SG Convenience Conversations: Innovate and thrive

In its first Convenience Conversation of 2018, Scottish Grocer invited a select group of leading retailers and representatives from tobacco, accessories, EPOS, and loyalty firms to Glasgow for a discussion on innovation across categories in the convenience retailing sector

pmi presentation
Around the table were: John McNee (Scottish Grocer), Ferhan Ashiq (Levenhall Village Store), Saleem Sadiq (Spar Renfrew), Zahid Ullah (Day-Today Kelty), Sayiad Hamid and Imran Ali (Bourtreehill Supermarket) Tony Penman, Ed Simkiss, and Laura McDermaid (Phillip Morris), Rob Taylor and Jacqueline O’Neil (Imperial Tobacco), Bruce and Donna Morgan (Best-One @ Brownlies), Natalie Lightfoot (Londis Solo Convenience), Mark Yexley and Stephen Donaghy (JTI), Jon Birt (Zapper), Emily Sanderson, Catherine Wheeler and Matthew Lynas (Scottish Grocer), Michael Wilson and Martin Jackson (Republic Technologies), James Loker and Brian Eagle-Brown (Retail Data Partnership), and Mo Razzaq (Family Shopper Blantyre)

FOR the first Convenience Conversation of 2018, leading retailers, suppliers and technology providers joined together to discuss innovation – a key component to the success of any business.

Representatives from JTI, Philip Morris, Republic Technologies, Imperial Tobacco, Zapper and The Retail Data Partnership were on hand at the Glasgow Hilton to discuss developments and share ideas with retailers Saleem Sadiq of Spar Renfrew, Mo Razzaq of Family Shopper Blantyre, Natalie Lightfoot of Londis Solo Convenience in Baillieston, Bruce and Donna Morgan of Best-One @ Brownlies of Biggar, Sayiad Hamid and Imran Ali of Bourtreehill Supermarket in Irvine, Ferhan Ashiq of Levenhall Village Store and Zahid Ullah of Day Today Express Kelty.

Chaired by Scottish Grocer editor John McNee, the discussion kicked off with the tobacco category, following a year which has seen retailers and suppliers getting to grips with major legislative changes. 

Mark Yexley, head of communications at JTI, got things going by first acknowledging the major challenges the industry has faced since EUTPD 2 regulations came into force.

“There is no denying that the tobacco category has faced a number of changes in the past year. However, what we have seen is that those retailers who prepared well have experienced the least disruption to their sales.

“As an industry we must continue to innovate and there is a significant future in providing existing adult smokers and vapers with a choice between conventional tobacco products and vaping devices. JTI is continuing to invest in product innovation and support for retailers to help them maximise tobacco profits.”

Scottish Grocer editor John McNee moderated discussion at the first Convenience Conversation event of 2018

Yexley said that in terms of innovation, the three key areas of focus for JTI are: reduced risk products, particularly e-cigarettes; improving JTI Advance, the firm’s online portal; and launching new products within the conventional tobacco category, such as the repositioning of Kensitas Club and the roll out of Kensitas Club Superkings.

Bruce Morgan of Brownlies of Biggar weighed in on the potential e-liquids offer c-store retailers, suggesting that retailers could benefit from a bit more support at the gantry from tobacco companies.

“E-cigarettes have gone very slowly for us, but the profit margins are huge compared to tobacco,” said Bruce. 

“The only thing we’ve done is to open up the top of the gantry so that customers can see it as there’s no dark market with e-cigarettes. One thing I’d love cigarette companies to look at is the gantries because they’re just dark areas at the moment.”

Stephen Donaghy of JTI acknowledged Bruce’s concerns and suggested that improving gantry displays for e-cigarettes is on the agenda for the company.

“Opening up the gantry space is something we’ve been doing fairly actively over the last seven to nine months,” said Stephen.

When we looked at the margins they were up pretty dramatically because retailers no longer have price marks, they’re free to charge what they like and they’re doing it. But the argument we’ve made is, ‘is it sustainable?’

   –James Loker, Retail Data Partnership

“We’re looking at gantries and they are a very dark place to look at now. What we’ve done is added graphics to our units, we’ve also opened up a shelf or two, depending on the store, to add in e-products. Some of these have specific solutions attached to them such as lightboxes on either side, adding an element of theatre, and some of them are retrofitted. But what they all do is bring a bit more credibility to the ranges that retailers have, purely by having them sited on the gantry itself.

“The gantry always has been and always will be that focus for the consumer when they come through the door because that’s where they expect these products to be.”

Steering the conversation towards the impact of EUTPD 2 on revenues, John McNee asked the team at The Retail Data Partnership to offer their assessment of the current tobacco landscape.

James Loker of TRDP said: “We did a study recently. Six months after EUTPD2 came in we looked at volume sales vs value sales and, interestingly, we found that volume sales were down by 23% – as a result of e-cigs, bigger packs, the natural trend of people smoking less – but value sales were down by just 0.07%. When we looked at the margins they were going up pretty dramatically because retailers no longer have price marks, they’re free to charge what they like and they’re doing it.

From left: Ferhan Ashiq, Levenhall Village Store, Musselburgh; Laura McDermaid, Philip Morris; Rob Taylor, Imperial Tobacco; Michael Wilson, Republic Technologies

“Right now that’s kind of almost solving the problem for retailers, but the argument we’ve made is, ‘is it sustainable?’”

Answering for Imperial Tobacco, Rob Taylor said the firm has responded to evolving trends in the wake of EUTPD 2 by innovating at the lower-priced end of the category, making improvements to brands to create better value for consumers.

“One thing that we’re focusing on is taking that innovation that previously may have come from more premium brands, and bringing that premium level of quality and innovation into our more value brands. For instance, we’ve done some interesting stuff with our JPS range recently, working on the filter technology and the menthol, how the menthol is transferred to the cigarette.

“If downtrading is taking place, and it obviously is, as you guys are all seeing, it’s about making sure that those who go into that sector are getting the best quality from innovation and it shows that we are invested very obviously and very heavily in tobacco and the future of tobacco and making things better for consumers, giving them that choice.”

Another consequence of EUTPD 2 highlighted by Brian Eagle-Brown of The Retail Data Partnership was the formation of a new industry around helping retailers comply with the mountain of rules around the display and sale of tobacco products.

I always give NPD some consideration, especially with soft drinks, but I’m also wary as well, Does anyone remember Pepsi Max Ginger?

– Natalie Lightfoot, Londis Solo Convenience

Brian said TRDP is approached by many start-ups offering various pieces of kit which they reckon should be integrated with its EPOS system.

“In particular there are the automated tobacco dispensers, which is something we get approached with on a fairly regular basis and I’d be interested to hear from any retailers with those,” said Brian.

Saleem Sadiq of Spar Renfrew said introducing automated dispensers is a move he has considered.

“We certainly are thinking of going down that route and freeing up space behind the counter for other products, maybe even thinking in the future perhaps we no longer need to have our checkouts by the wall. We could be in the centre of our store, we could innovate in that way,” he said.

Jacqueline O’Neil of Imperial Tobacco weighed in on gantry removal, warning this may not be the best way to go.

“What I’ve heard from retailers in Glasgow who have taken units out and had those machines in high footfall stores is that there’s not enough space in them, so the staff are constantly having to refill and it’s taking up time. If you have a gantry you can decide how many pack facings to have of your best-selling brands but if you’ve got something like that it’s generally one-pack facings,” she said.

Philip Morris International area manager Laura McDermaid presents the firm’s tobacco alternative NPD IQOS. The system heats tobacco without burning, creating an experience similar to smoking a traditional cigarette

Talking of best-sellers, John McNee moved the conversation on to roll your own, asking if the sub-category had enjoyed a lift in sales since the implementation of EUTPD 2.

Rob Taylor of Imperial Tobacco said the firm’s data had shown a shift from factory-made cigarettes to RYO of around 4%, a shift which he acknowledged had been hard to predict with factors affecting the market including the rising cost of a single pack of factory-made cigarettes in combination with the introduction of a 30g minimum pack size for RYO.

When the increasing cost of tobacco comes up, a discussion on illicit trade is never far behind and picking up on concerns raised by Mo Razzaq of Family Shopper Blantyre, Mark Yexley said JTI continues to be active in tackling illicit trade and he urged retailers to pick up the phone should they get wind of illegal sales in their area.

“JTI has worked closely with Crimestoppers for a number of years. If any retailers know of criminals supplying illegal tobacco in their area, we’d advise them to contact Crimestoppers anonymously on 0800 555 111.

“Of course, it can be frustrating for retailers when they report instances of illicit tobacco trade and sometimes even after all the evidence has been handed over to Trading Standards it can take a while for the authorities to take action – but these things take time.

“We’re committed to tackling the sale of illegal tobacco so would encourage retailers to be vigilant, to be persistent, and to protect their businesses by continuing to report criminals to Crimestoppers or via the HMRC Fraud Hotline.”

Rob Taylor agreed with Mark on the critical nature of tackling illicit trade and suggested retailers talk to their Imperial rep about the firm’s new anti-illicit trade app SARA which was was recently launched within its salesforce.

The impact of EUTPD 2 in particular was raised and Sayiad Hamid of Bourtreehill Supermarket, Irvine, weighed in with his experience in recent years.

We certainly are thinking of going down that route and freeing up space behind the counter for other products.

    –Saleem Sadiq, Spar Renfrew

“Originally, when cigarettes used to come in from abroad people used to buy real fags and sell real fags. Then they started to sell all that cheap counterfeit stuff so a lot of the regulars stopped going to illicit dealers and they started coming back to us, because at least they know that they’re getting a real cigarette. But since then it’s gone dark and the pouches have changed. With rolling tobacco, since it’s gone to 30g and since tens have stopped it’s gone back the way.”

Moving from illicit tobacco to smoking alternatives, attendees at the roundtable event were treated to a presentation from Philip Morris, led by area sales manager Laura McDermaid, on IQOS, the firm’s new heated tobacco system.

IQOS works by heating tobacco but not burning it, with the lack of combustion leaving the user with an experience similar to smoking but with no smoke and no ash, with a dramatically reduced smell.

Philip Morris area sales manager Tony Penman said retailers should think of the NPD as separate from both traditional tobacco products and vaping liquids and accessories.

“We view it very much as a new category. It’s not a vape and it’s not a cigarette, it’s this new category in the middle and that, as exciting as it is, creates its own challenges,” said Tony.

“We’ve got to try and educate people that it’s a new category and this is how it works, because everyone will try and hang it on something. So you’ll start talking about it and someone will say ‘oh it’s a cigarette?’, no it’s not, ‘oh so it’s a vape then?’, no it’s not.

“We’re trying to get the word out there and the only way to do that effectively is to have the engagement of our retailers.”

Bruce and Donna Morgan of Best-One @ Brownlies in Biggar, South Lanarkshire

Retailers at the table welcomed the prospect of innovation and Mo Razzaq reinforced the need for retailers to evolve their offer when he compared tobacco with other categories in decline.

“Tobacco reminds me a bit of newspapers and magazines. It’s not expanding, now it’s all about retention and getting customers to shop with you to buy their tobacco.

“The mindset for myself anyway is that we know that our sales are going to decline so we really need to find ways of making sure that we get margin and get some products in that will compensate for that,” he said.

One way retailers can bring more customers through their doors is the introduction of a loyalty scheme and Zapper boss Jon Birt was on hand to explain how his firm’s technology has been ramping up activity in the UK.

“We’re still obviously in very much of a learning stage to see exactly what works. What we’ve looked at recently is concentrating on doing something like a food-to-go offer and creating offers on products with a short shelf life that we can send out a flash sale on with a voucher.

“We’ve seen a voucher being created where if you bought a bacon sandwich you got a free coffee. We saw redemptions within minutes for that offer alone.”

It’s all about where you put household matches. If you pop them on the shop floor they will sell more.

– Michael Wilson Republic Technologies

From loyalty to NPD, editor John turned the conversation towards new SKUs, asking Michael Wilson of Republic Technologies to provide retailers with the lay of the land as his firm sees it.

“In the next few months we’re going to be changing our match range as there’s one supplier in the world that supplies the chemical for ‘strike anywhere’ and they’re no longer supplying that chemical so strike-anywhere matches will be out of the market from April,” said Michael.

“That’s quite a big change. We’ve done a bit of a focus on match usage and we have a lot of feedback, there’s growth in candles, we get feedback where people have said ‘I buy Jo Malone candles, I’ve tried to light it with a Scottish bluebell smoking match’ type of thing so people are unsure of what match should be used for what sort of activity they’re doing.

“We’ve got Cook’s and we’ve got Bryant & May, and we are going to rebrand those to make them more current because they blend in at the moment. I think for retailers, the smoking match will decline but it’s all about where you put your household matches. Rather than have them behind the counter, if you pop them on the shop floor you will sell more.”

Saleem Sadiq of Spar Renfrew and Zahid Ullah of Day-Today Kelty and share some retailing knowledge

Discussing NPD more generally, retailers suggested that while it was welcome, it had to be approached with caution, as Natalie Lightfoot of Londis Solo Convenience explained:

“I’ve got a Londis so we tend to get a newsletter or email telling us we can get a new product in store. That’s a good way to get ahead of the other guys. I always give it some consideration, especially with soft drinks, but I’m also wary of it as well. Does anyone remember Pepsi Max Ginger?”

Ferhan Ashiq of Levenhall Village Store in Musselburgh turned the NPD conversation back towards tobacco, suggesting firms could do more to demonstrate how stocking a new SKU benefits retailers.

“If you are on schemes with different companies you’re forced to stock NPD when it comes to tobacco products.

“Yes, tobacco companies believe that – rightly or wrongly – NPDs create growth, but do they really? All you’re doing, in my point of view, is transferring sales from one product to the new product that you’re actually selling,” he said.

“All we’re doing is moving customers from one product to the other and what I try to do now is make sure that I have at least two customers per product.”

Retailers Sayiad Hamid and Imran Ali of Bourtreehill Supermarket, Irvine

Looking to the future, and with a nod to online behemoth Amazon’s inroads into grocery, the discussion turned to delivery – a service some retailers at the table were already offering.

Zahid Ullah of Day Today Express Kelty told of his experiences developing and running his online delivery service

“A big thing for us, what we find really important, is to get the product to the consumer cheaper than it is for them to come to the shop,” said Zahid.

“Generally we advertise a 30-minute delivery service. Within one and a half miles we average about 12 minutes but we can achieve it within about four minutes because the orders are automated, they come in through a little print machine, we accept or decline and the customer is automatically updated on if we can do the order or not.

“So we do operate it as quickly as possible and I think that’s why customers use it a lot.”

Despite the diversity of stores operated by retailers in attendance, there was general agreement that delivery is only going to become more prominent in the years ahead, creating a new set of opportunities and challenges.