As cash-strapped consumers drift towards the economy end of the tobacco market, is the future shaky for the mid-market and premium brands? Not according to suppliers.
Premium cigarettes, Gallaher is at pains to point out, still account for a third of all cigarettes sold in the UK, and represent the biggest profit margin for retailers.
"Camel is the fifth-largest cigarette brand in the world and is continuing to grow its share in the UK market," it claims. The brand is "particularly popular with style conscious adult smokers in urban areas", and has been given a new look, including an embossed logo.
Gallaher reports that the "mid-price sector is benefiting from increased consumer demand," with Mayfair performing particularly well in Scotland and Northern Ireland and now claiming a market share of 14.2%, according to Nielsen data.
To celebrate Mayfair's success, the Gallaher sales force visited independent retailers earlier this year with information about
its Make A Mint with Mayfair
game card campaign.
Imperial says that the roll-your-own market has witnessed "a remarkable turnaround".
"With UK tobacco taxes among the highest in the world, significant numbers of adult smokers have entered the
roll-your-own segment over the last few years . The importance of this trend should be recognised along with the fact that the RYO segment has become more increasingly accessible to female
In the 12 months ending June 2008 duty paid RYO tobacco volumes increased by 8% in the UK and the value of those sales went up by 12%, Imperial reports. "This is the third consecutive year that such growth has occurred," it says.
Gallaher adds: "To benefit from the growth
retailers should be looking to stock a wider range and respond to the trend towards larger pack formats ."
Best-selling cigarette brands
Lambert & Butler King Size
Mayfair King Size
Marlboro King Size Gold
Benson & Hedges King Size
Richmond King Size
Royals King Size red
Mayfair King Size Smooth
Silk Cut King Size Purple
Benson & Hedges King Size
Source: Nielsen Market Track Tobacco Service value sales figures to July 17 2008
(Last year's position in brackets)
on the street
Since the smoking ban, do you find you tend to drink at home more often than going to a pub or bar?
Being a smoker, do you tend to treat yourself to a good bottle of wine, beer or spirits to drink at home rather than going to a pub?
Do you normally buy tobacco products in
Kasia Kaczmarek, 24, beautician
"I don't think most off-licences carry a big enough range of tobacco products. They hardly ever have Polish cigarettes. There are a few shops in London where I know I can buy Polish cigarettes but they are so expensive .
I wouldn't say I associate smoking with drinking and socialising. I smoke
with my friends, but also on my own. "
Gallaher's sales tips for retailers
Ensure the top-selling brands are well stocked and that you provide enough space for them on the tobacco gantry
Avoid out-of-stocks - research shows that customers will go elsewhere if their brand of choice is not available
Keep to your planograms - these have been created according to the best selling brands in your region
Check the planogram once a month to make sure that the layout is correct
Do not stack products on top of each other because this looks untidy and causes damage to packs
Keep the gantry clean and free of rubbish at all times
Re-fill and tidy the gantry every morning, leaving no gaps in the shelf
Rotate stock regularly so that older stock is sold first
Keep updated with regulatory and legislative changes to the market.
The suppliers' views
Jeremy Blackburn, head of communications, Gallaher
"I think the off-licence sector has a role to play," says Blackburn. "The smoking ban has had an effect on the pub trade. The anecdotal evidence is that people are taking alcohol, tobacco and snacks home for the big night in and the off-licence sector is a destination of choice to facilitate that."
How does Blackburn rate the way drinks retailers sell tobacco? "I think they're very switched on with the way they construct their range. We work closely with them to provide planograms and recommendations for stocking products and it's all done on a regional basis. The south east has a big premium bias, as has the Midlands area, so we share that information."
Gallaher has a sales force of 222, calling on retailers every four to six weeks to offer expertise and advice. Blackburn says the company is keen to spread awareness about the law surrounding the pictorial health warnings which became mandatory on newly-produced packets of cigarettes from Oct 1.
"A key consideration for the retailer is they still have a year to sell cigarettes with the current text-only warnings on, and they've got a year beyond that to sell cigars, RYO and pipe tobacco," he points out. "To assist them we've produced a website at phwarnings.com."
Blackburn does not believe the 14 images imposed by the Department of Health will have a long-term effect on the level of smoking in the UK. "There will potentially be an initial impact, but as with the text warnings it will just become part of the pack," he says.
Gallaher has offered consumers a mixture of brand extensions and new launches in recent times and is "always looking" for
opportunities, Blackburn says. This could happen at the premium, mid-market or value end of the category.
Iain Watkins, UK trade communications manager, Imperial Tobacco
"With the festive season fast approaching, retailers need to keep an eye on seasonal changes to adult smokers' usual tobacco preferences," Watkins advises.
"Often during the Christmas period, adults who choose to smoke will trade up from their usual tobacco brand as a special treat. For example, an adult who usually chooses to smoke Richmond may decide to smoke either Embassy or Marlboro.
"Some adult smokers also buy different tobacco products either for personal use or as a present for adult relatives who smoke.
"Christmas is traditionally a time when cigar and pipe tobacco sales are stimulated and retailers should bear this in mind when purchasing tobacco from cash and carries.
"Ensuring constant availability is always a priority for retailers and at Christmas this is particularly relevant as adults who choose to smoke may be coming in more often to buy snacks and drinks for parties."
Cigars are a category which warrants serious attention, Watkins says. "In a market of over 300 brands the top 10 UK cigars account for over 87% of total sales. Therefore it is extremely important for retailers to offer a range which reflects the best sellers.
"The UK cigar market is clearly segmented into three size sectors - miniature, small and large. The miniature sector is the biggest with a share of nearly 50% - recording a growth of 6.6% in the 12 months ended June 2008. Café Crème and Café Crème Blue make up over 50% of the miniature cigar sector."
Recent activity at Imperial Tobacco has included fresh packaging for Golden Virginia and Windsor Blue, an economy line.
"We continually ensure our brands meet the preferences of the adult smoker and these changes are in line with the research we have conducted in this area," says Watkins.
"As the down-trading dynamic continues, we still aim to give adult smokers a premium feel to their chosen brands."
The independent's approach
Harpal Rai, owner of the Rai Wine Shop in Harborne, Birmingham, does a good trade in cigarettes.
Perhaps surprisingly, he does not share industry concerns about the proposed ban on cigarette displays.
He says: "I'm just sick of cigarette reps coming round more and more often - they're getting a bit desperate. They've got this letter they want you to write to your MP about displays. I think anything the British Medical Association gets behind usually becomes law, so it's inevitable."
Rai does not believe a change in the law on cigarette displays will have an impact on his sales.
"It won't put smokers off - I'm pretty confident about that," he says.
One of Rai's most sought-after lines is Sobranie, the Gallaher brand available in Cocktail and Black Russian styles, which is £8 for a packet of 20.
But he adds that price-marked packs of brands such as Pall Mall are also selling well.
"They've taken the market by storm," he says.
"A lot of people just look for the cheapest cigarettes around."
The buyer's view
tobacco buyer, Asda
How are cigarette sales performing?
Sales have been better than expected this year considering the introduction of the smoking ban last July. There was a significant impact when the ban started but the impact has slowly dissipated. For the last few years the value of the market has been broadly constant: volume of cigarettes sold is declining, but the impact of duty increases and cost prices increases offset this, resulting in a flat market value.
are selling best?
The growth area in cigarettes is definitely in mid and value-priced products, and premium priced products continue to decline. The roll-your-own tobacco sector is showing significant growth. The main reasons for this are mostly economic: every time there is a duty or cost increase, many customers trade down to cheaper brands. RYO is a cheaper alternative to cigarettes.
Are consumers changing their habits because of the economic situation?
Probably, but it is too early to be sure. I would be amazed if it didn't result in more down-trading, economic pressure always does.
Are you concerned about proposals to restrict in-store displays?
No, it's probably a fait accompli
and I accept it will happen anyway. I think it will have major impacts on the customer and on the market, and I personally feel it will not achieve its aim of stopping young people smoking. How can a customer make an informed purchase when they cannot see the products offered? It is also not clear at all how the customer could even choose a product since having a catalogue or price list on display is illegal since the ban on tobacco advertising. It will probably result in decreased competition in the market, with existing big brands becoming more dominant and no new brands coming to market. How can I have any faith in a new product when I cannot even show it to prospective customers? Tobacco is already a marginal business, with high sales value but low profit margins. A display ban is likely to result in increased costs due to the transaction time increasing significantly. If this is the case it's likely the consumer will
have to bear these costs .
Do you think tobacco sales are in long-term decline?
The market has been in decline for some time, volume decline has been circa 4% per year for the last few years. It is hard to be completely certain why this is, there is constant pressure
on the smoker to quit and there is the problem of non-UK duty-paid product flooding in. Industry figures put the number of adult smokers at around 27% of the adult population, but I would be surprised if it was actually that high. I'm not sure how low it could go, there will always be people that want to smoke. I don't think there will ever be a significant upturn but the rate of decline will
What effect does duty have on cigarette sales, if any?
Increasing duty increases sales value,
but does not really stop people smoking . It does, however, result in customers down-trading to a cheaper alternative brand, which has a negative impact on sales value, or to a different product area like RYO tobacco. Duty levels in
the UK at around 77% of the retail price are the highest in the EU and among
the highest in the world, yet
industry figures show that
27% of the adult population still smokes! You
can draw your own conclusions from that.
Survey reveals smokers spend more at off-licences
Research by Soltrack, the shopper study programme carried out by HIM in the multiple specialist sector, has found that smokers spend £6.33 more over a course of a week at off-licences than non-smokers.
Fifty-one per cent of shoppers who use off-licences are smokers - a figure which rises to 55% among Wine Cellar customers (Booze Buster and Simply Drinks) and falls as low as 34% among Oddbins' clientele.
Smokers visit off-licences, on average, 2.8 times a week for cigarettes, which accounts for 29% of their purchases. The average intended spend is £5.15; the actual spend, according to Soltrack, is £5.34. (The survey was carried out before the most recent duty increases).
HIM director Tom Fender says: "The cigarette shopper visits their off-licence more frequently than any other mainstream category shopper. This suggests that off-licences are far more than sources for distress shoppers and actually attract regular cigarette purchasers.
"It's been said many times before, but retailers need to ensure they stay in stock 24/7 with key footfall lines such as cigarettes, particularly when we can show the typical cross-purchases bought with cigarettes are beer, spirits, soft drinks and confectionery."
Off-licence shoppers' preferred brands are, in order, Richmond, Lambert & Butler, Benson & Hedges and Mayfair, the study reported. Seventy-five per cent of smokers said they had never found that their preferred brand, or pack size, had been out of stock. But 32% said they would shop elsewhere, rather than switch to an alternative, if that happened.
Out of all the shoppers questioned in the Soltrack study, 19% said the main purpose of their visit was to buy cigarettes. The same proportion
visit off-licences mainly for lager purchases.