Philip Morris is to offer price-marked versions of some its premium cigarettes in London and the South-East in order to combat what it calls “overpricing” in some areas.
Martin Inkster, the new managing director of Philip Morris UK amp; Ireland (PMUKI), said that from the end of November, wholesalers in the region would be offered price-marked packs (PMPs) of Marlboro Gold after research revealed that the brand was being overpriced by certain retailers by an average of 24p per pack of 20.
Upon investigation, Wholesale News found one retailer in Central London charging £8.99 – £1.10 above the average retail price – for a pack of 20 Marlboro Red. WH Smith also routinely charges over £8 (sometimes more) for premium cigarettes, both at travel points and at its high street stores.
Inkster said “savvy smokers” were increasingly shopping around for the best prices and that overpricing could drive smokers either to trade down or even into the arms illicit trade.
“The key drivers in tobacco are availability, product knowledge and pricing, and pricing is becoming extremely important,” he said. “In tough economic times, it’s of paramount importance that retailers price their products competitively”.
“Selling overpriced cigarettes compromises all of the associated sales from other categories – most notably newspapers, bread, milk and soft drinks. This could result in significant revenue loss as research [from him! research]shows adult tobacco shoppers visit stores more frequently than non-tobacco shoppers and have a much higher basket spend with the average basket spend of an adult tobacco shopper being £9.02 versus a non-smoking adult convenience shopper’s spend of £5.77.”
Inkster said that maintaining well-stocked gantries of leading brands combined with competitive retail prices would benefit the entire channel from wholesaler to consumer.
“Stocking PMPs gives adult smokers confidence that they are not being over-charged, and providing independent retailers with a tool to compete with large multiple operators,” he added.
He told Wholesale News that PMPs were a way of supporting retailers rather than attempting to dictate margins.
“I would encourage any retailer that is looking for long term success to consider stocking these PMPs. Retailers need to look past the short term margin and realise how important it is for their business that they are able to retain adult smokers in their stores – ultimately it is shopper loyalty and footfall that will benefit them in the long run.”
The new Marlboro Gold PMPs will be £7.75 for 20 and £3.94 for 10. Non-price marked packs will continue to be available. PMUKI said it had no current plans to offer PMPs on Marlboro Red.
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“Tobacco is a unique product category and London is a special case… in most places overpricing would damage the trade but in tourist areas you can probably get away with it.” – London
“Retailers make little margin on tobacco products and many use price hikes on premium cigarettes as a way of making up for the increasing reliance on budget PMP brands, especially in high rent areas like London where the cost of living is higher anyway.” – North West
“One of the biggest problems our channel faces is the consumer perception that it is more expensive than the multiples on everything. I think PMPs help tobacco retailers in this regard and will help correct that misconception in the market premium market.” – North East
Tobacco PMPs – the facts
- One quarter of adult smokers would switch brands if price marked packs were not available;
- 40% of adult smokers believe price marked packs look cheaper;
- 42% of adult smokers believe that price marked packs provide a fair price;
- 57% of adult smokers would always buy price marked packs if available;
- 60% of trading down happens in independent retailers;
- Two-thirds of adult smokers switch brands due to price;
[Source: CTP 2011]
- 46% (+10%) of consumers are trying to buy more products when they are on promotion;
- 27% (+5%) are comparing prices more carefully;
- 17% (+5%) are shopping around more;
- 8% (+2%) are switching to a retailer that they think offers lower prices.
[Source: Nielsen Jan 2012 vs Oct 2007]