Amid all the furore about the proposed tobacco display ban, tobacco manufacturers remain surprisingly upbeat about the UK tobacco category and its future. And when you take time to look at the figures you can see why. Currently 13 million adults choose to smoke tobacco products in the UK and between them they purchase nearly 47 billion cigarettes per year in retail outlets. And these sales generate £11.6bn in turnover.
Iain Watkins, UK trade communications manager at Imperial Tobacco, says the forecourt sector remains a hugely important channel for the company and has enjoyed growth in the value and economy channels in line with the UK trends.
In the current economic climate, the lower-priced cigarette sectors are growing and now account for nearly 45% of total cigarette sales. However premium cigarettes still do extremely well in forecourts. According to AC Nielsen data, premium brands remain best sellers in forecourts with 40% of sales. Wes Feeney, trading director for convenience at JTI (the new name for Gallaher) says this is particularly pleasing as across the total trade the average is just 28-29%.
For example, Benson & Hedges Gold has 6% of total UK market share but is especially important for forecourts as it represents almost 9% of cigarette sales within that sector.
Watkins adds: "Although there is a general trend towards down-trading, Marlboro Gold King Size continues to remain the most popular premium brand and the number two brand in forecourts. In the 12 months ended October 2008 it has seen its premium sector share increase by over 3% to almost 30% of the market and is worth almost £156m to forecourt retailers."
However, Lambert & Butler King Size remains the market leader in forecourts with a sales value of £192m and a market share of more than 14%. In the growing value sector, Richmond King Size is worth nearly £50m to forecourt retailers.
The economy priced cigarette sector has seen a sales value increase of almost 66% to nearly £12m in forecourts in the 12 months ended October 2008. The sales value of Windsor Blue King Size has also increased by almost 67% to £5.5m. Windsor Blue Superkings has increased its market share by almost 8% to over 14% and its sales value has increased by over 81% to £4.9m.
Last November Imperial launched its JPS Silver range in a bid to offer adult smokers "premium values and renowned quality at a competitive economy price". The company estimates that sales of the new range have so far generated £20m for retailers.
The growing economy price sector contributes over £1bn annually to retailers’ turnover, and Imperial anticipates this growth will continue as more adult smokers prefer the value it offers in the current tough economic climate.
"We constantly monitor the market and a lengthy research process told us it was ready for the new JPS Silver range. It is perfectly positioned to meet the ever-evolving preferences of smokers," says Watkins.
As such he reckons the launch has "enhanced ITL’s reputation for identifying and reacting to category opportunities".
"We are very encouraged by the wide distribution of the JPS Silver range which has been gained very quickly and we are confident it will become an important part of the retail mix for forecourt operators."
The JPS Silver range is so-called because all packs bear the JPS insignia in a silver colour. It includes JPS King Size Blue, JPS King Size Silver, JPS King Size Menthol, JPS Superkings Blue and JPS Superkings Menthol.
All variants are available in standard and price-marked packs.
Waktins reports that while the mid-priced cigarette sector is slightly down, the Superkings brand has seen an upturn in both value and market share, with Superkings Menthol seeing its sales value increase by over 13% to £4.3m and its share of mid-priced cigarette sales increase by almost 21%.
JTI has been busy too. This month sees the launch of new packaging for Benson & Hedges Gold and Silver with a modernised Benson & Hedges typeface and barrel logo. In addition, the red seal has been developed into a striking triangle design. Inside, the product remains exactly the same. Changing a pack design is something that’s not done very often but JTI’s Feeney says it’s all about keeping the market vibrant.
In December JTI extended Silk Cut with the launch of Silk Cut Menthol. One in every 15 cigarettes smoked in the UK is menthol and the segment now represents a 6.7% share of the market, an increase of 39% since 2001.
The company also launched its first range of superslim cigarettes in the UK late last year. Described as an "elegant, premium cigarette" the company says Silk Cut Superslims should be stocked by retailers in urban areas with a high proportion of nightlife. Superslims come in Purple and Menthol formats. Although it’s too early for any firm data, Feeney says the brand got a fantastic response in forecourts and is selling well.
There are also pricemarked packs for Sterling, launched late last year, which place the brand in the ’super value’ sector. The move was designed to help retailers at a time of economic instability and when adult smokers are looking for more value for their money.
The new Sterling pricemarked packs are priced at £4.20 for King Size 20s and £4.25 for Superkings, which represents a reduction from the recommended retail prices of £4.50 and £4.59 respectively. However the new packs still provide retailers with the same cash margin.
Feeney says Sterling is the number one brand in the value segment, and has performed exceptionally since its launch into all channels in January 2006. The brand, which is marketed for its quality and affordable price, accounts for nearly 5% of the total cigarette market. He reckons the brand under-trades in forecourts so there is a significant opportunity for retailers.
Meanwhile British American Tobacco UK’s (BAT UK’s) Pall Mall continues to sell well. It is a premium brand with value-for-money pricing and, according to industry sales data, was the fastest-growing brand in the UK last year.
"This is particularly significant due to the competitive nature of this sector," says Ronan Barry, head of corporate and regulatory affairs, BAT UK & Ireland. "In these tough credit-crunch conditions Pall Mall looks set to grow its market share as an excellent, value-for-money option for consumers."
== Roll your own ==
The Roll Your Own (RYO) market is also an area which is in growth with around four million adult smokers currently ’dualling’ between cigarettes and RYO. Evidence suggests that adult smokers prefer the economy and control that can be achieved in the RYO segment. This has ensured the continued success of brands such as Golden Virginia, Amber Leaf and Drum.
Says Watkins: "The turnaround in the RYO market is remarkable; traditionally vulnerable to the twin threats of smuggling and counterfeiting, the market has recorded significant growth over the past four years. Indeed, in the 12 months ending October 2008 duty paid RYO tobacco volumes increased by over 11% in the UK and the value of those sales went up by almost 16%."
JTI’s Feeney says RYO is the fastest growing tobacco sector in forecourts.
Golden Virginia continues to account for over half of RYO tobacco sales in the forecourt channel. Over the past 12 months its sales value increased by almost 18% to £54.2m.
In December Golden Virginia was launched in limited edition and pricemarked packs. Alistair Brown, marketing manager at Imperial Tobacco, said at the time: "We are always looking at new ways to develop the brand to reflect the changing preferences of smokers."
The 12.5g packs are pricemarked at £2.94 and the 25g at £5.77. Also available were a series of limited-edition 14g packs featuring eight different ’leaf’ designs.
This month the Amber Leaf 12.5g flip-top pack celebrates its 10th year in the UK market. To mark this milestone, a limited-edition pack featuring an anniversary design will be available.
Amber Leaf is doing well in forecourts, particularly with its 25g and 50g packs. Feeney says this is because smokers are looking for value and convenience.
Over at BAT UK, Barry reports that its RYO brand - Cutters Choice - had a particularly good year last year as it moved up from fourth to third place in the sector, gaining an 8.77% market share (November 2008). "The reasons behind this growth are varied. Firstly, RYO in general has become far more widely accepted by consumers. Secondly, Cutters Choice is reaping the rewards of last year’s upgraded pack design - it has become a mainstream and successful brand for customers to choose, and for retailers to stock. In addition, consumers are making financial decisions in their everyday purchasing - choosing quality, value-for-money brands such as Cutters Choice."
When it comes to rolling papers, Rizla remains market leader, with Rizla Regular Green accounting for over 47% of total sales in forecourts and over 61% of regular sized paper sales in forecourts. Rolling papers continue to offer significant commercial opportunities for retailers offering high margins and prompting other purchases such as filter tips and rolling machines.
Swedish Match has had two major product launches over the past two years - Swan Combi in 2007 and Swan Smooth in 2008 - so will spend 2009 promoting the brand to increase customer loyalty. This will include sponsorship of another British Super Bikes season and brand activity at festivals across the country.
According to AC Nielsen data, the RYO requisites market is in growth with Swan filters increasing its market share to 84.3% with Swan Extra Slim, Swan Menthol and Swan Slim Loose and Slim Pop-A-Tip driving overall growth. The brand is also enjoying strong growth within the matches category.
Swedish Match marketing manager, Andrew Hardie, reckons the continuing trend towards RYO is partly cost based, but it’s also due to consumers being able to personalise their experience. "With RYO, consumers have the unique ability to optimise their experience by choosing their favourite tobacco, filters and papers to create the desired cigarette," he explains.
== Cigars ==
Café Crème is the market-leading brand in the miniature cigar sector with, according to AC Nielsen data, 60% of total sales. Café Crème Blue is the number one brand in the miniature sector, with 34.2% of total sales and growth of 1.5%. This means more than one in every three miniature cigars sold is a Café Crème Blue.
Miniature cigars continue to drive growth in the total UK cigar sector, accounting for 52.7% of sales. The reason for their popularity is largely due to the fact that it’s easier for time-poor/venue-restricted smokers to smoke miniatures rather than small-size cigars, a trend that has been developing in recent years. Furthermore, adult smokers are increasingly dualling between cigarettes and cigars and when cigarette smokers do this, they typically choose a miniature cigar. In addition to this trend, many miniature cigars are being bought on impulse
The Henri Wintermans range of cigar brands also includes Founder’s Blend - which is available in Miniatures, Royales, Slims and Half Coronas, all with distinctive and elegant packaging.
The Henri Wintermans Half Corona continues to be the top-selling brand in the medium/large segment, accounting for 49% of sales through all outlets. James Higgs, head of commercial marketing at Henri Wintermans UK, comments: "While the UK cigar market is declining by around 10.7% annually, sales of our brands such as the Half Corona continue to grow. The Henri Wintermans Founders Blend range is always popular, so retailers should therefore ensure that their shelves are always fully stocked up with these top-selling brands."
== The law ==
Of course you can’t talk about tobacco without mentioning legislation and there’s been an awful lot going on. In December the Department of Health (DoH) reported on the responses to its Consultation into the ’Future of Tobacco Control’ (FTC), announcing plans to remove cigarette displays in larger shops from 2011 and smaller businesses from 2013.
These proposals were contained within the Health Bill, the first reading of which took place on January 15. This stage is a formality that signals the start of the Bill’s journey through the Lords. The second reading - the general debate on all aspects of the Bill - takes place on February 4.
The government has said it will work with trade bodies and provide ample lead-in time for compliance to minimise any burden on business however JTI is concerned that there is no reliable evidence to support the proposals and the company is also questioning the consultation process, the consideration given to responses and the statistics used in the consultation report.
The Department of Health has placed great emphasis on the number of people who took part in the consultation and Alan Johnson MP, Secretary of State for Health, stated that: "The overwhelming response from 100,000 people consulted was that we should remove tobacco from display.
However Eddy Pirard, JTI regional president for UK and Ireland, counters: "When you read the list of respondents you begin to understand what is meant by the term "overwhelming responses". To be precise, 79,272 appear to be from employees working for government agencies, NGOs (non-government organisations) and charities which are either funded or supported by the government - not so much a public consultation, more of a public sector consultation. This emphasis clearly creates a distorted view of the consultation process. The answer was guaranteed before the question was asked."
He says such concerns are illustrated by the fact that trade and industry organisations representing businesses affected by the ban are only counted as 21 responses when in fact they represent the views of hundreds of thousands of members.
"Insufficient weighting has been given to the quality and extent of the argument made in opposition to a display ban on tobacco products. The substantive nature of the detailed and evidence-based responses provided by stakeholders like JTI, which supplied expert analysis and demonstrated that there are better ways of reducing youth smoking, has not been appropriately contrasted with responses simply in the form of ’e-postcards’."
He also says that the ban in Canada has the potential to close 30% of smaller independent stores and if this was translated across the UK it would mean potentially 15,000 businesses are at risk as well as 75,000 jobs.
"The government should think again and review and revise its consultation report to ensure that proper consideration is given to the detailed submissions provided by tobacco manufacturers and the trade associations which represent tens of thousands of retailers. It should also fully examine the unintended consequences of a display ban, namely growth in the illicit trade in tobacco and the potential for widespread closures among smaller independent stores."
Moving on, and last May Scotland launched a ’Smoking Prevention Action Plan’ including: point-of-sale display bans, positive and negative licensing, and banning packs of 10 and vending machines. The Scottish Health Bill is expected to be published later this year.
Meanwhile negative licensing for retailers is expected to come into effect in England, Wales and Northern Ireland on April 1, 2009. Separately, the Scottish government is looking to introduce a "system of licensing" for retailers. With a negative licensing system, if a retailer is caught selling tobacco products to underage smokers they could lose their right to sell tobacco for a period of time.
October 2008 saw the introduction of pictorial health warnings on packs with 14 different pictorial warnings placed on the reverse of packs and rotated equally. Retailers have until September 30, 2009 to sell through cigarette packs with the current text warnings on the reverse of packs. Until this date, retailers may have a mixture of current text warnings and those with pictorials on the reverse of packs on their tobacco unit. This is fine, as the two rotational text warnings on the front of the pack will remain the same, and with a correctly merchandised unit your range should not confuse your customers in any way.
Manufacturers say effective stock rotation is key - by ensuring you re-stock your unit with the current text warning stock placed at the front, you should have no problem meeting the deadline.
The legislation recognises that some tobacco products take longer to sell through so retailers have until September 30, 2010 to sell through cigars, RYO tobacco and pipe tobacco with the current text warnings on the reverse.
=== Top Tips for forecourts ===
* Ensure the top-selling brands are well stocked and that you provide enough space for them on the tobacco gantry.
* Avoid out-of-stocks - research shows that customers will go elsewhere if their brand of choice is not available.
* Keep to your planograms - these have been created according to the best-selling brands in your region.
* Check the planogram once a month to make sure that the product layout is correct.
* Do not stack products on top of each other because this looks untidy and causes damage to packs.
* Keep the gantry clean and free of rubbish at all times.
* Refill and tidy the gantry every morning, leaving no gaps in the shelf.
* Rotate stock regularly so that older stock is sold first.
* By keeping well stocked with associated tobacco products such as lighters, you’ll have the opportunity to up-sell to customers when they purchase tobacco.
=== Making waves ===
An interesting product to look out for is Mr Martin’s Liquid Smoking, a drink which got worldwide media coverage when it was launched at a French trade show last year.
It is made by the United Drinks & Beauty Corporation, a Dutch/South-African company, which is probably why the name of the product does not translate very palatably into English! So, contrary to its name, Liquid Smoking does not taste of old ashtrays but has a herbal and fruity flavour. It is described as "an African herbal blend" that gives drinkers the ’nicotine feeling’ of smoking a cigarette.
Initially it gives you an alertness followed by a "euphoric sense of calming and relaxation". It comes in a 250ml can and the company hopes it will be popular with smokers who can’t smoke indoors because of the ban.