As you’ll all be aware, it’s all change again in the tobacco category as more legislation from EUTPDII and the UK government comes into play. Basically that means that from May 20, you are no longer allowed to sell branded packs of cigarettes or tobacco, or price-marked packs, or the smallest packs think 10 cigarettes and 12.5g of tobacco.
It’s something you’ll have been gearing up for for some time, but what about your customers? Do they know that the look of their packs of cigarettes is changing again? And do they realise they’ll have to start shelling out twice or even three times as much for their favourite cigarettes or rolling tobacco because they can only buy the bigger sizes (20 cigarettes and 30g of tobacco)? And will they think the disappearance of price-marked packs is just because you’ve decided you want to sell your products for more money?
JTI’s head of communications, Jeremy Blackburn, reckons that thanks to the court cases over plain packaging there is relatively high awareness among adult smokers of the plain packaging, but relatively low awareness of the new, smaller pack sizes.
He says: "What you’re doing is asking some cigarette buyers to double their spend and some tobacco buyers to triple it. We’re very concerned about the impact of this on the legal trade and that this could drive people to buy elsewhere illegally."
As for the disappearance of price-marked packs, Blackburn says these gave smokers reassurance, as they knew the price they were going to pay. "Once the price-marks are off they could worry that the cigarettes are more expensive and then ask themselves whether that means everything in the shop has become more expensive. Our advice to retailers is to remain competitive and sell at the rrp or below."
Andrew Miller, head of field sales at Imperial Tobacco UK, adds: "While convenience stores will need to manage their own pricing strategies particularly carefully during this period of legislative change, Imperial Tobacco has reiterated the importance of competitive pricing during this time of consumer uncertainty, a view which is shared by our wholesale partners, including Bestway and Booker. Wholesalers pricing at recommended retail price or below and retailers making customers aware that they also sell tobacco products at these competitilve price points, for instance, is a great way for the convenience supply chain to continue to foster loyalty while also minimising any potential channel shifts."
Miller adds that Imperial has also been assisting retailers in communicating that the value on offer per stick has not changed (in fact, in some cases the price per stick may be proportionally cheaper) now that minimum factory-made cigarette (FMC) pack sizes and roll-your-own (RYO) weights are higher.
To help smokers understand the changes, JTI began an educational campaign last November, with advertising in the national and regional press and on posters at the point of sale.
The communication highlights the fact that the UK government has introduced plain packaging for tobacco products, which must be fully implemented by this May. Plus smokers are given details of a website operated by JTI www.packchanges.co.uk for more facts on the changes such as the banning of smaller tobacco pack sizes and health warnings increasing in size.
At the time of the communications launch, Charlie Cunningham-Reid, JTI’s UK head of corporate affairs, said: "We have spoken to retailers and listened to their concerns. Our retail customers need extensive communications support now that the new packs have started to appear in shops, as it’s clear that many UK smokers don’t yet know that these changes are taking place."
"We were worried about the danger of confrontation at retailer level," explains Blackburn, "so we ran a national awareness campaign in the Mirror and Record and also in the regional press. We issued posters and leaflets for retailers to put up in-store. These are unbranded, legal and factual and mean retailers can point to them and direct smokers to the packchanges.co.uk website.
"If retailers haven’t already, we recommend they to speak to their customers in advance of the packaging changes to avoid confusion and customer complaint. JTI reps are always on hand to offer expert advice on how retailers can best relay the legislative changes to their customers."
Meanwhile, for retailers JTI launched a three-stage communication plan called Your Guide Through Change (YGTC). Phase one last April/May was all about assuring retailers that it was business as usual. Phase two began in October when the first plain packs started appearing and the message was about being prepared. Now we’re on to stage three which is all about compliance and selling through old stock before that crucial May 20 deadline. The YGTC resources include informative videos and information leaflets, all free to watch, read and download, hosted on the JTI Advance website and JTI app so they can be accessed 24/7.
"May 20 is the finish line so retailers need to be looking at stock rotation to ensure they are compliant," says Blackburn. "However, we’ve had quite a lot of experience of change what with the larger health warnings, then the pictorial health warnings. Therefore retailers are pretty good at stock rotation so we hope there won’t be too many issues with older stock. My advice would be to get somebody dedicated to checking the stock all the time. The good news is that nowadays a lot of retailers don’t hold a lot of stock as they use their wholesaler or cash and carry as their stock room so they are selling through pretty quickly."
As part of its Partnering for Success initiative, Imperial Tobacco is pushing a ’one brand, one shelf’ merchandising technique that works by anchoring brands in the same position on the gantry, making them easier and quicker to find. Miller explains: "Inside the gantry, inner-navigation labels and descriptors on-shelf clarify exactly where the individual product is located. It is likely that smaller packs will run out before April, potentially leaving temporary gaps in retailers’ gantries. Our navigation solution will still work though, as you can simply fill these gaps with larger packs of the same brand.
"As the changes are currently underway, we’re encouraging our retailers to begin to adopt this solution now to get used to it while they still have branded stock on shelves. By the time May comes around it should be second nature to seek out the required tobacco products swiftly and ensure your valued adult smoker customers remain both happy and loyal."
There are obviously worries, already mentioned by Blackburn, that more changes in the tobacco market will drive more smokers to seek out products from illegal sources.
"In the UK the banning of smaller-sized factory-made cigarettes and RYO packs, price-marked packs and traditional branding could well all combine to increase the attractiveness of the illicit market to adult smokers beyond May 2017 as is certainly the case in Australia, where the market has witnessed a 20% increase in illicit trade since the introduction of standardised packaging, losing both the government and Australian retailers huge amounts of money," says Miller.
"The situation in Australia suggests an urgent need to increase both the intensity and focus of Anti-Illicit Trade (AIT) messaging, allied to a more collaborative approach between all interested UK parties.
"This approach will maximise the collective response against organised criminal groups that continue to exploit the UK market, undermine government revenue and damage UK independent retailers as well as the communities they serve."He says retailers need to be engaged in terms of the effects the illicit trade can have on both their income and customer footfall, plus any other ensuing effects it can have on their businesses, their staff and their wider local community.
"In terms of buying tobacco, this means ensuring retailers purchase only from reputable, established wholesalers in the supply chain. Retailers are astute business people and recognise when customers swap out their regular tobacco products for hand-rolling papers; this kind of marked change in purchasing habits might well set alarm bells ringing. Our message to all retailers is this: opting proactively to become part of the solution will be a huge help to authorities in tackling the real problem of illegal tobacco, while protecting local businesses and communities."
To continue to raise awareness, Imperial has recently collaborated with trade body the NFRN on a range of in-store AIT activation materials branded with its award-winning ’Suspect it? Report it!’ campaign, including infographics, posters, stickers and till wobblers. These packs are currently being distributed to every independent retailer in the UK, with the intention of raising the profile and awareness of illegal tobacco among both the local retail community and their shoppers.
still a Huge market
The health brigade like to make a lot of noise around how successful they’ve been in getting people to give up smoking, however tobacco remains a massive sales category in the UK. JTI estimates put it as being worth some £15bn, with nine out of 10 of the top FMCG brands in the UK still being tobacco products (the 10th is Coca-Cola). "Tobacco remains an important revenue and footfall driver as tobacco shoppers spend more than the average shopper, picking up associated purchases with their tobacco products," says JTI’s head of communications, Jeremy Blackburn. And he adds that while premium and sub-premium brands account for 29% of sales across the total market, they account for 43% through forecourts which means brands such as B&H and Silk Cut are key lines for forecourts.
Blackburn says Amber Leaf, Sterling and Mayfair are all selling very well too.
Meanwhile, Imperial reports exceptional growth for its Player’s factory-made cigarettes (FMC) and also for its Gold Leaf roll-your-own brand.
Getting ready for May 20
Stock rotation is key as plain packs begin to filter through retailers should sell branded stock first to ensure they don’t have any left after 20 May 2017 as after this date it will be illegal to sell it.
Maintaining availability at all times is of vital importance to ensure that retailers become a destination store of choice for existing adult smokers.
Price is one of the key factors for existing adult smokers when choosing where to shop for tobacco, so retailers should look to remain competitive by selling at rrp or below.
Merchandising with staff accustomed to where stock is currently merchandised, it’s recommended that retailers maintain their current planograms. With all the other changes that are taking place, significant alterations to where brands are stocked could cause confusion.
NPD drives accessories market
A whopping 75% of tobacco accessories are sold via the convenience channel (IRI data), with filter tips among the best-performing products. Gavin Anderson, general sales manager for Republic Technologies (UK) Ltd, says NPD is driving category growth, with consumer demand such as that for slimmer filters making an impact.
"Recognising this need for greater consumer choice, we launched Swan Ultra Slim; the thinnest ever Swan filter and a premium-quality product aimed at smokers looking for a smoother taste while reducing the amount that they smoke for health or financial reasons."
He recommends that forecourt retailers utilise NPD to cater to shoppers’ changing needs. He cites Swan Ultra Slim to help limit tobacco consumption as well as space-saving packs like Zig-Zag King Size vertical packs (which offer 50% space saving compared to traditional King Size packs) and Poppell 45 packs (offering a 40% space saving).
Other innovation from the Swan brand came last year in the form of its first ’Eco’ filter. "The most environmentally-friendly Swan product ever, extra slim ’Eco’ Swan filters are biodegradable, featuring a naturally coloured filter and unbleached paper wrap," says Anderson. "Roll-your-own smokers are more discerning than ever before, with many of them taking environmental considerations into account when making purchasing decisions.
"With Swan Eco filters, we’ve broadened the appeal of the Swan brand providing a really rewarding smoking experience in line with other Swan filters."
Each pack contains 120 filter tips at an rrp of 99p, with 20 packs per outer.
Cashing in on cigars
Cigar sales are currently worth £209m (IRI data) with Scandinavian Tobacco Group UK (STG UK) leading the way in the category, accounting for almost 60% of the top 10 brands and over half of the entire category with a 51.9% market share. Its Café Crème is the number one cigar brand in the UK with Café Crème Blue alone accounting for 22.9% of cigar sales, making it a ’must stock’ for any tobacco retailer.
The tobacco company says Henri Wintermans Half Corona should be another big focus for retailers as it holds the position of the number-one-selling cigar in the Medium/Large sector in terms of volume and is also the sixth best-selling cigar overall in terms of value sales.
Jens Christiansen, head of marketing and public affairs at STG, points out that while the tobacco category readies itself for the next raft of EUTPDII deadlines, cigars are actually exempt from the restrictions around minimum pack sizes and standardised packaging. "As a result, cigars will still be branded beyond the product name, won’t be a standard colour or be restricted to a minimum pack size, meaning they can still be wrapped and sold individually. In fact, due to weight, Henri Wintermans Half Corona and Sumatra will also be exempt from the health warning changes being brought in so health warnings stay almost the same as they are currently."
He says his company’s main focus at present is to educate retailers on the difference between EUTPDII and plain packaging. "As a result of the minimum pack sizes being brought in as part of EUTPDII, the cigar category may stand out and attract existing cigarette smokers due to the fact that when the changes are put into effect, some cigars will by far be the cheapest option on the shelf. As well as potentially being the cheapest out-of-pocket spend, cigars will also benefit from greater visibility as they don’t need to adhere to the rules set out under the plain packaging legislation."
Ed Ellis, Sycamore Garage, Uppingham:
"Plain packs have started coming through but we often have to explain them to customers as they think we have given them the wrong pack. We’re also running out of the smaller packs of cigarettes and tobacco so people are having to buy the larger sizes and complaining that they have to pay much more.
"Luckily we have seen a lot of the tobacco reps who have been helpful in explaining the best way to deal with all the changes and how to handle the customers. Stock rotation has been key in selling through the older stock."