Countdown begins

April 6, 2015, is D-day for small stores selling tobacco products. From that day on displays have to be covered up, behind doors or shutters. Gayatri Barua-Howe, UK communications manager at Imperial Tobacco, says that while it is each retailer’s personal responsibility to ensure that they comply with the display restrictions requirements, her firm is currently looking at a number of different scenarios to help retailers plan for these changes and to ensure compliance. "We will be discussing these in more detail over the coming months," she adds.

Meanwhile, JTI says its level of support is scrutinised on a call-by-call basis and "continues to take into account the range of tobacco carried, the volume sold and the retailer’s continued commitment to the tobacco category".

In the meantime, Barua-Howe says: "It is important to prepare for the display restrictions so that forecourt retailers can ensure they keep meeting their shoppers’ needs. An increased focus on analysing market data and identifying sales patterns will help to avoid out-of-stocks when display restrictions are enforced. Getting into the habit of carrying out regular availability checks and marking key lines off on a checklist now will make the transition far smoother in 2015.

"Retailers should also consider placing reminder cards on autofeeds so that staff are aware of what product goes in each space. And keeping a customer request book for new products so they don’t get forgotten on the next order or trip to the cash and carry."

Planning ahead

Jeremy Blackburn agrees that the sooner retailers start planning, the better prepared they’ll be for the transition.

"The principles of category management have never been more important, so JTI has developed ’ARTIST’ to advise retailers on how to maximise profits from tobacco." ARTIST stands for Availability, Range, Training, Innovation, Sales and Technology (see box on page 32 for more details).

According to shopper marketing manager at BAT, Richard Wood, three things will drive loyalty once products are no longer in view.

"First, they’ll need to know they’re getting a good price. Price-marked packs help drive that message home to adult tobacco consumers and they’ll start returning to your forecourt for other shopping basket items.

"Second, they’re going to need a knowledgeable retailer who can answer their questions, if they want to find out more information.

"Third, adult tobacco consumers never want to wait so knowing where your products are located on the shelf will help reduce the time it takes to serve your customers."

"Many smaller retailers don’t have the luxury of computerised stocking systems that the larger retailers have. So we recommend that all retailers are vigilant about their stock levels," says Wood. "But it’s more challenging to monitor stock levels when the products must be kept hidden."

Ronald Ridderbeekx, UK head of corporate and regulatory affairs at BAT, adds that although the law says retailers can’t initiate discussions about tobacco products with adult tobacco consumers, they can be informed about the products stocked and answer questions, if asked.

Smaller formats

With April 2015 still a way off, in the meantime there are many new market trends for tobacco retailers to look out for. Imperial Tobacco reports a growth in smaller formats of roll-your-own (RYO) tobacco. Gayatri Barua-Howe explains: "A fairly recent addition to the tobacco market, sales of sub 12.5g pack sizes of RYO tobacco have more than doubled over the past year as increasing numbers of tobacco shoppers seek quality products with a low out-of-pocket spend.

"Since the recession hit in 2008, inflation has tended to be above wage growth, meaning less disposable income for consumers and while net income has grown by 2%, other standard living costs have increased beyond this.

"The impact of this squeeze on consumers’ spend has seen continued value-seeking. This has led to more than one in 20 packs of RYO tobacco sold in the UK being less than 12.5g and, according to our data, sales are growing month-on-month.

"Consumers still want to buy good quality products and smaller pack sizes allow them to purchase their preferred brands while controlling their spend."

To enable retailers to capitalise on the growing popularity of these sub 12.5g packs of RYO, Imperial launched Gold Leaf 9g at the tail end of last year. Complete with papers, Gold Leaf 9g enables adult smokers to make 22 hand-rolled cigarettes for less than £3 (using 0.4g tobacco per hand rolled cigarette).

"It is an ideal product for adult smokers to trial Gold Leaf, or for those who are seeking better value and to reduce their outlay on tobacco. Despite its low price point, Gold Leaf 9g offers retailers strong margins of 12% and will help protect turnover by competing with illegitimate and illicit tobacco. Shoppers may visit more often and are likely to buy other products too," says Barua-Howe.

Combo packs

Another trend in RYO is the growth in combo packs which contain papers and filter tips.

Barua-Howe explains: "There are over five million adult smokers who choose to smoke RYO tobacco in the UK.

"Many of them also ’dual’ with cigarettes that is to say they may choose RYO tobacco during the week and cigarettes at the weekend. The flip-top-box style used for Imperial Tobacco’s GV Smooth 8g Handy Packs is designed with these consumers in mind and the pack clearly highlights the inclusion of filter tips and rolling papers."

She says the product taps into another key driver value-seeking with a rrp of just £2.75. We recommend retailers merchandise their RYO tobacco first by brand with economy, then value and then premium brands.

"Within each brand family, we suggest the following flow: 50g, 25g, 12.5g, Handy Packs, 9g and 8g."

Capsule cigarettes

Capsule cigarettes which allow smokers to "individualise their smoke" are now mainstream.

According to Imperial Tobacco estimates, in the past year the capsule cigarette segment has generated over £15m in retail sales value.

Barua-Howe says: "Capsule cigarette brands have achieved around a 2.5% share in a little over two years and it is now important for key brands to have a capsule offering to meet consumer expectations."

She says this, coupled with the popularity of economy priced cigarettes, led to the recent launch of JPS Duo, described as a "quality capsule cigarette at a great price".

The two-in-one cigarette enables adult smokers to introduce a fresh taste to their cigarette through an innovative ’crushball’ mechanism.

JPS Duo comes in packs of 20 king size cigarettes with a recommended 3p premium over the JPS king size range of £6.89.

BAT’s Richard Wood comments: "Capsule technology is one of the most important innovations that the tobacco sector has seen over recent years.

"We recommend that those retailers who previously haven’t stocked capsule variants should start to incorporate them into their product range."

He says Pall Mall was the first brand to include a capsule across its entire range of cigarettes, all at no additional cost to adult smokers.

Meanwhile, Philip Morris International recently launched Marlboro Ice Blast 20s and 10s, described as the "first fresh to fresh menthol capsule cigarette on the UK market" which gives smokers a "unique cooling flavour" from the start. The fresh taste can be further enhanced by crushing the iceball capsule.

bring out the Artist in your store

JTI is advising retailers to review their approach to the tobacco category, using these six steps as a guide:
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 30% 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 marketplace. Look out for JTI’s educational point-of-sale material in cash and carry depots, which is designed to highlight product development and help with 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 are vital for the retailer of today. The key to profitable tobacco is range and availability. Understanding what is happening in your store and being able to pinpoint key sales trends is a priceless insight.

Electronic Boom

To say that electronic cigarettes or e-cigs have been a massive sales success would probably be a massive understatement.
Their popularity is incredible and countless consumers tell of how they have helped them give up smoking real cigarettes.
However, they are not without controversy. The EU would, apparently, like to see them banned. And just last month newspapers here in the UK reported that government ministers were trying to ban under-18s from being able to buy them.
While many people say they are better for you than traditional cigarettes, there are worries about e-cigs’ effects on users’ health. The argument for preventing under-18s from buying them is that kids could get hooked on nicotine and then move onto regular cigarettes.
One of the biggest players in the UK market is Nicolites, a brand which kicked off 2014 with a ’cigarette amnesty’.
Nicolites representatives visited shopping centres where they invited smokers to drop their tobacco cigarettes in the amnesty "totaliser" in exchange for free Nicolites e-cigarettes. As part of the campaign, Nicolites raised money for breast cancer charity Pink Ribbon.
Nikhil Nathwani, managing director of Nicolites (pictured above), says Nicolites are popular because of how similar they are to a traditional cigarette.
"Studies suggest that 60% of the addiction to smoking is habitual. Electronic cigarettes provide the hand-to-mouth action, and inhaling and exhaling of the odourless vapour that mimics smoking of traditional tobacco cigarettes.
"As well as offering real smoking satisfaction, Nicolites are an attractive option because they do not contain any of the 4,000 chemicals that you would get from traditional cigarettes (no tar, no tobacco)."
And he adds that, as electronic cigarettes are not affected by the smoking ban, you can legally smoke them indoors.
Nathwani says disposable electronic cigarettes are quite straightforward to use. "Just like with a traditional cigarette, you inhale from the filter end, which activates the atomising chamber inside the cigarette. This heats the nicotine solution and creates a smoke-like vapour which is inhaled and subsequently exhaled."
He explains that the rechargeable kit works in a similar fashion. However, the kit has a rechargeable battery which can be charged using a USB charger. The cartomisers containing the nicotine solution can be replaced by purchasing a pack of three cartomisers in various flavours and strengths to suit the consumer.
"We offer a lifetime warranty on rechargeable kits, so that if anything happens to the electrical components of the product we will replace it free." 
He recommends the following lines for forecourt stores: Tobacco High Disposable (400 puffs/200 puffs); Tobacco Medium Disposable (400 puffs/200 puffs); Menthol High Disposable (400 puffs/200 puffs). Retailers wishing to offer rechargeable starter kits should go for: Golden Tobacco High Strength Cartomisers; Golden Tobacco Medium Strength; Tobacco High Strength; Tobacco Medium Strength; and Menthol High Strength Cartomisers.
The Nicolites brand will be even higher profile this year thanks to a listing in more than 1,000 Tesco Express stores nationwide.
"We expect to achieve excellent sales as a result of this deal which will enable more smokers to make the switch from tobacco to e-cigarettes," says Nathwani.

Brand update

Imperial Tobacco’s JPS RYO is changing to a portrait pack, as part of a redesign. Ryan Hopkins, senior brand manager for fine cut tobacco at Imperial Tobacco, explains: "The new modern portrait style will ensure design consistency across the entire JPS range, allowing for easier merchandising and increased visibility of the price-marked pack."
JTI has launched a series of ’Timeless Travel’ limited-edition packs for its Benson and Hedges Gold cigarettes. Available now, the three designs across packs of king-size 20s mimic fine vintage luggage. They will be available to all channels for four weeks or until stocks last.
Last month Pall Mall 25g changed to Pall Mall 20g. "As the lowest cost 20g RYO in the market (at time of printing), we’re offering adult consumers a pocket-sized pack at a pocket-friendly price," explains trade marketing representative, Peter Lally, who has overseen the project in partnership with the BAT brand team. "We’ve seen successes with our 10g offering of Pall Mall and so when we were thinking of new ways to offer adult consumers more choice, this was a no-brainer."
The new Zippo All in One Kit incorporates the brushed chrome windproof lighter, a tin of premium Zippo lighter fluid and a six-flint dispenser in one convenient pack. The product comes packaged in a blister card, ready to hang behind the till. Rrp is £19.60. The Zippo brushed chrome windproof lighter is the brand’s biggest seller in the UK. A new self-display box of these lighters contains six hang-tag blister packs which can be displayed in the box on the counter or hung in the gantry behind the tills. Rrp is £16.25.
Scandinavian Tobacco Group UK Limited has unveiled a new look for its top-selling Café Crème cigar brand. The redesign showcases the brand’s 50 years of heritage by including an on-pack flash stating "Since 1963", as well as including more prominent imagery of the cigar and a new, bolder lozenge-shaped logo.
Philip Morris International has recently introduced a new cellophane wrap for the price-marked pack Marlboro Gold Touch, which features a royal blue fingerprint design highlighting the brand’s current rrp. The new packaging forms part of the company’s renewed focus on the brand for 2014.

EU legislation update

In December, a provisional agreement was reached within the European Parliament on the Tobacco Products Directive. This will see the banning of 10s packs of cigarettes, menthol cigs and smaller pouches of tobacco as well as the introduction of even bigger health warnings.
The agreement will now be scrutinised by the ENVI Committee of the EU Parliament, which is likely to happen at its next meeting sometime this month. It will then be voted on in Plenary in April 2014. Formal Council adoption is expected to follow shortly after. The exact timetable of what will happen when depends on the text agreed, as there will be a gradual adoption of the different provisions of the Directive.
JTI head of communications, Jeremy Blackburn, comments: "The announcement from the EU to ban 10s, menthol and smaller pouches of tobacco will mean the lowest price will now be the street price sold by criminals who peddle to anyone, including children. Meanwhile the government’s exchequer will have to plug the gap left from the flood of non-duty UK paid cigarettes and roll-your-own tobacco which will come in to the UK.
"While we support the European Commission’s objective of reducing youth smoking, the EU’s Tobacco Products Directive will not achieve this goal. Increasing the size of health warnings to 65% will not deliver any public health benefit as people already understand the risks associated with smoking.
"Many of the proposed measures, including the menthol ban, will make it easier and cheaper for criminals to produce and sell cigarettes that are not tested, not regulated and not taxed."

Plain packaging update

Last summer the tobacco industry sighed in relief as a consultation found there was insufficient evidence for the government to adopt plain packaging. But then came the government’s decision, late last year, to review plain packaging despite two-thirds of respondents to the previous consultation saying they were against plain packs.
Gayatri Barua-Howe, UK communications manager at Imperial Tobacco, says: "The real evidence from Australia, which became the first country in the world to introduce plain packaging a year ago, is clear: plain packaging has not had an impact on tobacco consumption but a KPMG report shows there has been an increase in illicit trade."
BAT head of corporate and regulatory affairs, Ronald Ridderbeekx, agrees: "The only winners from this policy seem to be the black marketeers. Black market cigarettes from a range of sources have established themselves in Australia, including brands such as Manchester and Spoonbill, with even more new brands beginning to emerge.
"It’s unfortunate that plain packaging will remove many of the common authentication features used by law enforcement to identify counterfeit products."
According to Ridderbeekx, the Scottish government has made it very clear that it supports plain packaging.
"We understand that in the coming days they will be pushing a motion through the parliament in Holyrood, voting to give Westminster the power to introduce plain packs on their behalf under the UK-wide system. They have stated they hope this will "speed up" the process. The Scottish government has also been clear that if the UK government decides not to proceed, Scotland will move to implement plain packaging alone, without real-world evidence.
"It’s going to take common-sense retailers, adult smokers, and anyone concerned about the illicit trade or private property rights to get involved in our campaign to stop plain packaging in the British Isles. We need all Scottish retailers to get involved in activities in both the Scottish and UK campaign."
He is asking retailers to help send a message to Holyrood: "If you believe plain packs are plain wrong, e-mail Julie at regulation@bat.com for more information on how you can get involved in the campaign."