Distribution and sales of electronic cigarettes continue to climb, but what effect is this success having on the wider tobacco market and which other sectors are driving profits in independent stores, asks EDFM’s John Eastwood
Despite the rapidly expanding availability of electronic cigarettes in the independent sector, there is little evidence to show that they are having a detrimental effect on the sale of cigarettes or roll your own (RYO) tobacco, according to data from over 2,000 stores available from EDFM.
In 2012, the electronic alternative accounted for sales of £5.7m, but only got into significant distribution in the sector from mid-year. In early June, electronic cigarettes were in stock in 6% of shops, a number that rose to 15% by the end of September and hit 25% by the end of the year. This year, distribution has risen to 30%, but appears to have levelled off during the heatwave.
Sales per shop peaked at £80 per week as the rapid distribution build took place in mid 2012, but this has now fallen to £40. The main reason is the fact that the earlier stockists were mainly larger stores with a higher footfall. Increasingly, smaller shops have decided to stock these products and they are benefiting from worthwhile sales of presumably high-margin products.
Any suggestion that availability of e-cigs has a negative effect on the sale of conventional cigarettes and RYO tobacco appears to be without foundation. The widely reported switch from factory-made cigarettes to hand-rolling tobacco has resulted in volume declines for ready-made brands and growth for RYO. In August, non-stockists of e-cigs experienced an 8% fall in volume sales of conventional cigarettes and level volume sales of RYO.
Meanwhile, e-cigs stockists saw only a 4% fall in cigarettes and a 1% rise in RYO.
While any prediction of how 2013 will conclude is difficult, I estimate that if the current level of distribution is maintained, independents will have sold £17m in this new -sector.
If more and more smaller shops decide to take up this opportunity, it could exceed £20m. I cannot comment with any authority on who buys electronic substitutes, but I would say that if they are used largely as a bad weather alternative to the real thing, then £20m is the more likely figure.
Whatever happens, they will still account for less than 0.5% of regular cigarettes overall, but where stocked they represent 2% of cigarettes, 13% of RYO, outsell cigars by 50% and pipe tobacco by a factor of eight.
This leads on to more general developments in the tobacco market. These are well documented, but worthy of repetition.
RYO continues to take over, now standing at over 30% of cigarettes sold through independents (0.4gm of tobacco is equal to one cigarette).
Pricemarked packs are increasingly important in both the main sectors and, in the case of RYO, now command nearly 80% of volumes sold.
These trends are bound to continue, but here is no doubt increasingly, there will be smoke (or at least vapour) without fire.