Show offs

This year is going to be a busy one for the tobacco category as it’s the manufacturers’ last chance to launch new lines before the full display ban in April 2015.

That’s the opinion of Alan Graham, head of marketing at Scandinavian Tobacco Group UK (STG UK), and he should know, as he’s been busy launching Break little cigars.

These are described as super value for money (SVFM) cigars that will allow forecourt retailers to offer their customers a cheaper, alternative smoke to value cigarettes. They give smokers a ’smooth, filtered smoke’ and retailers double-digit margins. Break little cigars are small cigars with an inbuilt filter and an Ecuador wrapper made of natural tobacco leaf to ensure a milder taste than most machine-made cigars.

Graham explains: "During the past three years, we have seen little cigars become incredibly popular in Europe. So popular in fact that they are now the fastest-growing tobacco sub-category in Europe with 3.45bn sold in 2013 (Nielsen). We expect this trend to continue in the years to come as price continues to be a focus for many smokers, which is why we chose to launch this new sub-category into the UK. As a SVFM range, which is cheaper than the cheapest cigars and cigarettes on the market, Break little cigars directly respond to this trend with a contemporary proposition that will hold great appeal for price-sensitive smokers."

He says that by stocking Break little cigars, forecourt retailers will not only be able to cover Europe’s biggest-growing tobacco category, but they will also encourage repeat visits from customers by meeting the increasing demand for cheaper smoking alternatives. "With the next 10 months a crucial time for the tobacco category, forecourt retailers should stock up on Break now to attract new customers to this new sub-category range ahead of the display ban."

Break little cigars are available in three variants: silver (smooth flavour), blue (full flavour) and menthol.

Priced at just £4.59 for 17, Graham says Break offers the cheapest price per stick (at only 27p per smoke) within both the cigar and cigarette categories. The range is sold in hard boxes which are colour coded to make them easy to find on shelf. They come in both non-price marked and price-marked packs, offering retailers the flexibility to offer visible value for money on shelf.

Value is key

Value is most definitely key to many smokers across all parts of the tobacco category. Indeed Imperial Tobacco’s research reveals that economy-priced cigarette brands account for over 43% of all cigarettes sold in the UK and growth is set to continue.

The company’s UK head of sales, Martin Goodall, says there is a need for continued support, development and innovation in this price sector to meet the needs of the growing numbers of price-conscious consumers.

The company did its bit earlier this year with the launch of L&B Blue. Available in packs of king-size 19s and also in a smooth variant, L&B Blue is positioned within the sub-economy price sector with a rrp of £6.62.

Alison Williams, senior brand manager at Imperial Tobacco, comments: "L&B Blue has been designed to suit the preferences of adult smokers who require a lower-priced cigarette offering but want reassurance from a big brand. L&B Blue is expected to appeal to smokers who in the past have switched from Lambert & Butler. It will also appeal to long-time value smokers who previously haven’t been able to afford a product from the Lambert & Butler family."

However, JTI’s new B&H Blue beats L&B Blue on price. These cigarettes too come in king-size 19s and smooth-flavour king-size 19s, but with rrps of £6.50 each. JTI’s head of communications, Jeremy Blackburn, says: "Benson and Hedges remains the most iconic tobacco brand in the UK, evolving over the years to remain relevant to the market. Sitting in the value segment, the latest addition to the Benson and Hedges house is designed to offer smokers affordable quality.

"Retailers should stock B&H Blue as part of a full range of Benson and Hedges products to demonstrate the best choice and value to smokers."

Win, win, win

To celebrate the launch, JTI is running a competition where tobacco retailers have the chance to win a range of prizes, including Sony TVs, iPad Airs and Sony clock radios.

What’s more, every retailer who enters the competition will receive a £5 money-off-next-purchase coupon for B&H Blue. To be in with a chance of winning, retailers need to collect two bar codes from B&H Blue outers and return them along with a completed entry form (available in the trade press and from selected wholesale depots), to the address on the form before the closing date of August 8.

Moving on, and BAT has launched Rothmans menthol onto the UK market and also announced a pack design change that puts the brand’s heritage and quality tobacco-blending tradition on every pack. "Value-seeking adult smokers continue to drive growth in the low segment," says BAT UK marketing director, Frank Silva. "With the launch of Rothmans menthol, we’re offering retailers the opportunity to deliver their adult smokers even more choice, combined with the reassurance of quality and heritage associated with the iconic Rothmans brand. You could say we’re offering an upgrade for menthol adult smokers."

Nielsen data confirms the rapid growth trend of the Rothmans Value range with Rothmans UK’s share at more than 1% (January 2014).

Silva says this made BAT’s decision to add a menthol option an easy one.

From this month, Rothmans will introduce a new pack design including the quality guarantee stamp of founder Louis Rothman’s signature, as well as a series of three insights into the brand history and guiding principles on the back of packs.

"We’re showing our adult customers that we don’t compromise on quality our founder’s history helps tell that story," explains Rothmans brand executive, Olga Li.

Best value

Roll your own (RYO) cigarettes are still seen as the best value by many smokers, which is why there’s been such a boom in sales of RYO tobacco.

Imperial Tobacco reports that GV Smooth has produced robust sales figures since its launch last year. With its convenient format and sub-£3 price point the firm says it’s no surprise that the GV Smooth 8g Handy Pack has proved a popular choice with consumers.

In fact it’s been so popular that it has now broken through the 1% market share point (ITUK March 2014 estimates) and received a further boost with the news that production has been increased to meet demand. Imperial’s fine cut tobacco senior brand manager, Ryan Hopkins, comments: "We are excited to see these big share gains in recent months. GV Smooth was designed specifically with the modern RYO consumer in mind and this increased production will help to ensure consistent availability."

But it’s not just Imperial’s GV Smooth range which is performing well, Gold Leaf looks set to build upon its market share of around 10% (IT UK January 2014 estimates). Both brands contain smooth tobacco and this segment of the market has grown by over 16% in volume terms over the past year.

Since its launch in 2007, Gold Leaf has grown from strength to strength and is currently the number one economy-priced RYO in the UK (ITUK estimates).

BAT UK has extended its Cutters Choice range to help retailers benefit from the long-term growth opportunity in the RYO segment.

The new range includes: original smooth blend (available in 12.5g and 25g, with the 50g size reduced to 40g; a true blend (12.5g); and the new exquisite blend (12.5g). BAT says the new variant offers RYO smokers a more mature and premium blend within the value for money (VFM) segment.

Cutters Choice brand executive, Claire Bodiguel, comments: "Discerning adult RYO smokers want the chance to choose the blend that suits them best. Being able to select from an established brand with high standards is attractive for adult RYO smokers and retailers. "The launch includes new pack designs across the entire range, designed to capture the essence of each of the tobacco blends. Each includes the ’Perfect Leaf’ stamp of quality."

Going cheap

But STG’s Graham says his firm offers the cheapest RYO range, gram for gram, via its Salsa brand. He says demand for value-for-money (VFM) lines means the segment is already worth £329m and showing impressive growth of 26%.

"We launched our Salsa RYO tobacco range in response to this demand for VFM, offering a quality product at an exceptionally low cost. Since its launch, Salsa has gone from strength to strength with value sales now worth £2m. Salsa’s £3.29 price-marked pack variant has also been incredibly popular, offering consumers instant reassurance that they’re getting a good deal. Price-marked packs offer great appeal to shoppers as they provide visible value for money while on shelf. Despite the limited time consumers will be able to see the products after the implementation of the display ban, price-marked packs will still help flag pricing of products with their clear messaging on price."

Legal update

As well as the upcoming display ban there is now the very real prospect of plain packaging.

In response to the government announcement and the publication of the report on plain packaging by paediatrician Sir Cyril Chantler, Colin Wragg, Imperial Tobacco’s head of UK corporate and legal affairs, comments: "We are extremely disappointed that despite the lack of credible evidence that plain packaging will help achieve the stated public health objectives, the government is pressing ahead with this irrational and disproportionate policy.

"Sir Cyril Chantler recently saw first-hand the negative effect plain packaging has had in Australia. While smoking prevalence remains unchanged, the legislation has acted as a boon for criminals partaking in illicit trade. Since its introduction illicit trade has increased from 11.8% to 13.3% of total consumption."

Wragg says the government should undertake a thorough evaluation of existing UK tobacco control measures such as the display ban and the European Union Tobacco Products Directive before embarking on new legislation, which will have a damaging effect on retailers. "All of these factors will see retailer profits further harmed at a time when the government should be supporting small businesses that are the cornerstone of our economy.

"To add to this, plain packaging will infringe the intellectual property rights and right to commercial free speech of those selling a legal product. We will take this opportunity to submit further evidence that plain packaging will not contribute to the government’s public health objectives and encourage retailers to make their voices heard during the new consultation period."

At the beginning of April, Public Health Minister Jane Ellison MP told the House of Commons that she was "currently minded to proceed with introducing regulations to provide for standardised packaging."

Draft regulations and a "short and final" consultation were due to be published last month but so far no details have been released.

Finally, the EU Tobacco Products Directive could be implemented as early as the first quarter of 2016.

The new measures include: banning the sale of cigarettes in packs of less than 20; setting the RYO tobacco pack size to a minimum of 30g; combined picture and text health warnings that will have to cover 65% of the front and back of packs; and a ban on flavourings including menthol.

JTI reckons the new regulations would ban 40% of tobacco items currently sold.

Head of JTI’s EU affairs office, Ben Townsend, says: "These regulations are wide ranging and restrict the way products are made, packaged and sold. They will have a huge impact on millions of legitimate businesses across the EU, from farmers to packaging manufacturers, and tobacco producers to retailers. Given the very short timelines and costly changes required, clarity must now be given on the multiple measures contained in the TPD and subsequent implementation and delegated acts.

"Make no mistake: these regulations will not achieve the public health benefits that law makers have claimed.

"Legitimate businesses will suffer as excessive packaging requirements and banning entire product categories will benefit international criminal networks who will fill this supply gap."

Igniting Sales

Imperial Tobacco says its Ignite scheme is a programme with a difference as it aims to help retailers win in two ways:
Category advice by giving retailers the best support and category development advice the firm says it will help them to achieve the highest standards of tobacco retailing, enabling them to attract and retain customers.
Rewards Imperial will be setting retailers aspirational objectives in Ignite; if those objectives are achieved they will provide retailers with exciting rewards. Reps will be on hand to help retailers achieve the highest standards of tobacco retailing to enable them to attract more tobacco shoppers into their store. In research, some retailers felt that certain investment programmes did not offer them rewards that matched their requirements. Imperial says that if the mutual commercial objectives are met it will provide retailers with "relevant and innovative rewards" that really make a difference.
Imperial Tobacco’s UK head of sales, Martin Goodall, says: "By working with their Imperial Tobacco rep, Ignite will help retailers maximise tobacco sales. It rewards those who strive to achieve best practice in the tobacco category. And in the build up to a full dark market, the programme will enable retailers to become fully competent in areas such as availability and staff training."

Regional ranges

Tobacco is often cited as one of the most regionally-biased convenience categories there is. Recognising this, Imperial Tobacco now offers ranging and merchandising advice that’s specific to each postcode district, which means independent retailers have access to the same type of information that the supermarkets have had at their fingertips for years.
"We have 1,600 planograms for different stores and can offer the same service to independents as we do to the big multiples," says Tim Oates, Imperial Tobacco independent availability executive.
He says reps can show retailers best-seller lists for their areas to illustrate why they should stock these brands. Oates says this is vital with the display ban on the way: "It’s about getting the right brands in place and getting availability right so customers don’t walk away."

HMRC haul

A member of one of the UK’s biggest-ever tobacco smuggling gangs, who fled to Spain during his trial to avoid prison, has been caught and returned to the UK to begin his sentence. John Sabin from Doncaster was part of an eight-strong gang that transported millions of smuggled cigarettes across the north of England.
Sabin escaped justice after being convicted for his part in a £26m tobacco-smuggling operation which involved more than 150 million illicit cigarettes and tonnes of low-quality tobacco. He was subsequently sentenced in his absence to two years and nine months in prison.
He was added to HM Revenue and Customs’ (HMRC) list of Most Wanted tax fugitives. After a public appeal for help, he was tracked down by Spanish police to Malaga, where he was working in a bar.
Stories like this may sound like the plot of a film but they illustrate the scale of the tobacco smuggling problem. Every month there are stories across the regional press about people who have been caught smuggling but still people do it.
Recent stories include:
Seven men have been jailed for a combined 24 years after HMRC smashed a £28m cigarette smuggling conspiracy. The gang imported low grade and counterfeit tobacco, which was then sold across northern England and Scotland. They were tracked down with the help of fingerprints and DNA found on discarded cans and bottles at sites where they had been transferring loads of cigarettes.
Four men who tried to evade over £1.3m in duty and taxes due on sales of almost six million illegal cigarettes, have been sentenced after an investigation by HMRC.
HMRC officers raided a farm in Essex, as well as four premises near Bury and another in Blackburn, and seized cash, chemical agents, counterfeit packaging and tobacco packing machinery.
The officers dismantled a tobacco processing plant in Essex and seized over three tonnes of raw tobacco that was in the process of being converted into counterfeit hand-rolling tobacco from an industrial unit in the Bury area.
The Scottish kingpin behind a £28m cigarette smuggling ring has been jailed after a three-year probe by customs investigators. Kamaran Khader from Greenock was sentenced to six years in prison for conspiracy to evade excise duty following a jury trial at Manchester Crown Court. A second gang member was jailed for five years.

remember the Niche ranges

As well as offering the cheapest tobacco ranges and market-leading brands, Alan Graham, head of marketing at Scandinavian Tobacco Group UK Limited (STG UK), says stocking more niche product ranges should be a focus for forecourt retailers in 2014. "Whether it’s unique flavour variants such as our Café Crème Filter Arôme or additive-free tobacco ranges such as Natural American Spirit (NAS), forecourt retailers should make sure they include them in their tobacco display now to avoid losing customers in the future."
Additive-free tobacco continues to grow in popularity as smokers pay more attention to what ingredients are included in their tobacco. As a result, Graham says the UK’s number one additive-free brand NAS, should be a consideration for forecourts.
Meanwhile, forecourts within selected areas of the South East are now able to offer JPS Just Red Additive Free to their customers. Positioned within the economy price sector, the cigarettes have an rrp of £6.55 for 19 king-size sticks. The brand was launched in the South East as this is an area where additive-free tobacco sales are at their strongest. There are currently no plans to roll it out nationwide.
Imperial Tobacco senior brand manager, Madeleine Allen, comments: "JPS Just Red Additive Free represents the first American blend offering within the growing economy sector and has been designed for smokers seeking a distinctive smoking experience."

Display ban differences

Although all small stores in England, Wales, Northern Ireland and Scotland will have to comply with the display ban by April 6, 2015, JTI points out that some of the compliance requirements are different.
For example, Scottish retailers must not display an area larger than 1sq m when making a tobacco sale. In England, Wales and Northern Ireland the area is larger, at 1.5sq m. And it will also be illegal for Scottish tobacco retailers to display associated products such as papers, tubes and filters.

Retailer view

Tom Orford, operations director at Peregrine Retail:
"When we bought our Blackhorse Garage in Bristol, 43% of the store’s trade was tobacco. Since we branded the shop as Budgens and changed the store mix, that’s dropped to just over 30% and it makes us 11-12% on margin. Blackhorse is a neighbourhood store and tobacco is a key footfall driver. At our other two sites, tobacco accounts for 21% and 23% of sales.
"We try to keep price-marked packs to a minimum but some tobacco lines are only available in pricemarked packs. Bristol is a big Lambert & Butler area so it’s a strong seller in Blackhorse but across the board we have a good mix of sales premium and value lines so Marlboro Lights are a strong seller alongside Sovereign.
"Roll-your-own tobacco is also selling very well and e-cig sales are really fantastic. We sell two or three brands and it’s incredible the number of sales we have.
"It will be interesting to see what happens when the display ban comes in next April. Our gantry supplier (JTI) has talked us through how the process worked in larger outlets and the general feeling is that it did not affect trade too much. Smokers know the brands they want so we’re not expecting it to give us that many problems. JTI will supply us with the equipment to ensure our tobacco is fully covered.
"When it comes to plain packaging, I don’t think it will make much difference in terms of people smoking. All those images on packs now haven’t made a difference."

In brief

Number one cigar brand Café Crème has just celebrated its 50th anniversary. Originally launched in 1963, Café Crème has enjoyed huge success over the past 50 years which has allowed it to become not only the number one-selling cigar in the UK, but also the world. The Café Crème family now accounts for 40% of the entire UK cigar market and is worth over £74m in the UK alone (Symphony IRI data).
JTI has reduced the cost price and rrp of its Berkeley King Size cigarettes. From this month, it is repositioning the brand to meet the ever-growing demand from smokers for value-for-money cigarettes. At the same time, all Berkeley King Size packs will have a new look, while the price and pack design of Berkeley Super Kings will remain unchanged. Retaining the same quality Virginia blend tobacco, the updated King Size 19s, Blue 19s and 10s packs will sit within the sub-value segment, price-marked at £6.25 and £3.25 respectively. 
The second phase of Imperial Tobacco’s ’Working together to fight illicit trade’ campaign is under way with the message ’Suspect It? Report It!’. Peter Nelson, Imperial Tobacco anti-illicit trade manager, says they have identified four key areas where the illicit trade is having a damaging effect: income, youth, quality and community. "Our new artwork encapsulates a number of alarming scenarios which in reality are becoming more prevalent on UK shores. We encourage everyone who can make a contribution, no matter how little it seems, to report it either directly to the Customs Hotline or through their tobacco representative."

Prepare for the display ban

Respond to market trends:
Stock a range of tobacco that offers value for money.
Make sure you include a range of well-known, market-leading brands that your customers can trust.
Ensure you include niche ranges such as NAS additive-free. Remember this is your last chance to liven up your display with limited editions and new product launches so make sure you do it while you still can.

Start shaping your display:
Think about which products you will include on your gantry once the display ban is in place eg well-known, cheapest and niche brands.
Examine your epos data and take time to speak to your customers to understand what products they’re looking for and shape your range in line with this to avoid loss of sales from your core customer base.
Once you have an idea of which products to stock, start planning the layout of your display. The sooner you start thinking about where you will merchandise the products, the sooner you can start training staff to ensure your customer service does not suffer when selling tobacco products.

Education, education, education:
The education of your staff will be intrinsically linked to the performance of your tobacco sales when the display ban arrives. Start training your staff now to ensure they understand the ranges on offer and where they will be placed on the gantry. While also offering a great level of customer service to your customers, it will help you avoid lengthy transaction times and lost sales.
Source: Scandinavian Tobacco UK

Retailer view

Susie Hawkins, Simon Smith Group:
"Tobacco is a very important category for us. Sales vary from site to site but it accounts for anything from 20-35% of sales. Even though margins are lower than on some other lines, the high value of tobacco products gives us a big cash profit. There’s still a fair amount of profit in the category because of the high value involved. Volume sales are in decline but not massively. Value is steady but it’s definitely not a growth category, however for me, the tobacco gantry is the most productive use of space in the entire store.
"When it comes to brands, sales are quite regional. We trade in Lambert & Butler country but we have one site where Marlboro is the best seller.
"I have noticed a bit that customers are looking for value but because we are a forecourt I think we see it less. Generally we’re perceived as being premium priced so I think our shoppers are less value conscious.
"We never used to offer price-marked cigarettes but we now do it a little depending on the site. I think it’s good to give people an option but it definitely has an effect on margin. Price-marked packs are well received by the customers but I’d be worried about carrying a big range of them.
"I think the display ban will have an effect on trade but more of an effect on range. It’s important to get the range right now so customers know what we’ve got once the doors are on. We’re in talks with our supplier and we’re emphasising to staff that they need to know the range.
"I am concerned about the timing of the ban as we’ll all want our doors put on right at the last minute and that could be a problem. I know suppliers are keen to put them on sooner rather than later. I think we’ll get our frames fitted ready to go."