After years of wrangling, debating and planning the tobacco display ban is finally upon us, but with the news that plain packaging is to be introduced the legislative changes will continue. For now though, retailers must adapt to a post-ban world, and they must adapt quickly.
No matter what your thoughts on the tobacco display ban, no matter how you reached a solution to cover up your display, the moment has passed and tobacco is out of sight. How this affects your sales remains to be seen, but predictions and anecdotal evidence suggest there won’t be too much of a difference. However, this is dependent on stock management and staff training. There is a real danger of losing customers permanently if measures are not put in place to ensure that tobacco customers get what they want in a timely fashion.
Jeremy Blackburn, JTI Head of Communications comments: “Retailers should get their planogram in place now and train staff to ensure they are familiar with product location. This will increase speed of service post retail display ban and reduce queue times. They should also continue to offer a range of pack sizes, as well as price marked and non-price marked packs. This will demonstrate to existing adult smokers that they are getting the best possible choice and value ahead of and beyond the ban.”
So, the fundamental principle of category management in this new age is to maintain 100% availability. Equally important is ensuring staff are aware of the legislation – and not just for customer service. In Scotland, a breach of the display regulations could result in a fine of up to £2,500 if prosecuted.
As Imperial Tobacco’s Head of Independent Retail, Andrew Miller says, “It’s essential that retailers train staff on the legislation and guard against having out-of-stock tobacco products. Stores who go out of stock and have to replenish the shelves during peak periods not only make it a difficult task for staff to manage but will limit their chances of a tobacco sales boost.”
The theory from Scandinavian Tobacco UK is that in a dark market, some consumers default to well-known brands, value for money or niche products and, as a result, retailers need to stock their range accordingly. Therefore, says James Higgs, Head of Marketing & Public Affairs, “Retailers operating in a dark market need to be extremely well organised and educate their staff on how and where to stock their products. It’s also important for them to take the time to talk to customers and explain the situation so they understand and know that they still offer a range of tobacco products, even if it is hidden from sight.”
He continues: “By ensuring staff are knowledgeable about the products on offer, they will be able to offer an exceptional level of customer service. Talking staff through where the products are merchandised on the gantry will also allow them to get used to where they’re positioned and reduce transaction times at the till as a result. At the end of the day, if a product’s not in stock, customers will go elsewhere and may not return – which will impact sales.”
Alan Graham, General Manager at Santa Fe Natural Tobacco Company UK agrees that three key areas within tobacco tend to come out on top. “The largest brands in each sub-category, the cheapest and truly niche products stand out,” he says. “Natural American Spirit is indeed truly niche as the UK’s largest additive free tobacco brand and will continue to be asked for by consumers.”
Like other manufacturers SFNTC UK representatives will be visiting many independent stores and are more than happy to offer advice on ranging and merchandising in the lead up to the display ban and beyond.
“Stores need to organise themselves and their staff so they can continue to offer best service once the ‘doors’ are on,” he adds. “Product knowledge/service, 100% availability and stocking the right range should see retailers manage with the display ban properly.”
Shoppers want price and range reassurance and they don’t want to queue. They also need availability of their chosen brand as they will always ask for this even if they can’t see it. Miller adds: “Our research back in 2012 highlighted that only 40% of tobacco shoppers were aware of the ban coming into force which could have been a contributing factor to the temporary drop in consumption. The split market approach in 2012 will have allowed shoppers to become familiar with the display restrictions, so when small stores go dark in April it is not expected to have the same impact on tobacco performance as it did three years ago.”
To any retailers who see the display ban as an excuse to reduce the amount of space they give to tobacco after the ban, or to reduce the number of lines, JTI advises against making a quick decision. “Retailers must not see the Retail Display Ban as an opportunity to destock tobacco lines; it is more important than ever to maintain a strong range and portfolio going into a display ban environment and beyond,” says Blackburn. “With Value tobacco such a vital category and existing adult smokers so brand loyal, it is only by maintaining full availability at all times and stocking a wide range of brands that retailers are going to maximise profits.”
While Blackburn says that retailers shouldn’t delist, STG UK’s James Higgs believes it’s likely this will happen. He says: “There will be a degree of rationalisation post retail display ban which means it’s likely the biggest brands will survive. Unfamiliar products that are new or not big sellers may be rationalised out, meaning that stocking popular brands that consumers recognise will be of even greater importance for retailers.”
However, the emphasis is on retailers to identify the right range for their customer base and adjust their range accordingly.
“Now that the doors have gone up, retailers must become true tobacco category managers,” says Ronald Ridderbeekx, Head of Corporate and Regulatory Affairs, BAT UK. “Adult consumers will be asking them more questions because they cannot immediately see the range of choice within the category. Train all of your staff to understand which tobacco products are premium or VFM, and which product is the lowest price on the gantry.”
The future of NPD?
One of the big questions for tobacco manufacturers is what will happen to new product development. With tobacco no longer in the line of sight of customers as they browse, will NPD continue? In short, yes, but company’s like JTI have said their salesforce will play even more of an educational and business advisory role.
“JTI is at the forefront of the market through introducing brand extensions that are in tune with market trends, as well as reduced outer sizes, limited edition packs, smaller pack formats – all of which helps retailers drive sales and tobacco products that remain relevant to today’s existing adult smoker, and this will continue,” says Blackburn.
He says that it will be more important than ever for retailers to have a thorough understanding of what’s happening in the tobacco category, including the areas of growth, the most popular pack formats and what sells well in their region. “JTI reps will continue to provide retailers with insightful market data on a regular basis to ensure that their tobacco gantry is stocked with the best possible range of NPD to maximise profits,” says Blackburn.
STG UK’s Higgs says that any new products launched into a dark market will need to have a strong USP in order for retailers to consider including it on their hidden gantry e.g. strong value for money. “However, the supply chain is going to be under a huge amount of pressure to comply with new legislations so there may be a lull in material-based innovation for the time being. Though, that’s not to say it won’t return once this has been formalised.”
Price and value continue to be a key driver of choice in the cigarette and RYO markets, with increasing numbers of existing adult smokers looking to the value segment.
One thing that hasn’t changed in this category is that Mayfair remains the leading cigarette brand in Scotland. It currently commands a 14.9% share.
With a strong presence in both cigarette and RYO segments, JTI is keen to note the growing trend for a number of smaller pack sizes, launching Holborn Smooth Taste 9g and Sovereign Menthol Superkings 19s.
Blackburn says: “As this trend takes hold and the tobacco market continues to evolve, retailers should ensure they’re offering a wide choice of tobacco brands and pack formats, including a range of 9g, 10g, 12.5g, 20g, 25g and 50g packs as well as 10s, 19s and 20s from the RMC segment.”
Organic tobacco products have also grown in prominence, though remain niche. That said, research has indicated that more than 70% of UK existing adult smokers declare an interest in organically grown tobacco. In response to this, JTI launched Amber Leaf Signature Blend, a Brazilian blend containing organically grown tobacco leaf, a European first for the RYO segment.
With challenging economic conditions continuing, even value brands are proving too expensive for some shoppers. In response to this, 2014 saw retail sales of the below value sector rising.
According to Santa Fe Natural Tobacco Company UK’s Alan Graham, retailers must continue to invest in RYO brands. He points out that the Scottish RYO market is growing +6.2% relative to the UK’s overall rate of +1.8%. “VFM continues to drive volume showing a 14.1% increase in the same period,” he says. “This is also very apparent in Scotland with many of the VFM brands in strong double digit growth.”
Additive free RYO continues to grow steadily in Scotland with Natural American Spirit (NAS) growing by 43.4% MAT Vs 2013 and over 70% on the latest monthly figures. “Consumers are becoming increasingly discerning about their RYO and the high quality, additive free NAS uses only premium tobacco in its packs,” says Graham. “NAS currently has a 0.6% share of the Scottish RYO market and is growing at over 50%.”
Imperial Tobacco’s Miller says that the firm’s programme of research continues to show that consumers – whether buying cigarettes or RYO products – are increasingly seeking great quality tobacco brands at a lower out of pocket price. “This year the expectation is that the below value sector will continue to soar and so we’re advising retailers to understand local market trends and stock up now.”
He adds: “This year it is essential retailers get the right brands in place and ensure excellent availability so customers don’t walk away. Ensuring all staff members are aware of the legislation and how to keep the store compliant as well as limiting the impact to customers so they continue to be served as efficiently as possible is vital.”
With customers more likely to simply ask for the cheapest tobacco product, STG UK is confident that products such as its Break Little Cigars can help retailers offer a cheaper, alternative value for money smoke. The company also offers its Salsa Roll Your Own range in a half outer of 5 x 12.5g price-marked packs, making it the cheapest Roll Your Own , gram for gram, on shelf. “The half outer size also means less financial outlay for the retailer, which has to be positive,” says Higgs. “Moments miniatures, also offers incredible value for money and should be considered a must stock by retailers as it’s now the fastest growing cigar brand in the UK.”
While the company’s market leading miniatures, Café Crème will be a fixture of any tobacco gantry, Higgs recommends also stocking a range of niche tobacco products such as Café Crème Filter Arome, which can enable retailers to give their store a point of different over local competitors. “Cigar smokers are incredibly loyal so if they find the product they’re looking for, they will keep coming back for more,” he says.
While some consumers seek out value for money in terms of the lowest cost per stick or cigar, some are also looking to gain value through smaller purchases such as single cigars. “Our Henri Wintermans Half Corona and Slims are available in outers of 5 x 5 and the new hygro-foil packaging means the cigars have been individually bar coded, allowing them to be sold as singles where space is limited in a retailer’s tobacco gantry,” says Higgs.
Retailers have questioned whether PMPs will continue to play a role post-ban, but BAT thinks stocking PMPs is actually the key to success after the dark market. “Not being able to see every product and price on the gantry may increase mistrust for an adult smoker, meaning that they don’t think they are getting the best price for their product,” says Richard Wood, Acting Head of Business Development. “We’ve heard from some retailers that they are questioning the value of PMPs after the display ban—but actually, we anticipate this is precisely the time when PMPs are most needed to demonstrate best value and increase adult smoker loyalty. We also know that cost conscious adult smokers become aware of price changes in multiples quickly. This backs up the belief that the impact of pricing does not change when gantry doors are put up.”
In product terms, BAT’s Rothmans value offering has driven growth for the brand across the UK, with wholesalers seeing the benefits of making the brand more available for symbol and independent retailers.
BAT introduced Menthol to the range last year to give retailers a Rothmans solution to the fast-growing Menthol market. “Retailers have told us that they appreciate the return they gain from every sale of a Rothmans pack. It’s a great offer for the retailer and also the adult consumer who seeks a good quality menthol product at such a great price”, said Brand Manager, Mine Dogan.
The company is also pushing its RYO business through Cutter’s Choice – which was rebranded last year – and Pall Mall RYO, which has recently added papers to 20g pouches. “Pall Mall RYO is BAT’s price fighter”; said Harry Barnes, OTP Brand Executive; “We’ve provided wholesalers the opportunity to deliver their customers the lowest-priced 10g in the market. Sales of Pall Mall are trending up, and our message is to stock up and sell more, more often this summer.”