While proposed changes to the laws governing display of tobacco products in stores have understandably claimed most attention in the trade, the most recent change to the regulations affecting the sector is being implemented very smoothly.
From October last year all tobacco products released by the producers had to carry pictorial health warnings, with wholesalers and retailers given a year to sell off all non compliant stocks of cigarettes, and a further year to clear out any other tobacco products not carrying the warnings.
Imperial Tobacco, JTI and BAT have all had sales teams out in the field advising wholesalers and retailers on the changes and helping to ensure they rotate their stocks. Andy Stevens, JTI distributive sales director, says his merchandising team visit cash and carries on a four-weekly cycle to help with displays and they report that most depots are now fully compliant.
The support in implementing the new regulations is an example of the way the manufacturers work closely in partnership with wholesalers, a channel responsible for distributing almost 50% of their £13bn business. Mike Laney, trade sector manager distributive at Imperial Tobacco, has a team who liaise closely with the wholesalers and there is a salesforce of 220 people who draw stock from wholesalers and visit retailers to advise them and help with merchandising.
In addition, the company got involved in the FWD’s National Independents’ Week with support and with staff helping out in stores for a day.
JTI, too, has a similar size salesforce and has been a strong supporter of the FWD’s My Shop is Your Shop campaign. At BAT, head of trade Richard Daniels has a team of account handlers working with wholesalers and engaging with the trade through trade shows and associations.
The next legislation the trade is likely to have to deal with is the proposed restrictions on displaying tobacco in stores. As this feature went to press Parliament was expected to vote in principle for restrictions, but the form of those restrictions will then be subject to further consultation. All the tobacco companies have opposed the proposal on the grounds that it will not achieve the intended result, of cutting underage smoking, and that it will add an extra cost burden to retailers and damage their trade.
== Cigarettes ==
Although factory made cigarettes are seeing a gradual volume decline averaging about 2% a year, they still account for the vast majority of the overall tobacco market and sales value keeps climbing due to duty increases and is now more than £11.5bn.
Downtrading is the dominant trend in the market, with many smokers searching for a lower cost cigarette, meaning sales of premium, mid-priced and standard cigarettes are declining while value and economy are on the up.
Despite the historic downward trend current sales have been resisting that tendency, according to Mike Laney at Imperial Tobacco. He says: “Volumes have been flat. The last couple of months we have not seen that decline and sales have been pretty strong across the trade.”
Although tobacco is nowhere near as seasonal as some categories such as soft drinks, Laney says a good summer does enhance sales, with the signs looking particularly good this year, with hot weather forecast and more people expected to holiday in the UK instead of going abroad.
Drilling down into cigarettes brands, Imperial Tobacco has the top two spots with Lambert amp; Butler and Richmond, which have a combined total value of around £3bn and a 32% market share. At the economy end of the market Imperial’s most recent national launch, JPS Silver, is trading exceptionally well, according to Laney. It already has a 2% market share, but he says in the independent channel it is 4.5%.
The company also has a ‘new’ launch in Northern Ireland. John Player King Size has sold strongly in the Irish Republic and it was the volume of cross border trading, and demand from Northern Irish retailers, that persuaded the company to make it available.
It is a premium brand, with an RRP of £5.85 for 20, but Laney says the Northern Irish market has a higher proportion of premium smokers than the overall UK and has tended to be very brand loyal.
JTI has third place in the league table of UK tobacco brands with Mayfair taking a 14% share and the number one spot in Scotland and Northern Ireland. The company has just announced plans to revitalise pack designs across the entire Mayfair range to give the brand a more contemporary feel. Changes include a faded stripe design in the background, a fine silver stripe down the left-hand margin, a smaller, embossed crest in the top right corner of the pack, and a modified logo design.
The packs will be introduced in three stages. From July 27, inserts included in current packs will announce the forthcoming redesign. In August, packs will be available with a cellophane wrap concealing the new design, before the clear-wrap packs that fully display the new look go on shelf later in the month.
Meanwhile Sterling is the member of JTI’s portfolio putting in the most eye-catching performance. Andy Stevens says: “Sterling has been growing at a phenomenal rate and now has 6.7% share.” The growth accelerated after the company cut the price of the brand in October when its share was 5.2%. At the premium end of the market Benson amp; Hedges Gold was the top selling cigarette during 2008 and has recently had its packaging rejuvenated.
BAT is focusing its resources on the value sector with its Pall Mall brand. Richard Daniels says: “It offers smokers high quality at a very attractive price and has really established itself in the UK market since its launch 18 months ago.”
He says BAT is concentrating on Pall Mall to support its growth, but its Royals brand is proving resilient and he has been very pleased with its performance.
The company also has a number of premium brands – Dunhill, Lucky Strike and Vogue. Daniels says: “They are top of the market small niche brands, but they are holding their own, predominantly in London.”
== RYO Tobacco ==
RYO tobacco is the most buoyant sector of the market showing consistent volume growth year on year since 2000, with volume more than doubling over the period. According to JTI, in 2008 the RYO duty paid market equalled the sub-premium segment of the factory made cigarettes market – Lambert amp; Butler, B amp;H Silver and JPS Special combined – in volume terms. JTI is also forecasting the volume growth will continue with figures of 13% in 2010 and 7% for 2011.
Several factors have all contributed to RYO’s success. One is the overall trend for downtrading with smokers moving to a lower-cost option that also gives them more control over the amount of tobacco they smoke in each roll-up. Another factor is greater success for HM Revenue amp; Customs in combating tobacco smuggling. The Government estimates that around 80% of RYO tobacco consumed in the UK in 2000 was non duty paid and that by 2008 it had brought the figure down to a still considerable 68%. This figure includes legal importation of tobacco by consumers for their own use, and this figure is also liable to be affected by the decline in the value of Sterling against the Euro and increasing duty rates on the Continent.
The other factor affecting consumption of RYO is the changing profile of its consumers. The most famous RYO smoker in the 1970s and 1980s was the Daily Mirror’s Andy Capp, a cloth capped cartoon character who typified the ageing male RYO smoker. But growth in the number of 18 to 34-year-old RYO smokers means they are now a much more diverse group which includes many women and duallists – people who smoke both RYO and factory made cigarettes – and nowadays it is far more acceptable to roll cigarettes in social situations.
Within the market Imperial Tobacco’s Golden Virginia holds a very strong position with a share of more than 44% at the end of 2008, and sales more than double those of its nearest competitor. Building on the strength of the Golden Virginia brand, the most recent launch in the sector has been Golden Virginia Yellow. It is a lower cost, milder tobacco intended to appeal not only to cost-conscious smokers, but also to duallists, many of whom find that other RYO brands taste harsh when compared to factory made cigarettes.
Analysing the RYO market, Lesley Stears, head of OTP at JTI, says there has been a lack of competition for Golden Virginia, She says that in RYO there are only a few brands, and broadly they split into premium, where Golden Virginia has a 90% share, and value, where the other major brands are competing. To address this gap in the market JTI is introducing Benson amp; Hedges Rolling Tobacco on July 20.
The new product includes ‘Foil Fresh’ technology, which incorporates a thin layer of foil in the pouch to keep it fresher and will be available in 12.5g and 25g packs. There will be both a premium Gold variant and a Silver variant, which will create a new sub premium niche between the premium and value brands.
In the value segment, JTI’s Amber Leaf is the biggest brand and showed the greatest growth in value. BAT also has a strongly growing player in this segment with Cutters Choice. BAT’s Richard Daniel says it has a strong brand equity and its price point attracts consumers downtrading from factory made cigarettes and premium RYO.
== Cigars ==
The ban on smoking inside public spaces has had its most profound effect in the cigar market where sales fell 11.1% from £441.5m in 2007 to £392.3m in 2008. Andy Stevens at JTI says: “The smoking ban has changed the whole dynamic of the cigar market.” Christmas used to be the main time for cigar sales but now it is summer when the weather is more conducive to outdoor smoking. The trend for downtrading has also affected the market with large and small cigars seeing falls of 10.5% and 15.5% between 2007 and 2008, while miniature cigars have seen a much smaller fall of 2.1% in the same period.
In the overall market JTI’s Hamlet is the leader with substantially greater sales than any of its rivals. Stevens says there will be a number of promotions on Hamlet to help exploit the key summer selling period.
The second biggest player in the market last month changed its name from Henri Wintermans Cigars to adopt the name of its parent company as the Scandinavian Tobacco Group United Kingdom Limited. James Higgs, head of commercial marketing, says: “Miniature cigars continue to drive growth in the total UK cigar sector, accounting for 53.7% of sales, and the category as a whole is in growth by 2.7% from April 2008. The reason for their popularity is that it’s easier for time poor / venue restricted smokers to smoke miniatures rather than small size cigars, a trend that has been developing in recent years.”
The group’s Café Crème family is the market-leading brand in the miniature cigar sector, and Café Crème Blue is the number one brand, with 34.4% of total sales. For smokers who find their opportunities limited, ST Group launched Café Crème Express in March. The new product is smaller than traditional miniature cigars, with an RRP of £3.29. It is intended to offer smokers a cigar that can be experienced quickly, and is also aimed at smokers who purchase cigars on impulse, or want to try a miniature cigar without having to invest in larger sizes.
Higgs comments: “We are extremely excited at the launch of Café Crème Express and expect it to be immensely popular with adult cigar smokers. Sales trends show that consumer behaviour has shifted in favour of miniature cigars as the smoking ban has limited the number of smoking opportunities. Café Crème Express caters for those consumers who wish to enjoy a cigar but find themselves time and venue restricted.”
Unlike its two biggest competitors in the UK cigar market, ST Group is focused almost exclusively on cigars. Higgs says it has a channel team, supported by key account managers and business development executives, who implement wholesale activity and provide category management and merchandising advice to ensure they make the most from their cigar sales.
Higgs also says that although cigars sell in smaller volume than cigarettes, cigars generate more profit than cigarettes and are equally important to the tobacco category.
Until the beginning of this year Imperial Tobacco used to distribute ST Group’s products, but it also has a portfolio of its own cigar products including Classic, Panama, King Edward Coronets and Castella Miniatures. Mike Laney points out that although there are more than 300 cigar brands, the top 10 account for 90% of sales, and he recommends that wholesalers review their range to ensure products are justifying their share of space in the tobacco room.
== Papers and Accessories ==
With the RYO sector in such a buoyant state, it might be expected that papers would be showing similar growth, but with some RYO brands including papers in their offering volume has remained fairly static. Unlike any of the tobacco products, papers can be advertised and all the main players take advantage with consumer advertising and sponsorships.
Imperial Tobacco’s Rizla brand, which has a strong lead in the papers sector, has a range of advertising activities and sponsorship at music festivals, but as consumer concern about the environment increases it has dropped its sponsorship of a motorbike team and announced it has become Forest Stewardship Council (FSC) certified.
Alison Williams, Rizla brand manager, comments: “Responsible management of the world’s forest is very important. Rizla rolling papers are the first in the category to be FSC certified and this is something of which we are very proud.
“Adult smokers will be able to purchase FSC-certified Rizla rolling papers and be confident that the product has been independently certified to ensure it comes from forest sources that are managed to meet the social, economic and ecological needs of present and future generations.”
Each Rizla booklet will feature an FSC message on the inside of the pack.
Like Rizla, Zig-Zag can now call on the backing of a major tobacco company, following its distribution deal with BAT. Zig-Zag managing director Andrew Armstrong says: “We were talking to much of the wholesale sector already, but this deal will fill in any gaps for us and offers a huge opportunity in the multiple retail channel.”
Zig-Zag is maintaining a high profile for its brand with sponsorship of motorbike racing, Thundercat powerboat racing and the former Benetton Formula One car in the Euroboss championship.
To highlight the company’s range Zig-Zag has been running a promotion in C amp;C with a free quarter outer of green papers strapped to a king-size outer. Armstrong says: “Many retailers didn’t realise Zig-Zag did king-size papers and this promotion has worked wonders.”
Zig-Zag is also looking to develop its distribution of the JOB papers brand. It is continuing a fly-posting campaign for the brand featuring the artists Gilbert amp; George. Armstrong says: “Fly-posting is a great medium. It is in town centres and everybody notices it.”
A new gravity feed, half size JOB outer, which can be stuck on the wall, is just entering distribution. Armstrong says it does not need to be on the tobacco gantry, because it can be stuck anywhere, and he expects it will be very popular with retailers.
The growth in the number of duallists has helped to boost the filters market, says Armstrong, because many smokers used to the filters in factory made cigarettes prefer to have a filter in their roll-up. He says Zig-Zag’s menthol filter is proving particularly successful achieving sales growth every month.
Rizla may dominate the papers sector, but when it comes to filters Republic Technologies’ Swan brand is way out in front. Mark Alldred, marketing manager at Republic Technologies, says: “Swan Slim Loose and Swan Extra Slim account for a huge proportion of packs sold in the UK (63.6% MAT to Feb 09).”
When it comes to papers he says: “As value is important, we strive to meet consumers’ needs with products such as the Swan Green 5 + 1 multipack. However in straitened times, some trends remain as consumers still look for convenience. We have seen strong growth in our convenience offering, Swan Combi, which contains papers and filters. Swan Combi is a product showing triple digit growth – a must-stock item. Customers have found it a convenient, practical and easy-to-use product.”
He says around 50% of the company’s sales are delivered through the cash and carry/wholesale markets with a dedicated field sales team across the UK visiting wholesalers to help them grow the paper, filter and matches categories.
Alldred says wholesalers do a good selling his products, but adds: “If I had any advice it would be to ensure your displays are always well stocked, especially on key lines. Use the Swan brand to signpost a high profit retail margin category for independents retailers. Make sure you offer your retailers choice and depth of range as a boarder range and consumer choice always points towards category growth. Ensure employees are aware of new products and their benefits so they can sell on effectively to their customers.”
The company has carried out some sector specific activities such as a recent Grand Prix promotion in Booker, where six stores received pairs of tickets to the British Grand Prix. The promotion was based on sales growth across Swan categories. It also has price promotions running with Nisaway to encourage trial and sales increases.
To celebrate its sponsorship of the British Super Bikes (BSB) 2009 season, Swan’s Ultimate Driving Experience promotion features prizes from track days with a Porsche to a session in a rally car and exclusive hospitality tickets to a BSB Superbikes race.