Profits going up in smoke

Will the smoking ban result in fewer people smoking … or will people simply smoke and socialise more at home? If the latter, then c-stores and off licences stand to benefit from the legislation as more customers need to top-up locally, and this would be good news for the wholesalers supplying these outlets – if they get their offer right.

One of the key factors for retailers buying cigarettes from cash and carries is availability, according to HIM’s Cash Carry Customer Tracking Programme. The cigarette retailer customer visits their cash and carry more frequently than the average customer each week – suggesting they are replenishing little and often. This means they are operating with little or no back-up stocks, and they therefore rely heavily on their cash and carry having stock available. But cash and carries will have to work hard at ensuring availability as this is the reason why most customers in cash and carries fail to buy an intended item.

When retailers were asked what prevented them from buying this product in this cash and carry today, 78% said it was out of stock. When asked what they would do if the product or brand was unavailable at the cash and carry today 55% would go elsewhere, 25% would go without, 11% would buy an alternative product and 3% would buy an alternative brand.

Cash and carry customers can also be very disloyal in cigarette purchase patterns as 69% say they shop around at cash and carries, and 28% sourced from delivered wholesalers. Cigarette customers are also high spenders, buying 26% more than the average cash and carry customer, and cigarettes are massively important sellers with 62% of all cash and carry customers buying cigarettes on “this trip” – second only behind soft drinks.

However, HIM’s research shows only 22% of retailers think cigarettes are one of their three most profitable categories, suggesting retailers focus on percentage margin rather than cash margin. In reality, cigarettes will be the biggest cash generating category and the biggest penetration category for many independent retailers, as well as a footfall driver to shoppers. “Independents need to understand the importance of getting this category right and being continually ready for Features > Business, for the end consumer,” says HIM’s client director Jonathan Rons. “Is this something wholesalers could point out?”

Price perception is another area raised by independent retailers, with many stating they are unable to compete unless they sell above RRP to make a decent margin. However, 48% of retailers thought price-marked packs (PMPs) meant that prices were lower than normal, and that probably explains why nearly half (41%) of retailers asked say they like buying PMPs.

In summary, HIM suggests wholesalers should consider:

l communicating the profit importance of tobacco to retailers – the message may have been diluted by the increased focus on new or emerging products

l look at product availabilities – are there times of the month or week when availability dips?

l treat tobacco as one of your profit “crown jewels”

l never be out of stock of the key sellers

l exploit suppliers’ knowledge – there are huge variations across the UK. Make sure your range is targeted to your potential customer base.

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