Nicotine products hold strong value for retailers despite the double whammy of inflationary and potentially regulatory pressures.
Vaping and traditional tobacco are still categories with huge potential for independent retailers, with a shift towards the value price sector, especially in Scotland.
The tobacco category is worth £14bn each year before tax, with the Factory Made Cigarettes market (FMC) accounting for 66% of all tobacco sales in Scotland, compared to 53% in the rest of the UK, according to data from EPOS 3 month shares (May-July 2022).
The need for value
“With more consumers looking for ways to reduce spending amid soaring household costs, we’re seeing a shift towards low-priced propositions across the entire tobacco category,” Tom Gully, Head of Consumer Marketing UK&I at Imperial Tobacco, notes.
“This trend is particularly prevalent in Scotland where 21.2% of FMC sales are in the value price sector (vs. 11.4% in England) and 27.1% of Roll Your Own (RYO) sales are in the value price sector (vs. 15% in England).”
The need for value products is likely to remain a dominant trend in the category for some time, as we move into the winter months and inflation persists, with 58.7% of all sales volumes currently in the value or ultra-value FMC and RYO sectors, according to Circana. Gemma Bateson, Sales Director at JTI UK, explains: “As existing adult smokers continue to look for more affordable options in the market, retailers should focus on stocking ultra-value tobacco brands now more than ever.”
One of the sectors benefitting from the squeeze is RYO tobacco, which has seen a significant increase in sales, now accounting for nearly half (46%) of all tobacco sales, according to the ITUK Report on Trade.
“As demand for RYO tobacco grows in light of the rising consumer appetite for value, the tobacco accessories category provides a substantial sales opportunity for retailers,” Gully adds.
The vape market is expanding at a significant rate, with the number of vapers in the UK having increased from 3.7m in 2021 to 4.3m in 2022, according to ECigIntelligence.
Gully says: “We’re currently seeing significant growth in the disposables category. Now worth 83% of all vape sales, the market saw a remarkable increase from £141m in 2021 to £973m in 2022.
“In order to cater for this growing demand, we recently announced our entrance into the expanding disposables market with our new blu bar vape range. Recent data also shows that both closed pod systems and basic open pod systems remain popular choices for vapers, accounting for 17% of the UK vaping market.”
Imperial Tobacco has recently announced the expansion of the range with four new flavours – Blueberry Ice, Blueberry Sour Razz, Berry Mix and Grape Ice – to help retailers drive seasonal sales in the summertime.
Demand for flavours is dominant in the heated tobacco sector as well, with sales of flavoured heated tobacco variants accounting for 50% of all refill sales in traditional retail, according to IRI Market Place. In order to keep on top of trends, JTI is offering eight EVO tobacco flavours, including Bronze, Amber, Green, Magenta, Purple, Ruby, Green Option, and Purple Option.
Up to 26 million disposable vapes were consumed and thrown away in Scotland in the last year, of which an estimated 10% were littered and more than half were incorrectly disposed of, according to a report by Zero Waste Scotland.
In light of the findings, Lorna Slater, Minister for Circular Economy, Green Skills and Biodiversity, said she invited Ministers from the other UK governments to discuss what they could do “in response”. “Those who sell single-use vapes are already required to take them back for safe disposal, or contribute to the cost of recycling, but this is clearly not happening as it should. I will therefore write to the UK Minister responsible to share our findings and to ask what they will do to ensure these obligations are met,” she adds in a statement.
Separately, England and Wales’ Local Government Association (LGA) has recently said it is “crucial” a ban comes into force “rapidly” to stop a flood of single-use vapes into the UK market. It described them as “a hazard” for waste collectors, adding they are “almost impossible to recycle without going through special treatment”.
However, the UK Vaping Industry Association (UKVIA) has sounded alarm bells over the review. In a letter to Slater, UKVIA Director General John Dunne outlined two major concerns with the report – the process of the review and the “lack of impartiality”. He questions why the public and the wider vape sector were not invited to contribute to the review, saying this contradicts government guidance which states “consultations are open for all citizens to reply to”.
Dunne also said that the approach to this report differs from a previous Scottish consultation on the advertising and promotion of vaping products, which allowed consumers to “have their say” and saw more “diverse” responses. Dunne wrote: “This gives the impression that the consultations were merely a box-ticking exercise rather than a genuine attempt to engage with the views of both the vaping sector and those who have successfully transitioned from smoking to vaping.”
Meanwhile, ANDS, a distributor of alternative nicotine delivery systems, introduced a new 99%-plus recyclable and recoverable single-use vape. “If these single-use vapes are restricted or banned over environmental fears as is being talked about in some circles, smokers could lose what many believe to be a very convenient, accessible and compelling alternative to conventional cigarettes,” Fadi Maayta, President of ANDS, said when unveiling the product.
The potential impact of disposable vapes to the environment is not the industry’s only headache. A recent report by the Children’s Commissioner has called for plain packaging for vapes, a ban on disposable vapes, and a ban on the vaping industry from selling ‘nicotine-free’ vapes to under-18s.
It’s also recommending age-of-sale signage on vaping products to be mandated in the same way that it currently is for cigarette products, while calling for the new Illicit Vape Enforcement Squad to update local trading standards to make on-the-spot fines and fixed penalty notices for shops selling vapes to under-18s illegally easier.
In response, the UK Vaping Industry Association (UKVIA) said it agreed that youth vaping “has to be urgently tackled” but highlighted that “banning single-use vapes is not the answer to the issue”.
John Dunne, Director General of the UKVIA, explains: “Vapes, whether designed to be single or multiple use devices, are age-restricted products, such as alcohol or aerosol spray paints and should never be sold to children. This is an access issue not a product issue.
“The fact is Trading Standards needs increased government backing to tackle rogue traders and cut off the source of supply to minors.”
The UKVIA is proposing on-the-spot fines of at least £10,000 per instance for those caught selling to young people or selling illegal products (up to £2,500 maximum); a retail registration scheme to ensure retailers meet strict standards before being permitted to sell vapes; and a national test purchasing effort to ensure those selling vapes aren’t supplying to minors.
Meanwhile, local councils in England and Wales have also called for disposable vapes to be banned in the whole of the UK. In a statement, LGA said councils are “concerned about the impact vaping is having upon children and young people.
“It is worrying that more and more children – who have never smoked – are starting vaping.”
LGA noted that councils are especially concerned by the marketing of vapes with designs and flavours “that could appeal to children, in particular those with fruity and bubble gum flavours, and colourful child-friendly packaging”. It called for “strict, new measures to regulate the display and marketing of regular vaping products in the same way as tobacco are needed”.
Cllr David Fothergill, Chairman of the LGA’s Community Wellbeing Board said: “Councils are not anti-vapes, which are shown to be less harmful than smoking and have a place as a tool to use in smoking cessation.
“Single use vapes blight our streets as litter, are a hazard in our bin lorries, are expensive and difficult to deal with in our recycling centres. Their colours, flavours and advertising are appealing to children and the penalties for retailers selling them don’t go far enough.”
Ian Howell, Fiscal and Regulatory Affairs Manager at JTI UK, notes: “We’re seeing a growing issue of children being able to access disposable vapes.
“We’re concerned about the use of inappropriate naming and packaging on some items which could potentially appeal to children, including cartoon imagery or imitations of well-known confectionery and soft drink brands.
“One of JTI UK’s core principles is that tobacco and nicotine vaping products should not be consumed by anyone under the age of 18. They are for adult consumers only who have made the decision to use those products. Therefore, keeping them out of the hands of under-18s is really important.”
The illicit trade challenge
Illicit trade is another challenge hanging over the sector, especially in the current cost-of-living crisis. New figures, by the TMA Anti-Illicit Trade Survey 2022, have shown that 73% of smokers bought illicit tobacco within the last year (vs 71% in 2021), while nearly four in 10 consumers claimed that increased living costs had impacted their purchasing habits and where they now choose to buy cheaper (illicit) tobacco.
New tobacco track and trace sanctions came into force on 20 July, including a penalty of up to £10,000 for persistent offenders holding illicit tobacco products; the seizure and potential destruction of tobacco products; and the deactivation of track and trace codes temporarily or permanently for businesses that persistently break the rules, thus restricting or removing the ability of offenders to purchase or sell tobacco in the UK.
“As demand for vape products continues to rise, we’re unfortunately now also seeing an increase in illicit trade in the category which may pose a threat to consumer health,” Gully notes.
“Disposable vapes have seen impressive growth over the last year and this popularity has made them an area of focus for illicit traders. As a result, we’re seeing an increasing number of non-compliant vape products come to market that are disguised to appear as something else to avoid detection, such as a recent seizure which saw an illicit vape product made to look like a highlighter pen.
“These products often feature names that are seemingly designed to appeal to children, like fidget spinners, gummy bears and ice lollies,” he adds.