Value is the most important area of the tobacco market now the EU Tobacco Products Directive 2 (EUTPD2) is in force. Joseph Lee answers four questions that will help you keep sales strong.

How is the market changing?

The introduction of standardised packaging has been a huge upheaval for the tobacco market, so it’s reassuring to know that some things have stayed the same.

The tobacco market is worth £15bn and is still the biggest contributor to store turnover.

But standardised packaging has dealt a blow to the market, and suppliers and retailers have seen a shift in customer behaviour.

With customers having to buy a minimum of 20 cigarettes at a time under the new regulations, they are choosing cheaper brands. The share of cigarette sales for value, economy and sub-economy brands rose from 75% to 78% in the 12 months after EUTPD2-compliant packs began to filter into the market last year.

“Pricing is a strong determining factor in consumer choice,” explains Andrew Miller, head of field sales at Imperial Tobacco.

The picture seems less clear for rolling tobacco, however, with suppliers experiencing different results.

Imperial Tobacco reports that value, economy and sub-economy brands in roll your own tobacco have stayed constant, holding an 83% share, while its premium RYO brand, Golden Virginia, has increased its sales.

But data from JTI indicates that RYO smokers appear to be looking for cheaper brands and the company is seeing value brands of rolling tobacco increase their share.

Meanwhile, cigar manufacturers have spotted an opportunity as their products are exempt from the plain packaging and can still be sold in packs of 10 for price-conscious customers that may be tempted to switch from cigarettes.

“This means some cigars are now the cheapest option available on shelf, which may see them attract existing smokers from other categories,” says Jens Christiansen, head of marketing & public affairs at Scandinavian Tobacco Group.

Which prices are most popular?

Price plays an increasingly important role in what retailers and their customers choose to purchase, says JTI, adding that smokers are likely to become more price conscious in the future.

The lowest-priced tier, the sub-economy sector, makes up 42% of all cigarettes sales. JPS Players and Carlton are Imperial’s lowest-priced products, with RRPs of £7.35 and £7.45, respectively. Retailers say this is the price shoppers are looking for.

Harry Goraya, owner of Nisa Local in Northfleet, Kent, says: “Anything priced at £7.35 is what everyone’s buying. It’s the lowest RRP for a pack of 20 in the value range.”

He says demand for some of these low-priced packs is so high that he has been unable to get new stock for about three weeks as manufacturers try to keep up with orders.

Shahid Hussain at Good News in Burton-on-Trent, Staffordshire, is finding his customers are similarly price-sensitive, with a target price of under £8.

“Once you get over £8, people start thinking twice and once you get over £10, it’s a definite shock,” he says.

In rolling tobacco, value brands such as GV Bright Yellow or Holborn Yellow have a 58% share of the tobacco market, and a price of £10 or £12 for 30g.

What do you need to do?

The key to success is to not overreact. Many of the same approaches that have worked with tobacco in the past will continue to be effective.

If you follow best practice category management on pricing and ranging of tobacco you will continue to profit, says JTI.

That includes maintaining stock of favourite brands, even as some customers switch to whatever is cheapest. This is because 27% of customers will leave to buy their tobacco elsewhere if their favourite brand is not available.

Manufacturers are expecting 50g packs of rolling tobacco to become more popular as smokers start to buy in bulk, so follow this trend carefully and amend your order if necessary.

Staying informed and ensuring staff are well-trained are also key to thriving in the current market. At a time of constant change for consumers, retailers that can advise their customers have an advantage.

“As a result of all the legislation changes in recent years, customers are increasingly looking to retailers for advice on what to buy,” says STG’s Jens Christiansen.

“If the price of their regular brand of choice increases too much, or if a brand is out of stock, retailers should be able to recommend a suitable alternative. Not only does this mean they are offering great customer service, but it may lead to repeat purchases,” he explains.

Five top tips on making more money from value tobacco

  1. Keep a close eye on your EPoS data to justify any changes to your tobacco range
  2. Stock a winning range. Make sure your range covers the top value brands, such as Chesterfield, Pall Mall, JPS Players and Sterling.

  3. Talk to your shoppers. This will help you understand what your customers need
    and where they are buying from.

  4. Make the most of cigars. Cigars are one of the few ways you can keep your gantry colourful when you have to open the doors, so stock these at eye level.

  5. Report illicit trade. This can be the biggest threat to your tobacco sales, so make sure
    you notify the authorities.

Retailer Views

Arif Ahmed“Everyone is going for cheaper tobacco at the moment. All my shoppers are coming in and asking for the cheapest.

“What’s worrying is that I find many of them are asking for ‘the Polish cigarettes that other shops have’. They’re able to get illicit tobacco for less than £4 elsewhere, so it’s even more difficult to compete.

“I’m in favour of introducing a tobacco register for retailers as this will allow us to take on the issue of illicit trade. You have to sell tobacco because it’s so important to your store, you can’t get rid of it, but we need to make sure we are protecting those sales.”

Arif Ahmed
Ahmed Newsagents,

Coventry

Shahid Hussain“People are looking at the cheapest packs. They’re not brand loyal anymore, they’re price loyal. They’ll come in and say, ‘just give us the cheapest one’.

“Amber Leaf still has loyal customers, and on the cigarette side, Rothmans, Pall Mall and Sterling seem to be doing quite well at the moment – but they are the cheaper brands.

“Strangely enough, even though they’re only available in 20 packs, cigarette sales are still strong. We haven’t seen them dip that much. Ironically, I think some people are encouraged to smoke more. If they’ve got more to hand, they’re going to smoke more.”

Shahid Hussain
Good News,
Burton-on-Trent

Harry Goraya“The only two things we’ve experienced are that there’s been a bigger take-up of e-cigarettes, and smokers want anything priced at £7.35.

“Brands only matter to the really dedicated smoker, the ones who’ve been smoking for 25 years. For us, Benson & Hedges Gold is the only one we can clearly see people buying on a regular basis.

“I’ve reduced the space for tobacco. Our gantry was over 2.5metres, but it’s now just over 1.5metres. I don’t know if it will shrink further, but I hope not. For our kind of store, it’s a decent range.”

Harry Goraya
Nisa Local,
Northfleet, Kent