There’s no doubt that fewer people are smoking. In 1974, 46% of adults in Great Britain smoked, now that figure’s down to 15.8% (ONS data for 2016), which equates to 7.6 million people. The ONS study found that 15.5% of adults in England smoked; 16.9% in Wales; 17.7% in Scotland; and 18.1% in Northern Ireland. And men smoked, on average, 12 ciggies a day with women smoking slightly less at 11 sticks a day.

Although these diminishing figures are good for the nation’s health, they’re not so good for a forecourt store’s footfall and sales. Andrew Miller, head of field sales at Imperial Tobacco UK, admits that a "combination of declining smoking rates, further tax hikes and the introduction of EUTPD II and standardised packaging" meant that 2017 was another challenging year for the UK tobacco category.

Andy Stevens, head of sales at JTI, says retailers who prepared well were the best equipped to deal with the legislative changes. "As with the retail display ban, retailers who were prepared and kept their customers well informed saw the least disruption to their sales. Likewise, those who continue to invest in the category will reap the rewards," he explains.

Astonishingly, Miller says 86% of factory-made cigarettes (FMC) and roll-your-own (RYO) packs that were available in 2016 are now not sold following the introduction of EUTPD II and standardised packaging, meaning many adult smokers have had to re-evaluate their tobacco purchases. (That 86% is an Imperial estimate, and appears extremely high because 17s, 18s and 19s FMC packs have been included without them, the figure across FMC/RYO is closer to 42%). "Since the transition to standardised packaging, adult smokers have certainly become more brand reliant, either sticking with or returning to the brands they’ve traditionally relied on to provide a quality smoking experience," says Miller.

Meanwhile, Jens Christiansen, head of marketing and public affairs at Scandinavian Tobacco Group UK (STG UK), is keen to remind retailers that cigars are still exempt from the restrictions around minimum pack sizes and standardised packaging so they can still be branded beyond the product name and can be wrapped and sold individually, or in 10 packs. "This means some cigars are now the cheapest option available on shelf, which may attract existing smokers from other categories," he says.

Miller believes that since the introduction of EUTPD II and standardised packaging, there’s more of an onus on retailers to really understand their tobacco offering, from the broader category to the various sub-sectors and their relative pricing.

Christianson agrees: "One of the most effective pieces of advice for any tobacco stockist is to take time to familiarise yourself with the category and understand the different products on offer. As a result of all the legislation changes in recent years, shoppers are increasingly looking to retailers for advice on what to buy and if the price of their regular brand of choice increases too much, or if a brand is out of stock, they should be able to recommend a suitable alternative."

Miller says standardised packs have increased pricing transparency. "This has favoured key brands in Imperial’s portfolio, clearly highlighting the great value of for instance Gold Leaf JPS, which has in turn led to accelerated demand and sales growth. "Many consumers have also become more price conscious than ever, meaning an increased reliance on the expertise of retailers and their staff when it comes to recommending products that offer the best value for money. Pleasingly, an increasing number of retailers are resisting the temptation to premium price for a quick short-term gain, and instead are focusing on the long-term sustainability of their business."

Miller says the savviest retailers ensure their prices are pitched at rrp or below, so they can compete with the grocery multiples and prevent their customers from beginning to look elsewhere for tobacco.

Stevens at JTI agrees, saying price is a key factor for existing adult smokers when choosing where to shop for tobacco, so retailers should look to remain competitive by selling at rrp or below. "Maintaining range and availability at all times is also of vital importance to ensure that retailers become a destination store of choice. Existing adult smokers and vapers will expect their brands to be readily available," he continues

"Research tells us that almost 27% of existing adult smokers choose to buy elsewhere if their brand is unavailable (IPSOS). Therefore, it’s vital that retailers maintain full availability and range to ensure they do not lose out on sales." He recommends that retailers monitor epos data and stock the best sellers in their area.

Miller at Imperial says retailers should take further advantage of their close relationships with their sales representatives to develop and refine their FMC and RYO offerings. "By becoming category experts, stocking wide ranges, merchandising stock using our ’one brand, one shelf’ method and pricing competitively, retailers will be well-positioned to advise adult smokers around new products and pack formats," he says, adding that they should also consider joining Imperial’s trade partner programme, ignite (www.imperial-ignite.co.uk).

At JTI, they have Advance, which acts as an invaluable tool for retailers to support and develop their tobacco business.

In terms of gantries, Imperial believes behind-the-counter solutions still have an important role to play in the sale of tobacco, sundries and moving forwards e-vapour products. "They clearly, legally signpost that tobacco is for sale, showcase a retailers’ product range and availability, offer secure storage and in the case of Imperial-supplied gantries are provided and installed free-of-charge," says Miller.

Sub sales

Within the FMC sector, sub-economy brands (the lower pricing tier) continue to enjoy the largest share of sales.

This was almost 50% of all FMC sales in November 2017 (Imperial estimates). "Some Imperial brands within this sector include JPS Player’s and Carlton, which have rrps of £7.35 and £7.45 for a pack of 20 respectively and represent Imperial’s lowest-priced FMC offerings," explains Miller.

But it’s JTI’s Sterling that remains the UK’s number one cigarette brand (Nielsen data).

At a time when no one can see tobacco products out on display and even when you have them in your hands, there is little on-pack branding to identify them, the tobacco firms are still investing in NPD. Stevens at JTI says: "Our proven track record of developing brands in line with market insight and adapting to consumer demand has kept JTI at the forefront of the UK tobacco market and we will continue to invest in the tobacco category and our portfolio as the market continues to evolve with the changing legislative landscape."

Just last month, JTI extended its Sterling Dual range with the addition of two new products: Sterling Dual Superkings 20 and Sterling Dual Double Capsule King Size 20. The new lines tap into a growing segment, which now makes up 13% of total FMC sales in the UK (Nielsen).

JTI says the new Sterling Dual Superkings 20s offer smokers extra value and extra length, allowing retailers to maximise on the profit opportunity of the growing value segment.

Meanwhile, the new Sterling Dual Double Capsule King Size has two flavours; peppermint and spearmint, designed to enable smokers to create a "variety of distinct smoking experiences" in just one cigarette.

Stephane Berset, head of marketing UK at JTI, comments: "With a number of new launches in the pipeline for JTI, we are continuing to invest in our successful brands to provide retailers with profit-driving products. The capsule value segment has grown considerably in the last year, and we’re excited to provide retailers with new products to take advantage of these expanding markets."

And at Imperial, Miller says: "We continue to monitor category trends to both cater for and react to changing consumer tastes," adding that the company recently announced three enhancements to its JPS FMC range.

Within the RYO category, mid-price brands currently enjoy the largest sector share 46% (Imperial estimates). Imperial brands in this sector include gv Bright Yellow, where a 30g pouch has an rrp of £12.35, and a 50g pouch has an rrp £20.40. "Our lowest-priced RYO offering, however, is Gold Leaf JPS currently the UK’s best-selling economy brand. RYO consumer trends suggest adult smokers appreciate all-in-one products that combine papers, filters and tobacco and our Gold Leaf 30g handy pack with an rrp of £10.50 has proved extremely popular in this regard.

While sub-economy to mid-price brands currently enjoy the largest shares of both the FMC and RYO sectors, retailers should also ensure they offer a wide range of products including premium to ensure they meet consumer demand. As an example, Golden Virginia is a premium tier RYO brand but commands an overall RYO market share of 22%1. Imperial recently added Rizla Natura a responsibly sourced product to its rolling papers and accessories portfolio. "It’s a whole new approach to papers and tips crafted from hemp, and designed to provide adult smokers with an authentic smoking experience," says Miller.

Illicit trade

HMRC ’tobacco tax gaps’ figures (the difference between the amount of tax due and the amount collected) estimate that illicit tobacco currently accounts for nearly 13% of the ready-made market, and 32% of RYO tobacco in the UK. James Hall, anti-illicit trade (AIT) manager at Imperial Tobacco, says: "Last year’s new regulations (TPD II and standardised packaging) have unfortunately had a detrimental impact on the independent trade. We note HMRC statistics suggesting that the most recent tobacco tax gap is estimated to be at an all-time high of £2.4bn, owing to a rise in the sales of non-duty paid contraband and counterfeit tobacco. The government’s failure to address this growing issue continues to harm honest UK retailers."

Stevens at JTI says: "There are continued concerns that these figures may worsen since packs have become easier to duplicate with the introduction of plain packaging. In addition, the legal requirement to only produce larger pack sizes can lead to consumers looking for cheaper alternatives on the black market."

Hall says that in lieu of the government either repealing standardised packaging or lowering tobacco tax rates, the most effective way to tackle illegal tobacco is to continue to raise awareness and build AIT advocacy among retailers, law enforcement, industry bodies and politicians. Imperial does this through its Suspect it? Report it! campaign.

The tobacco firm co-hosted a number of events in conjunction with Bestway and Booker late last year. Hall says these resulted in "fruitful new intelligence leads" relating to the potential sale of illegal tobacco. One retailer who attended said he was shocked at what the fake/illicit cigarettes looked like because it was so hard to tell the difference between them and the real thing.

Imperial has added a new AIT video to its website (www.suspect-it-report-it.co.uk), which explains how it is tackling the illicit tobacco trade.

"We continue to work collaboratively with legitimate traders and law enforcement to fight illicit trade and encourage independent traders to notify their designated sales representative and report any suspicious activity in their area, or ring the Customs Hotline on 0800 788 887," says Hall.

Signpost your tobacco offering with RYO accessories

Now that cigarettes and tobacco are displayed behind closed doors, Gavin Anderson, general sales manager for Republic Technologies, says retailers could use display stands and off- gantry fixtures for tobacco accessories to signpost the tobacco category in-store.
"To make the most from this category, it’s vital that forecourt retailers stock the right range of tobacco accessories and merchandise them accordingly to see the best results," he adds.
"It’s important to remember that although filters is the most buoyant area of the accessories category valued at £57m in convenience outlets (IRI data) it’s important to stock a broad range of products to meet customer needs. We would always recommend including core range filters, papers, matches and lighters."
Anderson says pack formats are also important: "Space-saving packs such as Zig-Zag vertical packs of king-size papers (which save 50% space compared to traditional king-size packs) help retailers to merchandise more effectively, while pack formats such as Swan Slim Pop-a-Tip Filters offer a convenient alternative for on-the-go consumers."
Offering a core range of papers (Green, Blue and Silver) plus other options such as unbleached and flavoured, and stocking multipacks to combat the discounters, will also help to drive sales.

Retailer view

"The tobacco category is still very important and accounts for around 25% of our total shop sales. The display ban was challenging at first, but staff seem to have got used to it now. Since doors have been installed, keeping the unit full is a little more challenging as before you could walk round the store and see it needed replenishing, whereas now you have to physically open the door and then try and decipher which brands are empty.
"Our stores are all fairly close together, in quite a deprived area, so value is key. Players and Carlton sell well, and also Sterling Click or Fresh Taste, whatever it happens to be called this week! Most customers just ask for what they want, but lots still come in and ask what our cheapest packs are.
"When plain packaging first came in some customers refused to purchase them as they thought they tasted different in plain packaging. But now people are used to it.
"As 10s packs are no longer sold, the previous 10s smokers now either smoke more and buy 20 a day or come in every other day instead. RYO has seen the biggest change as we used to sell a lot of the smaller packs, which are no longer available."

Retailer view

"Cigarettes are still one of our biggest sellers in-store; nearly everyone who comes in buys them. We’re always in stock and all staff know the planogram so can find what customers want straight away.
"Customers never complain about the price and I’ve only ever had one complain that they couldn’t get a 10s packet of cigarettes any more.
"We also stock e-cigs and within that category, it’s the liquids that are the most popular."

Product update

Imperial says there will be a renewed emphasis on Rizla papers and tips this year especially the new Natura variant
Amber Leaf is the number one tobacco brand in the UK with a 33.6% share of the RYO market (Nielsen data) and is the best-selling RYO brand in every region in the UK, with two out of the top three best-selling SKUs
Swan Eco filters are the most environmentally friendly Swan product ever. They are biodegradable, featuring a naturally coloured filter and unbleached paper wrap
JPS Silver is now called JPS Silver Stream and features a new smooth filter for an "exceptionally smooth taste experience". It also uses paper designed to create less smoke
JPS Green has become JPS Green Edge featuring a menthol inner liner within the packaging to help deliver the "ultimate menthol smoking experience"
American Spirit is the UK’s number one additive-free tobacco brand. It is particularly popular in London but has a growing presence in Scotland, the South East and South West.

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