New analysis done by Epos supplier The Retail Data Partnership paints a complex picture for the future of tobacco sales in convenience as Managing Director Stephen Burnett explains.
The introduction of the EU Tobacco Products Directive in May 2017 brought significant changes to the way in which retailers display and sell tobacco. The aim of this change was to reduce the number of smokers and encourage a smoke-free population.
We conducted research into the Tobacco sales of over 2,500 c-stores to assess changing consumption trends and the impact of the new laws on turnover.
So, is tobacco consumption falling? Yes, in a word. Using volume sales as an indicator of consumption, we found that in November of this year, each store sold on average 23% less tobacco than in May 2017.
And are retailers feeling the squeeze? Considering volume sales reductions of 23%, it would fair to assume that retailers are making less money than ever from their tobacco gantry – but our analysis suggests this is not the case, with value sales falling by just 0.07% across the same period.
The question, then, is: “How exactly are retailers weathering the storm?” Without price mark restrictions, the answer is clearly that retailers are increasing margins to offset the falls in volume sales. The losers in this situation are wholesalers and manufacturers, many of whom are urging retailers to honour RRPs. Feedback we receive from retailers suggests strongly that this advice is falling on deaf ears as retailers seek to protect their profits.
But is this sustainable? The short answer, in our opinion, is no. While convenience is an important factor in tobacco sales, ever-increasing costs coupled with tighter wallets caused by inflation and Brexit means that there’s only so far you can go with price increases before demand dries up.
We believe retailers should be focusing on tobacco substitutes, such as e-cigarettes and other high margin categories such as snacks, confectionery and soft drinks. In time they could minimise the pressure of maintaining tobacco volume sales and supply their business with long term trusted profit.