Time to look on the bright side of the dark market?

This information is for tobacco traders only
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The much-maligned tobacco category remains arguably the most important category in any convenience store, contributing a huge percentage of sales and cash profits – so is it time retailers took a more positive approach?

No other category in local retailing comes close to Tobacco when it comes to surmounting a constant stream of massive challenges from the legislative to the moral – yet it has consistently proven itself to be the most resilient product category of all.

Even though Tobacco is arguably the most important category in any Scottish c-store in terms of percentage of overall sales and percentage of overall cash profits, it is still often viewed in a downbeat light by local retailers.

Take tobacco out of any c-store and the store is almost certain to fail, and fail fast. Yes, we can debate margins and pricing strategies, but the fact remains that the vast majority of the price of a packet of cigarettes does not go to the manufacturer and certainly not to the retailer – it goes to the government in the form of tax. The Tobacco Manufacturers’ Association (TMA) has calculated that on a typical pack of 20 cigarettes the total tax burden typically accounts for 82% of the RSP. That doesn’t leave much for the rest of us to share.

So yes, margins could be higher – and many retailers are forcing those margins up by pricing over RSP – but the fact remains that tobacco delivers a huge percentage of the sales in all c-stores, as well as a very chunky percentage of cash profits. And that’s before the positive contribution it makes to footfall and the sales it drives in other categories.

Choice and innovation key to accessories

Innovation and new product development are what is driving growth in the tobacco accessories market in Scotland, according to Republic Technologies (UK).

Consumers are demanding more from the category – now worth £27.5m [IRI, Jul 2018] in Scotland – with increasing pressure on suppliers to innovate, says the company.

“The tobacco accessories market has seen YOY growth of 6.5% in Scotland, with papers being the most buoyant area of the category, worth £92m and growing at 12.5% [IRI, Jul 2018],” says Gavin Anderson, General Sales Manager at Republic Technologies.

“It’s crucial that suppliers maximise this opportunity by working with wholesale and retail customers to understand shoppers’ needs and, in turn, to enable retailers to drive sales of tobacco accessories in-store.

“We have recognised the need for greater choice with NPD that taps into consumer trends, including Swan Ultra Slim, the thinnest-ever Swan filter and a premium quality product aimed at smokers; Swan ‘Eco’ filters, the most environmentally friendly Swan product ever; Swan Kingsize Cigarette Tubes, appealing to cash-conscious consumers looking for an alternative to ready-made cigarettes, and OCB Virgin Slim & Tips, for consumers looking for a less refined paper and a softer smoke.”

In March, Republic overhauled its matches range to include new packaging and an extension for its Swan brand. In addition to modernising core brands to appeal to a younger audience, the move marked the company’s commitment to sustainability and the increased demand for eco-friendly matches, following the removal of Strike Anywhere match formats from the range.

The danger here is that retailers cut off their noses to spite their faces. Lose focus on the biggest sales driver in the store and the only way is down. Positively embracing a legal category and working with suppliers is more vital than ever in keeping the category resilient.

The major manufacturers, after all, have done a great job of keeping the category buoyant with promotions, NPD and innovation in the face of seemingly insurmountable odds, something that doesn’t always get the credit it deserves.

Stephane Berset, Head of Marketing at JTI, says: “Tobacco continues to be the biggest FMCG category, with the total UK tobacco market currently worth £14.4bn [Nielsen, Jun 2018]. The total value of Tobacco in Independents and symbols totalled £6.2bn in the last year [Nielsen, Jul 2018] with the cigarette market accounting for £5bn [Nielsen, Jul 2018].”

Those are figures that no other category comes close to matching.

Andrew Miller, Head of Field Sales at Imperial Tobacco UK, says his company estimates that while sales are falling, by around 6.5% last year, the number of sticks sold still totals around 41bn. Interestingly, sales in convenience have fallen much slower.

He says: “Imperial estimates around 74% of sales are in the convenience channel, down by around just 2% compared to this time last year.”

So is it time for retailers to take a fresh look at the category with a fresh perspective? There’s certainly lots to get enthusiastic about, and retailers that embrace the latest trends and tailor their offer to modern shopper demands are far more likely to gain their share of the category.

The two most prominent trends in the current tobacco market are the continued growth of the Capsule segment (which is now responsible for 15.3% of total cigarette sales in the UK [Nielsen, Jul 2018] and the growing Value segment, as consumers seek out value-for-money products. These trends have been evident for a long time now but are becoming more pronounced as time goes by.

JTI advice: ranging for profit
  • Maintaining a full range and availability of tobacco brands across the pricing scale is of vital importance because customers are brand loyal – research tells us that 27% [IPSOS, 2017] of existing adult smokers choose to buy elsewhere if their brand is unavailable.
  • There is still significant demand for premium and mid-priced brands, so by ensuring they stock a full range that reflect their customers’ demand, retailers can avoid losing out on sales and become or continue to be a destination store of choice for existing adult smokers.
  • Communication with customers is an area where independent retailers have an opportunity to maximise sales:
    • Retailers should also use regular conversations with their regular existing adult smoker customers to adapt their ranges and maximise sales.
    •  This flexibility, depth of category knowledge and time to speak with customers should be used by convenience retailers as a significant advantage and opportunity over nearby multiples.


According to JTI’s Berset, this shift to value has also boosted the RYO category: “As part of the trend towards value in the total tobacco market, the RYO category has increased 7.7% year on year [Nielsen, Jul 2018] as existing adult smokers seek out these value-for-money products. The RYO category now generates sales worth over £2.6bn, making it the leading combined price sector with a market share of 38.5% [Nielsen, Jul 2018].”

With over 6.5 million kilograms of rolling tobacco sold in the UK each year, there is significant opportunity for retailers to maximise sales by stocking up on value RYO products.

This opportunity has led JTI to follow up the phenomenally successful relaunch of its Kensitas Club brand earlier this year with the launch of a new Kensitas Club RYO offering.

Now Scotland’s fastest growing cigarette brand [Nielsen, Jun 2018], Kensitas Club is now available in both 30g and 50g packs with very competitive RSPs of £10.90 and £17.80 respectively, making it JTI’s lowest-priced rolling tobacco.

Ross Hennessy, Head of Sales at JTI UK, comments: “The relaunch of Kensitas Club earlier this year was hugely successful, and this latest extension to the range will allow retailers to capitalise on this sales momentum as well as tap into Scotland’s growing RYO segment, that is now worth an estimated £187m [Nielsen, Jun 2018]. Value rolling tobacco now makes up 37.6% [Nielsen, Jun 2018] of RYO volume in Scotland and we are confident that the launch will provide retailers with a competitive product for the existing adult smokers in this segment and in turn drive incremental sales.”

Imperial Tobacco has also been busy in the RYO market, as Miller explains: “In terms of RYO trends, many adult smokers now seek value through purchasing their RYO tobacco from lower-priced sectors while looking for all-in-one solutions. In response to this, last year Imperial launched the 30g Gold Leaf Handy Pack (containing a 30g pouch of Gold Leaf rolling tobacco, 2 x 40 Rizla Regular Green cigarette papers and 72 Rizla ultra slim filter tips).”


The capsule market is the other area that requires careful attention, as Imperial Tobacco’s Miller highlights: “The crushball (capsule) sector continues to grow apace and we estimate that it now stands at over 14% of the overall factory-made cigarette (FMC) market after a notable increase in recent years.

“If they don’t already do so, retailers should consider stocking our award-winning JPS Player’s Crushball (RSP £8) and JPS Crushball (RSP £8.65).

The other must stock capsule brand is Sterling Dual, the UK’s No.1 capsule brand [Nielsen, Jul 2018] which has extended its range with the addition of two new products: Sterling Dual Superkings and Sterling Dual Double Capsule King Size.

With an RSP of £8.65 (vs Sterling Dual, RSP £9), the new Sterling Dual Superkings offers existing adult smokers extra value and extra length. Delivering double the taste with the same value, the new Sterling Dual Double Capsule King Size has two flavours: peppermint and spearmint. Priced at the same RSP (£9) as the Sterling Dual Capsule King Size, it enables existing adult smokers to create a variety of distinct smoking experiences in one cigarette.

JTI’s B&H Blue brand has also recently been extended with the addition of a new capsule variant, available in Superking size. With a low RSP of £8, the launch offers extra length and extra value, allowing retailers to cash in on the growth of both the Ultra Value and Superkings segments.

Imperial Tobacco has also embraced the shift to great value with a repositioning of its L&B Blue cigarettes, taking them into the Sub Economy price sector with an RSP of £8.

Accessories advice

Republic Technologies offers the following top tips for retailers to maximise the opportunity from tobacco accessories:

  • Stock a wide selection of products including core range filters, papers, matches and lighters, as well as the latest NPD.
  • Pack formats play an important role: space saving packs such as vertical packs of Zig-Zag King Size papers (50% space saving compared to traditional King Size packs) and Poppell 45-pack lighters help retailers to manage shelf space more effectively, while pack formats such as Swan Slim Pop-a-Tip Filters offer a convenient alternative (vs Swan Slim Loose Filters) for on-the-go consumers.
  • Offer a core range of papers (Green, Blue and Silver in both standard and King Size variants) plus other options such as Unbleached and flavoured, and stock multipacks to combat discounters.

Cigar category update

Worth £198m in the UK, the Cigars category still represents a significant sales opportunity for retailers. Scandinavian Tobacco Group UK (STG UK) leads the way in the category, accounting for seven of the top 16 brands alone and over half of the entire category with a 53% market share.

The company’s portfolio includes Café Crème, the number one cigar brand in the UK.

“Our research indicates that over half (51%) of retailers aren’t offering customers the all-important guidance they need on which tobacco products to purchase,” says Jens Christiansen, Head of Marketing & Public Affairs at STG. “With 62% of consumers saying they would possibly try an alternative tobacco product if advised by their store and 12% said they definitely would, this presents a huge missed opportunity for retailers.”

The research Christiansen references was a study conducted by Censuswide UK on behalf of STG among 1,000 adult smokers in March this year and discovered that nearly half (46%) of retailers seem to be offering their customers advice on what products to purchase, but less than 2% of shoppers feel that their recommendation would influence their tobacco purchasing decision.

Christiansen comments: “By increasing their knowledge on the Cigar category, including the different segments and products within them, retailers will be able to provide informed advice to their customers and increase their sales as a result.”

Top Performing Cigar Brands

VALUE (£m)
Café Crème Blue 22.0% £34.6
Moments Blue 12.6% £14.1
Hamlet 10.9% £34.7
Hamlet Miniatures 10.6% £16.1
Café Crème 8.9% £13.9
Royal Dutch Miniatures 6.9% £7.8
Classic 6.1% £20.8
Café Crème Red Filter 4.5% £7.0
Royal Dutch Miniature Blue 4.1% £4.6
HW Half Corona 2.5% £14.3

Source: IRI, Jun 2018

Price in terms of out of pocket spend was shown to have the greatest influence on consumer tobacco purchasing decisions, coming out top of the poll (61%), with perceived value for money a close second (47%). Of those smokers who hadn’t tried cigars before, a quarter (25%) would be encouraged to buy them because of taste and a fifth (20%) would buy them if they thought they were cheaper than cigarettes, further reinforcing the consumer demand for value within the tobacco category.

Christiansen says: “Demand for value is nothing new having been a major consumer trend for many years now but, as our research shows, it can mean different things to different people. The restrictions on pack sizes within the tobacco category has come with a higher price for many shoppers, however given their exemption from these restrictions, cigars are often the cheapest option for shoppers.

“Stocking a strong selection of cigars will allow retailers to directly respond to these shopper insights, with well-known brands like Café Crème offering reassurance of quality, as well as smaller pack sizes and even individually-wrapped cigars offering low out-of-pocket spend.”

STG advises retailers to stock a range of top-sellers and big-name brands from each cigar segment. These include the number one cigar brand in the UK, Café Crème Blue which accounts for 22% of cigar sales single-handedly; Henri Wintermans Half Corona, which leads the Medium/Large segment; and Moments Blue which, priced at just £3.83 for a pack of 10, is dominating the Value for Money Miniatures segment.

Christiansen does highlight however that building a range for the specific needs of each store is vital: “It’s important for retailers to tailor their cigar range to their store and customer demographic. By engaging with shoppers and discussing what they’re looking for, retailers can adapt their range accordingly to ensure it meets their needs and aren’t at risk of losing out on sales to competitor stores.”

STG says it’s good to talk

Leading cigar manufacturer Scandinavian Tobacco Group UK Limited (STG UK) is launching a new online platform to provide retailers with key industry information and advice on how to maximise the cigar opportunity in their stores.

The new trade website, www.stgtrade.co.uk, centres around the strapline ‘Let’s Talk’ and builds on the consumer insights STG UK recently revealed which showed many retailers are missing out on tobacco sales due to not proactively engaging with customers.

Jens Christiansen, Head of Marketing & Public Affairs at STG UK, comments: “Our research findings showed that over half (51%) of retailers aren’t offering their customers the all-important guidance they need on which tobacco products to purchase. We recognise we have an important role to play in helping retailers realise this opportunity by educating them on the category and how best to engage with customers.”

The online platform will provide retailers with everything they need to know on the cigar category, with a host of tools designed especially with the trade in mind. This will include everything from information on STG UK’s brands and products, the top-sellers in each segment, recommended ranging and planograms, as well as category management advice and top tips on how to build customer loyalty, along with retailer testimonials and success stories.

Christiansen continues: “The relationship between independent retailers and their customers is integral to sales success, especially within the tobacco category. Taking the time to engage with shoppers and forge a stronger connection by proactively offering advice can really pay off in sales. The average profitability for cigars is double that of cigarettes so it’s really worth investing the time and effort in understanding the category and different products available so you can in turn offer well-informed advice to your customers.”

Logic Compact