The effects of the introduction of the EUTPD2 legislation last year are still far from well understood but one trend that is becoming clear is a 4% shift from cigarettes into RYO.
by Antony Begley
It’s still far too early to determine the true effects that the introduction of the EUTPD2 legislation has had on the tobacco market, but some interesting trends are starting to become evident. One of these has been a notable shift from factory made cigarettes (FMCs) into RYO. Imperial Tobacco UK (ITUK) estimates there has been at least a 4% shift in that direction since EUTPD2. Major shifts in the tobacco landscape were only to be expected, not least because ITUK also reckons that 86% of FMCs and RYO packs bought in 2016 are now no longer sold following the introduction of EUTPD2. What that means is that a lot of adult smokers have been forced to re-evaluate their tobacco purchases.
Andrew Miller, Head of Field Sales at ITUK, says: “Since the transition to standardised packaging adult smokers have certainly become more brand reliant, either sticking with – or returning to – the tobacco brands they’ve traditionally relied on to provide a quality smoking experience.”
That flux has seen the direction of travel continue towards RYO and the lower pricing tier products, as Miller explains: “Within the FMC sector, Sub Economy (the lower pricing tier) brands continue to enjoy the largest share. Our figures show that this was almost 44% of all the FMC sales in September 2017.”
Miller also notes a shift in demand towards the crushball (capsule) sector which now accounts for over 13% of the overall FMC market, according to his figures. This has increased by 1.5% compared to this time last year, with one in every 81 cigarette purchases now a crushball.
As for RYO, Mid Price brands currently enjoy the largest sector share – 54%.
But it’s not all about the mid and low price sectors. Miller urges retailers to offer a wide range of products – including Premium – to ensure they meet consumer demand. As an example, Golden Virginia is a premium tier RYO brand but commands an overall RYO market share of 22%, he points out.
Introducing new products has never been tougher for the tobacco manufacturers thanks to EUTPD2 and that explains the collapse of the NPD market – but some new lines are still finding their way onto the gantry.
Miller says: “Since the introduction of EUTPD2 and standardised packaging, there is now also markedly more responsibility on the part of wholesalers and convenience store owners to really understand their tobacco offering and become experts.”
Back to basics
Tobacco remains an important footfall driver for many independent stores, so getting the basics right of offering a wide range and consistently high availability – especially when it comes to bestselling lines – have never been more important.
Miller encourages retailers to lean on their industry partners to ensure they are getting every penny of sales and profits from the category: “We’d encourage retailers to take further advantage of their already close relationships with their Imperial sales representatives to develop and refine their FMC and RYO offerings. By becoming category experts, stocking wide ranges, maintaining consistently high availability, merchandising stock using our ‘one brand, one shelf’ method and pricing competitively, retailers will be well-positioned to advise adult smokers around new products, pack formats and other upcoming innovations in the category.”
One area where retailers, wholesalers and manufacturers agree is in the importance of tackling the increasingly damaging illicit trade which is now at an all-time high. James Hall, Anti-Illicit Trade (AIT) Manager at ITUK, says: “The new regulations have unfortunately had a detrimental impact on the independent trade. We note recent HMRC statistics suggesting that the most recent tobacco tax gap (the difference between the amount of tax due and the amount collected) is estimated to be an all-time high £2.4bn, owing to a rise in the sales of non-duty paid contraband and counterfeit tobacco. The government’s failure to address this growing issue continues to harm honest UK retailers.
“In lieu of the government either repealing standardised packaging or lowering tobacco tax rates, ITUK has recognised that the most effective way to tackle illegal tobacco is to continue to raise awareness and build AIT advocacy among retailers, law enforcement, industry bodies and politicians alike via our dedicated team and Suspect it? Report it! campaign.”
As part of this campaign, ITUK co-hosted several events in conjunction with Bestway and Booker wholesalers last November – which were attended by many local retailers and resulted in fruitful new intelligence leads relating to the potential sale of illegal tobacco.