Keeping up with tobacco regulations is a full-time job. In England the plans for a display ban are meant to come into force on October 1 for large stores and on October 1, 2013 for smaller ones. However the change in government last year means we don’t really know what’s going on. The consultation on draft regulations has been completed and we understand the final regulations will be laid before parliament shortly.

Similar display bans have been proposed for Wales (at the same time as England) and for Northern Ireland (but by July 1 this year for all shops!) but regulations have not been published. And in Scotland, ministers have opted for a display ban and a registration scheme for tobacco retailers as well as a ’proxy purchasing’ ban.

The Tobacco Manufacturers’ Association (TMA) is opposed to regulation that restricts or prohibits retailers from displaying product at the point of sale. It states that there is no credible evidence to support the government’s objective that a ban would reduce youth smoking. It cites recent evidence from Canada which has demonstrated that youth smoking has remained the same or increased in five of the eight Canadian provinces that have implemented a display ban (Canadian Tobacco Use Monitoring Survey 2008 current smokers aged 15-19).

The TMA continues:

l The proposed legislation in the UK will make illicit, unregulated tobacco products easier to sell. Concealing tobacco products from view will make it easier for traders of smuggled product to blend it into the legal supply chain. It could encourage some smokers to buy from rogue traders who are prepared to sell more visible illicit product. The efforts of tobacco companies and HMRC have led to a reduction in smuggling of genuine tobacco products but this proposal is likely to increase counterfeiting and illicit trade. We believe, as recent evidence in Ireland proves, that organised crime will exploit the display ban. (The Republic of Ireland implemented a ban on the display of tobacco products in July 2009).

l Display of product is necessary to allow adult consumers to make an informed choice based on availability, price and brand from the wide range of tobacco products on the market.

l Display of product also enables fair and undistorted competition between manufacturers and between retailers.

l The costs of the proposed legislation will impact adversely on thousands of small retailers. Product display above the counter is essential to retailers to keep products secure and to speed up transaction times and reduce the need for extended verbal communication.  Tobacco is a high-value FMCG product and the most requested FMCG product, with approximately 10.6 million smokers in the UK regularly buying tobacco products (General Lifestyle Survey plus Continuous Household Survey [Northern Ireland] 2008).

Iain Watkins, UK communications manager at Imperial Tobacco, comments: "The elements affecting tobacco retailers contained within the Health Act and the Tobacco and Primary Medical Services (Scotland) Act are unjustified, unwanted and unnecessary. There is no credible evidence to support the stated public health objective that bans on tobacco displays and vending would reduce youth smoking. The legislation is unwanted by thousands of retailers whose businesses will be adversely affected to no purpose. Furthermore these restrictions are unnecessary and disproportionate given that effective alternative solutions aimed at youth smoking prevention are available. Imperial Tobacco shares the government’s objective that young persons should not smoke and we remain committed to helping to prevent young people from being able to access tobacco products. To this end we have fully supported the CitizenCard, Young Scot and ’No ID, No Sale’ campaigns."

JTI’s head of communications, Jeremy Blackburn, agrees: "There is no requirement for a display ban; there are better ways to stop youths smoking. However we do applaud the Scottish government on its proxy purchasing legislation."

Ronan Barry, head of corporate and regulatory affairs, BAT UK, says a display ban would shift sales from the legitimate market into the hands of criminals: "Illicit trade would be exacerbated. This can already be seen in the Republic of Ireland. Despite tobacco control measures like the display ban, EU consumption figures suggest that consumption is increasing in Ireland. We believe that trade is leaving legitimate stores and going to the illicit market."

Watkins agrees: "A display ban will exacerbate the already significant levels of illicit trade taking place throughout the UK. Illicit trade undermines public health objectives, damages legitimate business and results in substantial revenue losses to HM Treasury through creating a market that is uncontrolled, untaxed and unaccountable.

"Imperial Tobacco has no current intention to pay for retailers’ shops to be adjusted in the event of a display ban. If the government is intent on introducing such unnecessary and ill-conceived legislation then they should be prepared to help retailers to implement it."

North of the Border

In Scotland, all retailers who sell tobacco will be required to register between April 1 and October 1 this year. The Tobacco Sales Registration Scheme means retailers will be clearly identified, enabling Trading Standards officers and others to offer advice and support to them to avoid illegal sales. Retailers are required to provide their name and address and the address of all premises at which they propose to carry out a tobacco business.

Plain speaking

There has been speculation about putting cigarettes in plain packs but BAT’s Barry reckons plain packaging would amount to "Christmas for counterfeiters". "Tobacco products would become cheaper and easier to fake and fakes would become impossible for consumers to spot. The legitimate trade stands to lose millions to smugglers if such a measure was to go ahead. Currently, around 21% of the cigarettes and over 50% of roll-your-own (RYO) tobacco smoked in the UK doesn’t have duty paid on it, largely due to smuggling and counterfeiting.

"This is costing retailers millions of pounds a year with the loss in tobacco sales, not to mention lost revenue from other lost purchases. And the level of counterfeit in the UK is already on the increase. In 2009, according to HMRC, it increased by 40%. This is despite counterfeiters currently having to go to some trouble to match colours and designs on packs to trick their customers into thinking they are getting the real thing, and they often get it wrong making the detection of fakes easier.

"If the government insists that cigarettes are sold in plain packs, this problem will get a lot worse, a lot faster. We were surprised to hear the proposal, especially given that a number of governments around the world, including Canada, have already looked closely at this measure and have decided it wouldn’t work.

"Any attempt to introduce plain packaging would see us take every action necessary to protect our valuable intellectual property rights and right to compete as a legitimate commercial business selling a legal product. After all, this is the thin end of the wedge would the next logical step be to force alcohol, chocolate and crisps to be sold in plain packs as well?" Imperial Tobacco’s Iain Watkins adds: "Plain packaging legislation has never been implemented by any government worldwide.

"Last April the Australian government announced plans for the plain packaging of tobacco products with effect from July 2012. We believe measures of this kind are unreasonable and unjustified and we will continue to robustly challenge them, including in court if necessary.

"We don’t engage lightly in legal challenges but we will do so in the case of plain packaging in order to protect our brands and the rights of our consumers.

"Making all tobacco products available in the same, easy-to-copy generic plain packaging would potentially lead to a significant increase in counterfeit product. This was recognised in the UK government’s 2008 consultation document which stated: "...plain packaging may exacerbate the illicit tobacco market as it could be easier for counterfeit products to replicate the plain packages than current tobacco packaging." Watkins continues: "Governments need to ask themselves whether they want tobacco products to be sold by a responsible, legitimate business or by organised crime gangs who have no regard for any regulation about sales to children.

"Tobacco packaging has never been identified as a reason why young people start to smoke or why adult smokers continue to smoke.

"The Department of Health consultation document further states: "As there are no jurisdictions where plain packaging of tobacco products is required, the research evidence into this initiative is speculative..."

"...If plain packaging was introduced, it could be more difficult for retailers to conduct inventory checks, and customer service could be made more difficult at point-of-sale."

"The introduction of plain packaging may set a precedent for the plain packaging of other consumer products that may be damaging to health, such as fast food or alcohol."

"Imperial Tobacco has a fundamental right to differentiate our brands from those of our competitors and plain packaging would make it practically impossible for a new competitor to enter the market or an existing competitor to compete further by launching a new brand."

BAT’s Barry advises retailers to talk to their local MPs as illicit trade is a huge problem which will greatly affect their businesses and livelihoods.

JTI’s Blackburn also calls for retailers to take action. "It really concerns me this acceptance that illicit trade ’just happens’," he says.

"We need a cultural change where retailers and consumers report what they see after all for retailers it’s actually about defending their business!"

A robust market

Moving away from legislation and getting down to basics, Imperial Tobacco’s general manager, Amal Pramanik, says the UK tobacco category remains "thoroughly robust".

"The number of cigarettes sold by UK retailers last year remained relatively static and RYO tobacco experienced double-digit growth for yet another year."

BAT’s Barry adds: "Tobacco remains a vital category for retailers, delivering both footfall and revenue stream. Smokers are more likely to make other purchases while they are in the shop. It’s important that retailers continue to stock tobacco products to keep shoppers coming into their stores and purchasing other products while they are there.

"Tobacco is also widely recognised as a key footfall driver. Because of high levels of taxation (around 77%), the profit margins are small, but the cash turnover is high (around 40% for many small shops)."

Pramanik points to two main growth areas in the tobacco category, with a common theme:

l Economy priced cigarettes the economy price sector now accounts for over 25% of all cigarette sales through UK stores. This figure was 11.4% in 2008 (AC Nielsen’s Market Track data).

l RYO tobacco the RYO segment has experienced value growth of 19% in the past 12 months. The RYO segment has seen consistent growth in recent years and now provides UK retailers with turnover in excess of £1.1bn (Nielsen).

Iain Watkins adds: "These increases have been driven recently by the economic downturn which has seen more and more adult smokers moving down through the cigarette price sectors and into RYO."

Capitalising on this down-trading trend, Imperial Tobacco launched the UK’s best-selling cigarette Lambert & Butler king size and the UK’s best-selling RYO tobacco Golden Virginia green in price-marked packs last November.

Imperial Tobacco is also enjoying great success in the economy-priced sector with its JPS ’silver’ range. The range comprises: JPS king size Blue 10 & 20 (full strength variant 10mg); JPS king size silver 10 & 20; JPS king size menthol 20; JPS superkings blue 20 (full strength variant 10mg); and JPS superkings menthol 20.

Year-on-year sales figures from AC Nielsen for the 12 months ending October ’10 reveal that JPS king size blue generated £221m of retail turnover in the past 12 months compared to £88m a year ago. And the entire JPS ’silver’ range now accounts for £407m of sales versus £178m a year ago.

Imperial Tobacco’s head of insights and business planning, Sam Miller, comments: "We are delighted that our JPS silver range has grown so robustly over the past two years. The economy-price sector has seen steady and consistent expansion in recent years with our JPS silver range out-performing its rivals in this lower price sector."

Meanwhile, JTI’s Jeremy Blackburn reckons forecourt retailers need to recognise RYO as a real sales opportunity.

JTI recently surveyed 250 independent retailers to find out their views on RYO and whether it is an important source of income for their store.

The majority (83%) said they believed RYO sales would remain consistent or increase in the coming year.

Over half of retailers said they’d witnessed regular tobacco buyers switch from cigarettes to RYO tobacco, demonstrating the increasing importance of the RYO category in their tobacco offering. Along with the desire for greater value for money more adult smokers are ’dual smoking’ and choosing RYO products for their lower price points and cigarettes when they have more money to spend.

Over three quarters of retailers surveyed said they included price-marked stock within their RYO range, to ensure that smokers could see that they were getting the best value when they made their purchase. Nearly 70% of retailers said they’d added 25g and 50g pack sizes to their RYO range in the past 12 months. Says Blackburn: "We know that RYO has been growing significantly over the past 10 years the UK market has doubled in size in that time, and this research highlights just how important it now is to retailers.

"As more smokers strive for greater value when purchasing tobacco, the RYO market is only going to get bigger, so it’s important to be prepared in order to profit from this future growth."

Blackburn says the big opportunity for forecourts is to sell larger packs trading customers up from the 12.5g packs to 25g and 50g.

Over at Imperial, Watkins comments: "Since 2007 there has been a 50% growth in RYO sales through retail outlets. In the 12 months ending October 2010 retail sales of RYO increased by 13% and the value of the RYO market to retailers increased by 19% to £1.1bn. RYO sales in independent retail outlets totalled over £500m in the past 12 months. We have become accustomed to down-trading in the cigarette market and now it is increasingly occurring with RYO brands as well. To reflect that trend, in the recent past, Imperial Tobacco has successfully launched brands such as Gold Leaf and Golden Virginia Yellow modern and relevant products offering adult smokers quality and value for money."

RYO tobacco has traditionally been merchandised on the bottom shelf of tobacco units but Watkins says it’s time for that to change: "The bottom shelf is no longer the recommended merchandising position for this growing segment of the category. With volumes increasing every year, retailers should consider increasing the visibility of RYO tobacco and allocating sufficient space to growing brands.

"Last year we introduced a new merchandising solution for retailers’ RYO segment. This raises the profile and visibility of the segment to a level befitting its new status within the category."

BAT recently boosted its RYO line up with the launch of Pall Mall RYO "designed to meet the growing demand for a value-for-money, quality tobacco from an internationally-recognised brand".

Henry Lewis, BAT brand manager UK & Ireland, says: "With an increasing trend towards adult smokers selecting RYO, Pall Mall RYO meets this rising demand while offering the classic Pall Mall rich taste." It comes in a red vertical pouch. The 12.5g pack is price-marked at £2.79 while the 25g pack retails at £5.47. The 12.5g size uses a quality laminate to keep the tobacco fresh.

BAT has reduced the recommended retail price of its Samson hand-rolling tobacco to £2.93, £5.73 and £11.19 for the 12.5g, 25g and 50g variants respectively.

Finally, Scandinavian Tobacco (ST) Group UK is best known for its cigar brands, including Café Crème and Henri Wintermans, but it also offers retailers the Crossroad RYO tobacco brand.

Alastair Williams, trade marketing and communications manager at ST Group UK, says: "Our Crossroad brand is a different variation on traditional RYO products, meeting consumers’ desire for a smoother smoke by offering a distinctive full-flavour, light-colour tobacco that contains no artificial additives or chemicals and is made purely from natural tobacco.

"Crossroad Original and Crossroad Virginia Blend are proving a success with more discerning adult smokers who want a premium rolling tobacco at mainstream prices.

"We have been pleased with how it has been received by the market since its launch in late 2009 and see it forming an integral part of the RYO category," he adds.

crime sprees

The UK government has had a strategy for tackling tobacco smuggling since 2000 when one in five cigarettes smoked in the UK was smuggled.

HMRC estimates that today one in 10 cigarettes are smuggled. Anyone with information about tobacco smuggling can contact HMRC’s customs hotline on 0800 59 5000.

But if you thought cigarette smuggling was not a massive problem, you’d be wrong. You only have to look at the regional newspapers to see the scale of the crimes. Here are some of the latest stories:

l Seven men from the North East have been jailed for a total of 11 years and seven months for their part in smuggling 10 million cigarettes into the UK, evading almost £2m in taxes. Investigators from HM Revenue & Customs (HMRC) repeatedly caught the gang red-handed as they delivered and unloaded millions of duty-free cigarettes at locations across the North East.

l The ringleader of a gang that smuggled over 64 million fake cigarettes into the UK, evading £10m in duty, has been jailed along with nine other gang members for a total of over 30 years.

l Three members of a European-wide cigarette smuggling gang have been ordered to repay more than £1.6m from the proceeds of their crimes or face further time in prison.

l Two Manchester men who pretended to import Christmas snowmen in a plot to smuggle nine million cigarettes into the UK through Felixstowe docks have been jailed.

l Over £30,000-worth of illicit cigarettes and tobacco was seized from two premises in Cardiff in a multi-agency operation led by HMRC. Officers seized 115,000 non-duty paid cigarettes, a van and a private vehicle from one shop and six kilos of hand-rolling tobacco from another.

l Five Merseyside men have been arrested and almost 10 million illicit cigarettes have been seized by officers from HMRC. The huge haul, with a duty value of over £1.8m, was delivered to premises in Ellesmere Port after being illegally imported from Dubai, via Holland into the UK.

l Six men have been arrested in Blackburn suspected of involvement in a major excise duty fraud linked to cigarette smuggling. The men were arrested by HMRC investigators after one million cigarettes and a substantial amount of cash were seized during searches of commercial premises in the Blackburn area.

Do Bans Work?

We all know the government’s intention is to get people particularly youths to smoke less but is this actually happening? An interesting article in the Irish Times by Roisin Ingle, put forward the question ’Do bans make people smoke less?’.

She says Irish figures vary from survey to survey so it’s impossible to tell whether people are smoking less.

One survey said that 27% of people smoked before smoking restrictions were put in place in Ireland but 29% smoked after. Another poll said smoking prevalence was up to 31% and yet another survey put it at 24%.

The figures are interesting given the fact that a packet of 20 cigarettes in Ireland costs more than eight euros!

Premium opportunity

Despite the down-trading trend, forecourts still hold their own when it comes to selling premium cigarettes. Nielsen Market Track data for November 2010, shows that premium cigarettes have a 35% volume share of the forecourt market versus 25.6% across all trade sectors, so forecourts continue to out-perform in this sector. But premium cigarettes’ share of forecourt volume sales is falling.

After premium cigarettes, next come mid-price cigarettes, accounting for 33% of volume sales in forecourts; value at 23% and sub premium at 9%.