WHILE tobacco is, of course, a highly regulated product, tobacco retailing is not just about laws, laws and more laws.
By overall sales revenue it remains the most valuable product category in very many convenience stores.
By the time the government takes its share and suppliers and wholesalers have their take there often isn’t too much left in profit for the retailer. But it is also, indisputably, a footfall driver. In particular, stores who add local adult smokers to their customer list frequently win loyal customers who visit often and buy more than just tobacco.
So what’s happening in the market at present, what should retailers stock to best serve the needs of those important adult smokers?
Some major trends have been in place for some time – the march of many adult smoker consumers to low-priced cigarettes continues. Now some of the biggest brands are extending ranges to include lower-priced products to serve the demand. And RYO tobacco continues to show substantial sales growth.
At Imperial Tobacco, Andrew Miller, head of independent retail, said the firm segments the factory-made cigarette (FMC) market into five price sectors: premium, sub-premium, value, economy and sub-economy.
Quoting Imperial Tobacco estimates, he said: “Economy-priced cigarette brands account for 43% of all cigarette sales, driven by increasing numbers of value-seeking consumers. There is a need for continual support, development and innovation in this price sector to meet the needs of growing numbers of price-conscious consumers.”
Part of the Imperial Tobacco response has included adding a Smooth variant to its Player’s range and moving the range from 20s to 19s and introducing sub-economy L&B Blue earlier this year (see page 94).
“Our research also shows that there is an increasing demand for smooth variants which represent 38% of the sub-economy sector,” Miller said.
Another sign of the consumer move to low-priced cigarettes has come from tobacco giant JTI.
It has reduced the cost price and recommended retail price of its range of Berkeley King Size cigarettes and from this month is repositioning the brand to meet what it calls “the ever-growing demand from existing adult smokers for value-for-money cigarettes”.
The updated King Size 19s, Blue 19s and 10s packs will now sit in what JTI calls the sub-value segment, price-marked at £6.25 for 19s and £3.25 for 10s.
At the same time, all Berkeley King Size packs will be given a new look. The price and pack design of Berkeley Super Kings will remain unchanged.
Jeremy Blackburn, JTI’s head of communications, said: “Value is the fastest-growing price segment within tobacco, accounting for 44.6% volume share of the total cigarette market. The repositioning of Berkeley King Size will ensure the brand is best positioned to capitalise on this trend, providing adult smokers with quality and value from a well-established British brand with heritage.”
At British American Tobacco UK Richard Wood, shopper marketing manager, also stressed the consumer search for value and said BAT UK had responded across both cigarettes and RYO with competitively priced products, which offered good retailer margins. He also emphasised the importance that BAT UK attaches to PMPs.
In terms of total cigarette volume, PMPs accounted for 32.1% to early 2013 compared to 28.2% over the same period in 2012, said Wood.
The value of cigarette PMPs in independents and symbols is even greater, reaching 59.4% of total volume early this year versus 54.6% over the same period in 2012, he added.
BAT launched a pack change and range extension for its Cutters Choice RYO range at the end of March. The pack changed to a vertical format, and joining the “Smooth Blend” and “True Blend” offerings was Cutters Choice “Exquisite Blend” aimed at roll-your-own smokers looking for a richer taste.
As the launch took place a number of BAT products, including Cutters Choice RYO and Rothmans cigarettes, were offering 15% POR for retailers.
Providing low-priced RYO tobacco is one of the main parts of the strategy at Scandinavian Tobacco Group UK.
STG UK head of marketing Alan Graham said: “We’re still seeing an increasing number of cigarette smokers switch to RYO tobacco, as reflected by figures that show the category is now worth just under £2.1bn and growing by an incredible 11%.
“Over the last couple of years, a huge raft of RYO tobacco ranges have been launched into the market specifically focused on offering consumers the best value for money. The VFM RYO segment is already worth £329m and showing impressive growth of 26%.
“We launched our Salsa RYO tobacco range in response to this demand for value for money, 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 with Scottish retailers and consumers alike.”
Back at Imperial Tobacco Andrew Miller said around two in five adult smokers in the UK smoke RYO tobacco.
“Sales of sub-12.5g pack sizes of RYO tobacco have more than doubled over the past year,”he said.
“To enable retailers to capitalise on their growing popularity, we launched Gold Leaf 9g at the end of 2013. Complete with papers, Gold Leaf 9g will enable adult smokers to make 22 hand rolled cigarettes for less than £3.”