It’s one of those discussions that usually only happens in private, but the gnarly question of whether to price tobacco at RSP is nonetheless a debating point that all retailers have a view upon, whether they’re prepared to admit in in public or not.
The debate has been brought into sharp focus by a new piece of data analysis carried out by The Retail Data Partnership (TRDP), the company behind the ShopMate Epos system. The analysis was based on tobacco sales data that TRDP pulled from over 2,500 convenience stores that the company supplies. The findings are quite astounding. Tobacco sales in these stores are down on average 23% by volume in November last year, compared to the year before (pre-EUTPD2). That in itself is a shocking collapse, but perhaps more surprising is the fact that, despite this huge slump in volume, sales by value have remained to all intents and purposes flat, down by just 0.07%. The inescapable conclusion is that retailers have been increasing their margins to offset falls in volume sales.
Or, to put it more prosaically, as TRDP Managing Director Stephen Burnett does: “Feedback we receive from retailers suggests strongly that the advice of the major manufacturers [to sell tobacco at RSP] may be falling on deaf ears”.
It’s a tricky puzzle to solve. The major tobacco manufacturers uniformly advise retailers to sell at RSP to maintain customer loyalty and there’s unquestionably good logic to that point of view. But the TRDP findings seem to clearly indicate that retailers haven’t taken that advice on board, possibly because they don’t feel as if they have a choice, thanks to the rapidly increasing cost of doing business. You’ve got to make your money somewhere.
The big problem with continually escalating tobacco prices to the customer, of course, is that it’s clearly not a sustainable solution. As Burnett points out in his overview of the analysis: “There’s only so far you can go with price increases before demand dries up.”
In a category that routinely accounts for at least 20% of a store’s turnover, and in some cases a far higher percentage than that, this is set to become a real problem in the near future – and one that doesn’t have an easy answer. As retailers, we’ve all heard more and more customers tell us that they’re going to give up the fags every time they part with the best part of a tenner for their pack. One day that threat will become enforced reality when they really can’t afford to maintain the habit.
It’s perhaps time this debate was dragged out into the open so that we can all work together to find the best possible way forward.
Antony Begley, Publishing Director