Now firmly established as a key sector of the tobacco category, sales of roll your own tobacco continue to grow, meaning retailers must ensure RYO brands’ share of the gantry reflects their rate of sale, before the market goes dark.
For all the trials that beset the tobacco category, the fact that roll your tobacco managed to grow at 9.1% in Scotland last year is nothing short of remarkable. A sector that is severely hampered by the illicit trade in a category that is declining and under heavily restrictive legislation, managing to increase sales is a true mark of the importance of the category. The RYO market is currently the biggest sector of the tobacco category by volume and the second fastest growing price sector in the UK tobacco category. With one in three existing adult smokers choosing to smoke RYO tobacco, growth is likely to continue as existing adult smokers continue to seek out greater value for money.
The sector has evolved over recent years to reflect the premium, mid-price and value areas of the cigarette market – and like cigarettes it is the value segment that is driving growth. Imperial Tobacco’s Regional Business Manager for Scotland, Darren Attwell, comments: “The RYO economy price sector is showing signs of significant growth in volume terms year on year. Imperial Tobacco UK estimates that growth in sales of RYO will be up around 0.5% in 2014 in comparison to last year.” And the reason for this growth? “In the current economic climate many consumers are faced with the prospect of less disposable income as inflation continues to rise above the growth of wages,” says Attwell. “As a result of this consumers are increasingly seeking good quality products in addition to offering good value for money. Sales of smaller pack sizes have gradually increased allowing consumers to purchase their preferred brands whilst controlling their spend.” Jeremy Blackburn, JTI Head of Communications, is in complete agreement, commenting: “In recent years many adult smokers have chosen to switch to products which offer greater value for money – a trend which has manifested itself in the considerable growth of the UK roll your own (RYO) market.” The key for retailers here is to ensure that their range of RYO products reflects these trends, so that means enough space to cover a range of brands – and pack sizes.
Currently, smaller packs (8g to 12.5g) account for around 45% of all RYO sales within independent stores. “RYO tobacco generates more profit for the retailer than items such as batteries, stamps and medicines which are often merchandised within sundry sections of a tobacco gantry,” says Attwell. Once the display ban is in place we are unlikely to see much in the way of new product development, but until then Alan Graham, Head of Marketing at Scandinavian Tobacco Group UK (STG UK) expects there to be a busy period in terms of innovation launched into the RYO tobacco category in 2014. “This is essentially the last chance to launch any NPD effectively before the full display ban.
From new product variants and ranges, through to new pack sizes and formats, the tobacco category is certainly going to be one to watch,” he says. Graham says the onus is now on manufacturers to ensure they’re offering the cheapest tobacco products. “Once the display ban is in effect in smaller stores, consumers will ask for the cheapest RYO range, not the second cheapest. As a result, there’s likely to be increased competition in this area,” says Graham. Over the last few years, a huge raft of RYO tobacco ranges have been launched into the market specifically focused on offering consumers the best value for money (VFM). This increased demand for value for money has allowed a VFM RYO segment to emerge “We launched our Salsa RYO tobacco range in response to this demand for VFM, offering a quality product at an exceptionally low cost,” says Graham. Since its launch, Salsa value sales are now worth £2m. “The brand’s £3.29 price marked pack variant has also been incredibly popular with Scottish retailers and consumers alike, offering consumers instant reassurance that they’re getting a good deal,” says Graham, who adds that PMPs offer great appeal to shoppers as they provide visible value for money for consumers while on shelf.
“Despite the limited time consumers will be able to see the products after the implementation of the display ban; PMPs will still help flag pricing of products with their clear messaging on price,” he says. As well as offering the cheapest tobacco ranges and market leading brands, Graham says that stocking more niche product ranges such as Natural American Spirit (NAS) should also be a focus for Scottish retailers in 2014. Additive-free tobacco has continued to grow in popularity with consumers as they pay more attention to what ingredients are included in their tobacco. “NAS remains a must stock brand for Scottish retailers. We also recently launched NAS Orange, a new variant for the cigarette range which we expect to be particularly popular with consumers. With both cigarettes and RYO variants on offer through the NAS range, Scottish retailers that don’t stock up will risk missing out on the sales on offer through this growing niche segment.” Ranging By implementing and following planograms, retailers can ensure they have the correct range in place and the right levels of stock in their store rooms.
The tobacco gantry is a small but important area of the store and planograms must be implicitly followed because if retailers don’t consider these factors they risk having a store range and space allocation that doesn’t reflect their customers’ preferences, thus leading to out of stock problems and ultimately creating shopper dissatisfaction. An example of how retailers must monitor changing trends comes from RYO pack sizes. A fairly recent addition to the tobacco market, sales of sub 12.5g pack sizes of RYO tobacco have more than doubled over the past year. Imperial’s Attwell says: “To enable retailers to capitalise on their growing popularity, we launched Gold Leaf 9g at the end of 2013. Complete with papers, Gold Leaf 9g will enable adult smokers to make 22 hand rolled cigarettes for less than £3. It is an ideal product for adult smokers to trial Gold Leaf, or for those who are seeking better value and to reduce their outlay on tobacco.” It’s worked. Gold Leaf has grown 24% since the same period last year and delivers a smooth taste at a low out of pocket price, which today’s modern roll your own adult smoker is looking for. It is also the UK’s fastest growing RYO brand commanding a market share just shy of 10% of the RYO category. In March this year Golden Virginia Smooth was re-branded as GV Smooth. Imperial Tobacco decided to update the entire range to produce a new generation brand for a new generation of adult smokers. The changes have had a positive effect on the brand and UK sales volumes are up by over 28%.
Available in 8g, 12.5g, 25g and 50g pack sizes, with papers included in the 25g and 50g pack size and papers and tips included in the 8g ‘Handy pack’, GV Smooth provides consumer choice and convenience as well as a low out-of-pocket price – GV Smooth Handy Packs have an rrp of just £2.82. Elsewhere at Imperial Tobacco the company in 2011 extended its JPS brand into RYO. An established brand, JPS RYO’s price point offers great value for money for tobacco shoppers in these tough economic times when many smokers are tempted to buy cheap tobacco from illegal sources. “Another reason JPS RYO sales are strong is that many cigarette smokers ‘dual’ with RYO tobacco – that is to say they may smoke RYO during the week and cigarettes at the weekend,” says Imperial’s Attwell. “This trend has become more pronounced over the last few years as the value for money and control offered by RYO tobacco grows in popularity.” This is a trend STG UK’s Alan Graham says retailers must be aware of. “RYO tobacco has continued to grow in popularity with smokers as the tobacco stretches further per pound spent than a packet of cigarettes.
As a result, we’re still seeing an increasing number of cigarette smoker’s switch to RYO tobacco, as reflected by figures that show the category is now worth £2.1bn and growing by an incredible 11%.” In the mid-price market it is JTI’s Amber Leaf brand that is excelling. Make no mistake: Amber Leaf is of huge importance to retailers. It is the UK’s number one tobacco brand with a 10.9% share of the total tobacco market (including cigarettes). JTI has also recently introduced a new pack design across its existing Old Holborn range, reinforcing the brand’s position in the market as a premium quality offering for existing adult RYO smokers.
The brand’s new look pack will be available across all channels in 12.5g, 25g and 50g packs. The 12.5g pack will feature a “new design, same taste” flash mark, whilst the introduction of “zip fresh” technology will see a new sticker placed on the 25g and 50g packs to indicate their use of zip fresh technology. The rich taste tobacco blend will remain unchanged. Blackburn says: “With more than 200 years of heritage and expertise, Old Holborn is one of the top hand-rolling tobacco brands in the UK, making it an incredibly important player in the RYO market for retailers. The new pack design will further strengthen the Old Holborn brand, as it continues to match traditional RYO existing adult smokers’ taste preferences with premium quality.” Display ban Between now and 6th April 2015 convenience stores must make the most of the fact they can display tobacco, while also taking steps towards finding a solution to cover up their gantries with minimum disruption. Imperial Tobacco’s Darren Attwell comments: “Retailers should be aware of key market trends and are ensure they adapt their product lines to reflect this in order to continually meet their shoppers’ needs.”
Key to this is ensuring that sales data is being analysed and sales patterns are identified, as once the ban comes into place, it will become increasingly difficult to identify out of stocks. Attwell says: “Getting into the habit of carrying out regular availability checks and marking key lines off on a checklist now will make the transition far smoother in 2015. Retailers should also consider placing reminder cards on autofeeds so that staff are aware of what product goes in each space and keep a customer request book for new products so they don’t get forgotten on the next order or trip to the cash & carry.”
In the lead up to the implementation of the display restrictions, Imperial Tobacco is working with all its trade partners to ensure they have clarity on what the legislation will entail, how to be compliant and what the penalties for non-compliance could be. “We have now written to the majority of our customers – several thousand – who in many cases have already had initial conversations with their respective Imperial Tobacco representatives,” says Attwell. “As a follow up we have written to remind them of the timescales involved and offer a significant proportion of them the opportunity to register for our Unit Conversion Programme in order that their businesses are fully prepared and legally compliant before the law changes.” Imperial Tobacco has developed what it calls a best-in-class solution, with a Scottish compliant variant that fits the tobacco unit. The company has also created additional solutions, including dedicated RYO units, for retailers to utilise.
Every store will be dealt with on a case by case basis but it’s important for retailers to know that we will look at their unit requests on a bespoke basis to better service their needs but where possible we will look to implement our preferred best-in-class solution. “In light of the large number of retailers eligible for our Unit Conversion Programme, we are currently working on a delivery schedule which will ensure retailers are compliant long before the April 6th 2015 deadline,” says Attwell. Imperial says that it remains committed to supporting all of its trade customers throughout this period of change and beyond, however the level of support offered to each retailer varies and is based on the volume of tobacco sold along with other commercial factors. Attwell explains: “Where the commercial return for Imperial Tobacco is insufficient for us to invest in converting one of our units we have taken the decision to transfer ownership of the asset to the individual retailer concerned.
By taking this step the retailer gains full control of their tobacco unit and is in the best position to make preparations for the future, furthermore we have also supplied those retailers in question with details of a company who will be able to undertake the work, including providing a Scottish compliant tobacco unit, on their behalf.” A four page guide including information on how retailers in Scotland can remain compliant, and tips on how to explain the changes to customers, can be downloaded under the ‘Useful Downloads’ area of the www.imperial-trade.com trade website. Research conducted by Imperial Tobacco shows that sales volumes across the category should not decrease when the display restrictions come into force. Good news for retailers, and the key focus for them should be on meeting shoppers’ needs. Availability is the number one consideration for shoppers. Additional research into shopper insights by AMR found that 52% of adult smokers will leave the store if their favourite brand is not available. When the display ban was implemented in Australia, the ‘out of stock’ rates of some leading brands increased by 600% overnight.
To ensure this doesn’t happen in Scotland, retailers will need to ensure their units and store rooms are well-stocked, effectively merchandised and their range is always available. smooth transition As we move towards 6th April, JTI has also been working with retailers to ensure the move is as smooth as it can be. Jeremy Blackburn says: “With the Display Ban for smaller stores looming, the key principles of category management have never been so important. Retailers shouldn’t wait for the Display Ban to happen; they should be prepared. It sounds obvious but it’s important to monitor sales and ensure the basics of category management are put into practice, using techniques such as ARTIST.” “ARTIST has been launched to advise retailers about the key principles of category management and how to maximise profits from tobacco in store. It stands for: Availability, Range, Training, Innovation, Sales and Technology. “Retailers are being asked to review their approach to the category today, using these six simple steps as a guide,” adds Blackburn.
STG UK launches display ban guidance project
Scandinavian Tobacco Group UK (STG UK) has announced the launch of a project to help retailers get ready for the arrival of the display ban in smaller stores in April 2015. As part of the project, STG UK is working closely with a number of retailers, named the Gantry Guardians, to offer retailers guidance and peer-to-peer advice to help them avoid loss of sales. It’s crucial for retailers to start preparing now; otherwise they will see their sales suffer as a result. Using its expertise as the leading cigar manufacturer, as well as insights from its Gantry Guardian ambassadors, STG UK will offer retailers guidance through to the launch of its Gantry Guardians’ Guide to Tobacco. The four-page report will include advice on key trends to bear in mind when undertaking a range review, as well as important diary dates and top tips on how to prepare for the Dark Market.
One the great benefits to retailers from selling roll your tobacco is the range of ancillary products that can be offered with it – including papers, filter tips, rolling machines and lighters. Imperial Tobacco’s Darren Attwell says: “Retailers should always have profitability at the forefront of their mind and should not forget the worth of in associated purchases in the RYO sector. If a RYO smoker walks into a shop with the intention of purchasing a RYO tobacco and some papers, they may well leave the store having bought filter tips, a rolling machine and a lighter – it is vitally important therefore for these items to be displayed in a clearly visible area given their high profit margins.” Availability is therefore essential; retailers need to ensure good availability of their bestselling RYO lines, as 54% of adult smokers will leave the store without making a purchase if their preferred brand is not in stock.
Retailers should also ensure that growth brands are given enough space to reflect market dynamics. Attwell’s advice is that brand ranges should be kept together and planograms adhered to make the unit easier to navigate. “By following these invaluable steps it will reduce the possibility of lost sales once the display ban restrictions come into force,” he adds. The filter tips and papers market is showing strong growth as increasing numbers of smokers opt for the value, choice and flavour options that RYO products provide. “The tobacco market as a whole is adapting to major changes such as the display ban and the rise of e-cigarettes, but the good news for accessories’ stockists is that RYO smokers are remaining loyal, continuing to drive both volume and value growth,” says Eleni Koulara, Marketing Manager of Republic Technologies (UK). Led by the strong growth of Swan, (+12.7%), growth of filter tips in the total impulse channel is up 11.5% to £40.7 m.
The rolling papers market in the impulse channel is also outperforming other sectors of the market, up 4.2% and valued at £87.8m. Republic Technologies is continuing to focus on product innovation, highlighted by the recent launch of its Swan branded ‘Ultra Slim Filter’. The new filter is the thinnest Swan filter ever, providing RYO smokers with a smoother taste and an enhanced tobacco flavour. “The Swan Ultra Slim filter is a premium, quality product aimed at the more discerning RYO smoker,” adds Koulara. “One of the reasons people choose RYO is that it enables them to make thinner cigarettes which in turn means they smoke less. Size of filter is becoming more important in the RYO sector, particularly among people looking to reduce smoking for health or cost reasons.
The Swan Ultra Slim filter is the product that best addresses those specific consumer needs.” The Swan Ultra Slim pack contains 126 filter tips and has an rrp of 95p. Maintaining its focus on NPD, Republic Technologies has also launched new vertical Zig-Zag king size rolling papers’ cases, enabling retailers to save 50% shelf space compared to the previous horizontal packs. “This is a simple, but significant, change as we know retailers want to maximise shelf space and offer the products their customers are looking for,” says Koulara. The vertical packs are available for the following products: Blue King Size rolling papers (rrp 65p, outers of 50); Silver King Size rolling papers (rrp 75p, outers of 50); Blue King Size 3pack rolling papers (rrp 1.49p, outers of 12) and Silver King Size 3 pack rolling papers (rrp 1.79p, outers of 12).
Republic Technologies has also launched Zig-Zag unbleached rolling papers, backed by a major music promotion – The Unbleached Sessions – giving music fans the chance see two headline bands live and to champion undiscovered music talent. Meanwhile, Eleni Koulara is urging c-stores to focus on proven, market-leading brands to maintain growth. “RYO Smokers are actively seeking brands they know and trust. Many retailers are using them as beacon brands as they know that if RYO smokers’ preferred choice isn’t available, they’re likely to buy elsewhere,” she says.