The format that fits

Iqos users

The UK’s tobacco manufacturers are exploring new ways of offering adult smokers all-important value for money.

by Gaelle Walker


In a category as heavily taxed as tobacco, achieving a true value for money proposition is no mean feat. The continuous rise in duties on factory made cigarettes (FMC) and roll your own (RYO) products has prompted the birth of numerous different mechanics to help tobacco retailers offer adult smokers more value for their money over the years.

And of course, value for money means different things to different shoppers. For some, it’s about buying the smallest legally available format to keep out-of-pocket prices low, while for others bigger packs equal better value.

The same can be said for papers and filters, with some tobacco brands going down the added-value route by including these key accessories within RYO pouches, while for other manufacturers, the exclusion of papers and filters allows for lower RSPs.

And we approach spring and summer (when tobacco sales tend to rise to due the increase in outdoor occasions), another value for money mechanic has been birthed within the FMC sector.

Rolling out to independent retailers from April, Imperial Tobacco is trialling a limited-edition range of added-value packs containing 21 cigarettes across a number of its most popular brands, including Players JPS, Richmond, L&B Blue and Lambert & Butler.

The new bigger box range of 21s will be exclusively available to the independent channel with RSPs of £10.15 for Richmond, £10.40 for Players JPS and L&B Blue, and £11.20 for Lambert & Butler.

Imperial Tobacco UK Consumer Marketing Manager Tom Gully comments: “Driving value for our customers remains a top priority for our business. Through this latest launch, we’re offering the same popular blends at great value price points, but in a bigger box format for consumer convenience.

“This is a new slightly bigger box format especially for our limited edition 21s packs. Given the current drive for value and convenience being seen across the tobacco category, we expect to receive positive feedback from consumers on the new launch of our bigger box formats.”

It’s not the first time that tobacco manufacturers have played with pack sizes in a bid to offer adult smokers new value propositions.

Several big-name FMC brands, including JTI’s Sterling, were launched in smaller 18 and 19 pack formats prior to the introduction of standardised packaging regulations in an attempt to offer adult smokers lower out of pocket prices.

At the other end of the scale, the arrival of the new added-value “extra-stick” format within FMC is an interesting move and one which is likely to play well with value-hungry adult smokers.

While the new 21 packs are currently only tabled to be available for a limited time only, the move could well prompt the birth of further added-value or so-called “extra-stick” formats of 21 or even 22s over the coming months, so watch this space.

Key market stats
  • The Tobacco market is currently worth £14bn (before tax) per year. (Imperial Tobacco)
  • There is almost a 50/50 market share split across Factory Made Cigarettes (FMC) and Roll Your Own (RYO) categories – at 53% and 47% respectively. (Imperial Tobacco)
  • The lower price tiers now account for the majority of FMC sales, with the sub-economy segment making up a 63% share. (Imperial Tobacco)
  • The economy-priced RYO and FMC segments are both growing at 4% value year-on-year. (Imperial Tobacco)
  • Economy-priced RYO accounts for 51% of sales, while mid-price and premium products hold 35% and 14% shares respectively. (Imperial Tobacco)
  • The nicotine pouch category is now worth £2.2m and is growing 40% year-on-year, according to JTI.
  • In terms of the flavour split, the UK nicotine pouch market is currently 77.6% menthol and 22.1% fruit, according to JTI.

Away from FMC, JTI has also taken the “bigger can be better” approach to demonstrating value for money, with a new larger format of its “less for less” Sterling Essential Rolling Tobacco brand.

Now available in a 50g pouch, as well as the existing 30g format, Sterling Essential Rolling Tobacco contains no filters or papers with a lower RSP of £21.20.

Explaining the concept, JTI’s marketing Vice President Mark McGuinness says: “Mirroring the 30g format, Sterling Essential Rolling Tobacco 50g is a less for less alternative, with no filters and papers providing existing adult smokers the freedom to purchase their preferred tobacco accessories.

“With the demand for value RYO products a key trend in the market, we want to support our retailers and wholesalers so that they can meet this demand by offering a quality brand with competitive RSPs.”

The lower selling prices afforded by the RYO sector, when compared with FMC has prompted further growth in the UK’s RYO sector over the past year and – according to Imperial – there is now almost a 50/50 market share split across FMC and RYO.

Accessories

Growing RYO sales have also led to further sales wins for the accessories market in the past year.

In fact, according to Republic Technologies, the UK accessories market’s value climbed by 4.8% to hit £320m in the 12 months to 28 November 2021.

Republic Technologies Sales and Marketing Director Gavin Anderson explains: “Cash conscious shoppers are turning to more affordable RYO products as a way of saving money, versus FMCs.

“By ensuring they are fully stocked with a range of tobacco accessories from trusted brands, retailers can cater for every customer and drive sales.”

Republic Technologies range of innovative accessories products includes the Swan Crushball filters which are available in Cool Burst and Fresh Burst flavours.

Cigar focus

Demand for greater value for money also continues to shape the UK’s cigar category which, according to STG, now boasts a retail sales value of just over £287m following a 19% rise over the last year.

Cigar volumes over the same period also increased significantly, up 21.8% to hit 428.9m cigars, as part of a move which underlined “the growing importance” of the category to retailers, STG Country Director Alastair Williams says.

“The search for value has also been a consistent trend in cigars for a while now, evidenced by the success of our Moments Blue brand, which offers a quality smoke at a low price.

“It is now the sixth best-selling cigar brand in the UK in value terms, but interestingly most of its sales go through the multiple grocery channel, so I wonder if it’s one area where independent retailers might be missing a trick by not stocking it? And with the continued impact of the pandemic on the economy and the cost of living going up, I would only imagine this move towards value will increase,” he says.

The “stellar” performance of the UK cigar market remains largely driven by the fast-growing cigarillo segment, which already accounts for 44.4% of all cigars sold in volume terms, and totals £91.3m in annual sales according to STG.

“However, the total category growth has also been supplemented by the continual rise in the medium / large segment, albeit from a smaller base,” Williams adds.

“Miniatures are still the largest segment within cigars, currently worth £104m in annual sales and led by our Signature Blue brand, while the small cigar segment appears to be continuing a slow but consistent decline.”

Heat not burn

Away from combustible tobacco, the heated tobacco market is continuing to make sales gains as awareness among adult smokers grows.

However, there’s still a long way to go, as Morris Limited (PMI) Head of Commercial Planning Kate O’Dowd explains.

“Whilst awareness of heated tobacco is growing, it remains comparatively low in the UK, where the e-cigarette market was already well-established by the time IQOS launched.

“If retailers raise awareness of new and emerging alternatives – particularly with information on products that may meet preferences based on taste, satisfaction, and affordability – they’ll be in a stronger position to convert that smoker,” she says.

Addressing the affordability barrier is another key way in which retailers can help to drive sales of heated tobacco through their stores, O’Dowd adds.

In a recent pilot, almost 15% of new and existing IQOS shoppers chose to buy a refurbished device at a reduced cost through PMI’s e-commerce channels.

“Between 28 September and 16 December 2021, almost 15% of new and existing customers purchased devices that had been cleaned and refreshed for re-entry into the market,” O’Dowd adds.

“Consumer appetite for this type of product demonstrates the importance of affordability as a potential cost barrier for adult smokers looking to switch to a better alternative. With the RSP of 20 HEETS tobacco sticks less than half the average price for a pack of 20 cigarettes, retailers should ensure they’re explaining to customers the cost benefit of switching than continuing to smoke.”

Stocking a wide-ranging flavour portfolio, including traditional tobacco blends and an array of menthol flavours can also help to incentivise sales. To that end,  PMI recently launched HEETS Mauve, its fifth menthol blend.

Merchandising advice

Imperial Tobacco’s UK Corporate Affairs Director Duncan Cunningham imparts his top tips for merchandising success.

Display it right

Given the value of tobacco shoppers in terms of the wider sales they generate in store we would recommend retailers make it clear that they sell tobacco by displaying products within an installed gantry.

Even if retailers choose to stock tobacco products under the counter, it’s really important there’s signage that informs shoppers that tobacco is sold in store to avoid missing out on sales.

Don’t overlook accessories

Any tobacco stockist should also ensure they have a range of accessories on offer as they are often part of impulse purchases made by shoppers when visiting a store to buy tobacco products. With this in mind, stocking a range of lighters, filters and papers, even if it’s a small selection, will really help retailers cater to these shoppers and ensure they don’t miss out on sales.

Invest in staff knowledge

Retailers need to ensure their staff know what products are stocked in store and where they’re positioned on the gantry at the bare minimum. Better still, if they can be armed with advice on what solutions they should offer if a product does go out of stock for any reason, this will go a long way to helping retain customers.

Maintain stock levels

For this reason, it’s also crucial for retailers to make sure they maintain stock levels at all times, especially of their top sellers. Smokers tend to be brand loyal so if they walk out due to their product being out of stock, they simply may not return, especially if they do find it in stock at a store nearby.