face of weak evidence that it will make a difference to youth smoking.

"It is disappointing that the cost of the ban has been so inaccurately and confusingly communicated to MPs over recent months. The briefings from government have down-played the likely costs of the measure and this has portrayed an inaccurate picture of the cost and disruption that retailers will face to implement this law. It is important that in the next phase of debate there is greater clarity about the costs.

"Retailers have a real opportunity to tell MPs about the disruption that they face. We are confident that MPs will listen to the grass roots opinions and weigh the regulatory costs against the sketchy evidence of impact on youth smoking. If they do they will conclude that a display ban is a distraction from achieving the important smoking reduction objectives."

Meanwhile JTI believes there are alternative solutions to reducing the number of youths who take up smoking, which are less intrusive and more effective. These include:

? a commitment to national proof-of-age schemes such as 'No ID No Sale' and Citizencard;

? making proxy purchasing (buying on behalf of an underage person) and the purchase or attempted purchase of tobacco products by youths criminal offences;

? addressing the illicit trade in tobacco products;

? greater resources and manpower for effective, targeted enforcement strategies by the HMRC, the UK Border Agency and trading standards officers.

Like Imperial, JTI is urging retailers to write to their local MP/MSP and tell them how the ban could affect their business and the local community that they serve. You could even invite your local MP/MSP to your site and let them see for themselves just how your store is run, and what these proposals could potentially do to your business.

The tobacco display ban is not in force - yet - but negative licensing is. On April 1 increased sanctions in England and Wales came into being, designed to penalise those who persistently break the law by illegally selling tobacco to under-18s. These sanctions may be imposed in addition to existing penalties, such as fines of up to £2,500, and come in two forms:

? Restricted Premises Order - which prohibits an offending premises from selling tobacco for up to 12 months (no sales of tobacco or papers may take place from those premises); or

? Restricted Sales Order - which prohibits a named individual within the business from selling (or from having any management functions in relation to the sale of tobacco) for 12 months (but allows the premises to continue selling tobacco).

These sanctions can be applied when an individual is convicted of making an illegal sale to anyone under the age of 18 years, having committed at least two similar offences within a two-year period.

If an individual or premises is already subject to a restricted sales/premises order, and tobacco or cigarette papers are sold (to anyone), the maximum penalty is a fine of £20,000.

To help prevent under-age sales of tobacco, retailers should:

? maintain a proof-of-age policy;

? always ask to see a valid photo proof of age eg a Citizencard;

? keep a refusals or incident log eg the No ID No Sale refusals register;

? make sure staff are fully trained.

== Pictorial health warnings ==

From October 1, it will be illegal to sell cigarette packs in the UK that do not carry pictorial health warnings, therefore retailers must sell through existing cigarette stock with rear text health warnings by September 30. Retailers have a further year (until September 30, 2010) to sell through all other tobacco products, cigars, pipes, and RYO that do not contain pictorial health warnings.

Good stock rotation is key to ensure deadlines are met - retailers should train staff to be aware and ensure the gantry is always re-stocked with non-pictorial health warning stock at the front - this is especially important for slower-selling brands.

To aid stock rotation and identification, all JTI transit outers (200 packs) containing pictorial health warning packs currently display the message 'Packs in this wrapper carry pictorial health warnings'.

To further help with the change, JTI has developed a website to provide retailers with all the information they require. The website, www.phwarnings.com, contains details of all the important legislative dates and key timings, images of the new UK pictorial health warnings, and a comprehensive question and answer section.

Despite all the legislation, forecourt retailers must not lose sight of how important the tobacco category is to them. It helps to drive customer footfall. Smokers often purchase tobacco once a day and make secondary purchases of things like confectionery, soft drinks, newspapers and magazines - making them valuable customers.

JTI's head of communications, Jeremy Blackburn, says that in contrast to the rest of the market, premium cigarette brands such as Benson & Hedges Gold remain the best-selling cigarettes in forecourts accounting for 39.8% of sales. He reckons this is good news for forecourt retailers as premium products equate to premium profits.

However Ronan Barry, head of corporate and regulatory affairs at BAT UK & Ireland, disagrees: "Forecourts' reliance and focus on premium brands is resulting in weaker year-on-year sales for the category when compared to other channels such as grocery. Value for money will continue to grow so forecourts will be forced to embrace this segment further in order to try and retain smoker customers. The sub-value-for-money segment is also growing in forecourts with distribution slowly increasing for brands such as Pall Mall, albeit at a much slower rate than in other channels. Forties packs also continue to help drive volume sales within the forecourt channel.

"A longer-term view on category development with regard to price strategies and the value-for-money segment would allow forecourts to capitalise fully on all segments of the market while trying to retain as much premium brand share as possible. Price communication and category space could also be improved, optimising the fixture size to accommodate a larger range in all stores while at the same time ensuring availability of their top performing SKUs."

He reckons that forecourt retailers will have to benchmark their offering against not just the other forecourts that they've previously viewed as their competition, but against the total market as consumers become more cost conscious and less brand loyal.

"It's important that forecourt retailers understand how their tobacco category offering competes against other outlets in their area, for example convenience stores, symbols and Co-ops, larger multiple grocers and, of course, the petrol forecourts at the larger supermarket sites, not just the other branded fuel supplier on the other side of the road."

== Brand news ==

On the product front, there's still plenty going on. Last month JTI launched a range of five limited-edition designs for its premium lower tar cigarette brand, Silk Cut. The designs revolve around the Cut theme and feature five variations: diamond cut, power cut, short cut, precision cut and director's cut. They are available across Silk Cut Purple 10s and 20s, Blue 20s, and Silver 10s and 20s.

According to AC Nielsen, Silk Cut is the second-fastest growing premium cigarette brand in the UK and accounts for over 16% of the premium sector.

Lucky Strike Silver packs have also been transformed and are now sporting a new blue 'bulls eye' design. The aim is to help smokers differentiate between the two blends: red for Lucky Strike's original full flavour and blue for Lucky Strike's mellow taste.

BAT UK premium brand manager, Hinesh Patel, says: "The new Lucky Strike Silver pack preserves the original and instantly recognisable classic Raymond Lowey bulls eye pack design that is known globally. And we remain true to Lucky's three centuries of tradition, as well as its blend. However the roll out of this new pack is answering smokers' needs to be able to easily spot the difference between Lucky Strike's two variants - red and blue."

Moving onto roll-your-own tobacco and Imperial Tobacco recently launched Golden Virginia Yellow. The company's UK marketing manager Alistair Brown says it gives adult smokers a high quality product at a value-for-money price, which is important in the current economic climate.

It is available in 12.5g, 25g and 50g packs (rrps are £2.73, £5.35 and £10.59 respectively) and also in pricemarked packs (£2.65 for 12.5g and £5.25 for 25g).

When it comes to cigars, AC Nielsen figures put Henri Wintermans Café Crème Blue as the best-selling cigar in the multiple forecourt sector, accounting for 25.6% of sales. Hamlet comes second with just over 18% with Café Crème third with just under 18%.

James Higgs, head of commercial marketing at Henri Wintermans UK, says one of the reasons for Café Crème's rise in popularity is that smokers are migrating from small cigars to miniatures, and when they do this, Café Crème tends to be the brand of choice. On top of this, many miniature cigars are being bought on impulse.

"Miniature cigars continue to drive growth in the cigar market, and much of that is due to the continued success of the Café Crème family. We feel the stylish tins reflect the brand's worldwide status and heritage, and help make the Café Crème family absolutely integral to every retailer's tobacco unit."

A recent addition to the Henri Wintermans range is Café Crème Express, which is smaller than a traditional miniature cigar. It is aimed at smokers who enjoy cigars but don't always have time for one and also at those who want to try a miniature cigar without having to invest in larger sizes.

The Henri Wintermans range also includes Founder's Blend - a family of cigars for those adult smokers who wish to upgrade from miniatures. Founder's Blend Cigars are available in miniatures, royales, slims and half coronas, with distinctive packaging which is said to reflect Henri Wintermans' heritage and experience as a premier cigar manufacturer.

Higgs comments: "While the UK cigar market is declining by around 10.7% annually, sales of our brands such as the Half Corona continue to grow. The Henri Wintermans Founders Blend range is always popular, so retailers should therefore ensure that their shelves are always fully stocked up with these top-selling brands."

== Little extras ==

One sector that often gets overlooked is what was once known as smokers' requisites but is now more likely to be called tobacco accessories. Whatever you call it, it includes lighters, matches and rolling papers - and with the RYO category still showing strong growth, it merits being given serious attention.

The rolling papers market is worth more than £100m according to AC Nielsen figures, however volume sales are declining. Republic Technologies (RT) reckons much of the decline is due to papers being included in packs of RYO tobacco. According to its figures, over 65 million booklets of papers are given away each year.

Independent outlets account for the majority of paper trade followed by the grocery multiples - between them these two sectors account for more than 68% of business. The AC Nielsen figures put multiple forecourts near the bottom of the volume sales chart (just over 10 million booklets a year) and reveal that 2008 figures were down 7.7% on 2007 sales.

RT's most successful paper is Swan Green which saw its sales value increase by 3.6% in the year to December 2008.

RT believes there is value in rewarding consumers with promotions, especially those linking papers with filters. It runs regular promotions on Swan and last year's 'Tech' activity saw nearly 500,000 extra papers sold within the four month promotional period.

Swan's latest on-pack promotion is running on the popular Swan Green '5+1' multipacks. The activity ties in with the brand's sponsorship of the British Super Bikes (BSB) 2009 season. Called Swan's Ultimate Driving Experience, it offers prizes ranging from track days with a Porsche to a session in a rally car and exclusive hospitality tickets to a BSB Superbikes race.

The Swan Green papers come in new outers with updated perforations, which reduce the chance of rips and ensure enhanced on-shelf presentation. In addition, the outer of the multipack has been redesigned so it can be merchandised in two different ways and it also has been reduced in size to provide a smaller on-shelf footprint.

Other product improvements to the Swan range include: use of an 'extra stick' natural gum; chlorine-free production processes so consumers taste the tobacco not the paper; and 'run out' strips placed 10 from the end of packs to remind consumers to buy more.

AC Nielsen figures put the value of the UK lighters market at £70m. Flint wheel lighters are the most popular, accounting for around 80% of sales. Independents sell the most, followed by grocery multiples but multiple forecourts don't do too badly, shifting nearly five million a year. RT leads the market with its Swan, Cricket and Poppell brands.

In matches, it's the grocery multiples that clean up with more than 73% of the £7.3m market. RT dominates the sector with its Swan Vestas, Cook's and Bryant & May Extra Long brands. Again the company reports that promotions have been successful in driving sales. For example a Free Beauty Treatment promotion on Cook's resulted in a 12.5% leap in value sales.

The total market value of filter tips is over £32m with Swan the brand leader. Filter tips are used by a third of RYO smokers so are well worth stocking. Duallists - those people who smoke factory-made cigarettes and roll their own - are most likely to use filters as the filter helps replicate their cigarette smoking experience. Nielsen figures show that all trade channels are enjoying growth of filter sales, with multiple forecourts enjoying their second year of double-digit growth.

Finally there are the requisites which include gas and fluid for cigarette lighters, flints, pipe cleaners, rolling machines and tobacco tins. This market is worth over £6m and RT reckons retailers who choose to stock these products make good margins.

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=== Display Solution ===

One company that's prepared for if and when the tobacco display ban comes into force is Clemthek UK with its Smokythek system.

Smokythek has been developed to dispense tobacco products from an enclosed unit which is installed beneath the current serving counter or checkout. Clemthek says the system therefore utilises 'dead space' with no impact on the impulse sales area.

The system offers a high level of anti-theft protection so is ideal for dispensing other high-value items such as batteries and razor blades.

Operation is described as 'simple' - the operator chooses the product by pressing the corresponding brand on the touch keypad displayed at the till area and the item is automatically delivered directly to the serving area via a conveyor system. The system can be integrated with existing epos solutions.

Smokythek is available with different capacities and flexible columns enabling it to house various product options (10s and 20s packs, for example). It is individually programmed to each store - so retailers can choose the products they wish to dispense.

Systems start at £3,500 and Clemthek says it offers a full installation and after-sales service.

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=== A spicy Alternative ===

If you think your customers might like to try something a little different why not try Djarum kretek Indonesian clove-laced cigarettes?

The cigarettes give smokers a smooth smoke with a pleasant sweet and spicy aroma. They are already well established in the British specialist tobacconist sector but PT Djarum, through its agent Davidoff Distribution Limited (DDL) is now hoping to extend distribution into the forecourt convenience sector.

The brand was exhibited at this year's Convenience Retailing Show.

Djarum European sales manager, Frankie Legawa, was very pleased with the interest it received.

Five lines are available: Djarum super, a blend of superfine clove and tobacco, giving a full aromatic flavour; Djarum black, made with the finest natural cloves and tobacco with a spicy aromatic taste and wrapped in black paper; special, a blend of aged cloves and tobacco with special exotic spices; vanilla and cherry offer the traditional taste of cloves and tobacco with a hint of cherry or vanilla.

So far, black and cherry are the most popular varieties in the UK.

They come in packs of 20 and retail at £7.

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=== Who smokes what? ===

l Premium priced (Embassy No1, Regal, Marlboro, Benson & Hedges, Silk Cut) - most smokers of these brands are adult males aged 18-34.

l Mid priced (Superkings, Berkeley) - most smokers are older females.

l Standard priced (Lambert & Butler, Sovereign, Benson & Hedges Silver, JPS Black) - a typical standard priced smoker is aged 18 to 34.

l Value priced (Richmond, Mayfair, Royals) - most smokers are women in the C2DE social classes.

l Economy priced (JPS Silver, Windsor Blue, Sterling) - mostly smoked by older adults.

Source: Imperial Tobacco Category Overview/BMRB/TGI

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=== the Accessories ===

l Rizla has become the byword for cigarette papers so is a must-stock.

l Green papers are the best sellers - stock alternatives to Rizla to give consumers choice.

l Red, Blue and Silver are the next most popular papers.

l If you stock RYO tobacco that includes papers it might be worth analysing the effect this is having on your rolling paper sales.

l Consider stocking multipacks of lighters such as the Cricket blister pack of three.

l With matches, stock Swan Vestas to signpost the category. But certain matches sell well in certain regions - such as Scottish Bluebell in Scotland, so consider these.

l Speciality matches such as Cook's and Bryant & May Extra Long can also be sited in the household area or with barbecue items in the summer.

l Independent retailers have been shown to under-index on matches so Republic Technologies reckons there's a good opportunity for incremental sales.

Source: Republic Technologies

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=== Facts & Figures ===

l The total tobacco category was worth £13.27bn in 2008 up 0.3% on 2007.

l Cigarettes account for nearly £12bn-worth of sales.

l There are 13.1 million adult smokers in the UK which equates to 27% of the population - there is virtually an even split between men and women.

l Forecourts accounted for 11.4% of cigarette sales in 2008 - the same percentage as in 2007. These sales were worth £1.35bn.

l Forecourt sales of RYO tobacco increased in 2008 to £95m. Similarly sales of rolling papers increased to £11.5m.

l Forecourt sales of cigars grew slightly to reach £36.4m.

l The best-selling cigarette in forecourts is Lambert & Butler King Size - the same as in the total market. However Marlboro Gold is number two in forecourts but number four in the total market.

l The best-selling premium-priced cigarette in forecourts is Marlboro Gold. The best-selling mid-priced is Superkings; standard priced is Lambert & Butler; value-priced is Mayfair King Size; and economy is Sterling Superkings.

l 20s packs of cigarettes account for nearly 69% of forecourt sales followed by 10s with 24%, and 40s with 5%.

l Golden Virginia accounts for 55% of forecourts' RYO tobacco sales.

l Larger packs of RYO are growing at the expense of smaller packs. The 11.5/12.5g packs accounted for 55% of sales in 2008 but were down on 2007 figures while sales of 14g, 23/25g and 50g were all up.

l Sales of cigars through forecourts rose by nearly 9% last year. Forecourts now account for 9.9% of the £392m market.

l Rizla is a massive seller in forecourts and last year the Blue papers did particularly well with sales up nearly 16%.

l Forecourts accounted for 13.2% of lighter sales in 2008, up 9% on the previous year. Tokai Emphorel was the best-selling disposable.

Source: Imperial Tobacco UK Tobacco Category Overview March 2009

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=== Top tobacco tips ===

l Ensure the top-selling brands are well stocked, and that you provide enough space for them on the tobacco gantry.

l Avoid out-of-stocks - research shows that adult smokers will go elsewhere if their brand of choice is not available.

l Keep to your recommended planograms - these have been created according to the best-selling brands in your region.

l Train staff to check the planogram once a month to make sure that the product layout is correct.

l Do not stack products on top of each other - this looks untidy and can cause damage to packs.

l Keep the gantry clean and free of rubbish at all times.

l Make sure the gantry is fully stocked and tidy every morning, leaving no gaps.

l Rotate stock regularly so that older stock is sold first. Packs which feature pictorial health warnings (PHWs) should be sold after non-PHW packs.

l By keeping well-stocked with associated tobacco products such as lighters, retailers have the opportunity to up-sell to adult smokers when they purchase tobacco.

Source: JTI

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=== Paper power ===

In an effort to lower energy consumption throughout the production process and to ensure its packaging is more recyclable, BAT has introduced paper inner bundling across its cigarette range. The company says the global initiative to move from laminated foil/metallised inner bundling to paper will significantly contribute to its goal of reducing its overall carbon footprint.

Ronan Barry, head of corporate and regulatory affairs, BAT UK & Ireland says: "When it comes to cigarette packaging a small change to each pack, when multiplied by a year's production, can have a very profound effect on environmental factors. The introduction of paper inner bundling means that we can reduce the energy used in production and make our packaging more recyclable.

"The paper is sourced from a wholly renewable and sustainable source which meets Forest Certification Chain-of-Custody criteria. Aluminium is not a renewable resource.

"As a single component material, paper inner bundling is considered to be recyclable and can be composted, whereas foil/paper laminate is not."

The new paper inner bundling is applicable to BAT's cigarette packs only but excludes Dunhill king size, Dunhill International and St Moritz.





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