Tobacco has rarely got a sympathetic hearing in any public debate, but even those who are violently opposed to smoking might spare a thought for the industry this year.
Not much, on the face of it, is going right. Smoking is banned in public places. Sales are down. The government is introducing pictorial health warnings on packets, showing graphic images of diseased lungs, rotten mouths and dead bodies. Smuggling is still an issue, and probably always will be because UK duty is so high, and now it seems likely that shops will be prevented from displaying tobacco as openly as
they have been.
Factor all that in with a general consumer downturn and you arrive at a bleak assessment of the state of play. Luckily, not everyone is downbeat.
"The UK tobacco category has proven over the last five years to be a resilient market in the face of incessant regulation, continual duty increases and the ever-present threat of smuggling and counterfeiting," says Iain Watkins, UK trade communications manager at Imperial Tobacco. †
"Imperial Tobacco is positive about the tobacco category and the future, and in the UK there are 14 million adults who choose to smoke tobacco products. Currently nearly 47 billion cigarettes are sold in the UK retail environment every year and these sales generate £11.6 billion turnover for UK traders."
Nielsen figures published in July revealed that cigarette sales have dropped 6% since the ban on smoking in public places came into force.
Marketing director Jake Shepherd predicts the full year sales decline will show 2.6 billion fewer cigarettes sold. Banning the sale of tobacco to under-18s and the duty increase have speeded up the long-term decline, he observes.
Watkins at Imperial says that value brands are registering a strong performance. "Perhaps inevitably, in the current economic climate the lower priced cigarette sectors have shown continual growth over the last five years and they now account for almost 45% of total sales," he says.
"Brands such as Richmond and Windsor Blue have stimulated this growth as more price conscious adult smokers move down through the price sectors. In recent years there has also been an increase in the number of adult smokers who 'dual' between cigarettes and roll-your-own tobacco.
"With around 4 million adult smokers choosing to 'dual', this has ensured the continued success of brands such as Golden Virginia, Drum and Gold Leaf."
Gallaher's Sterling brand leads the value sector of the market, claiming a 44% share, and has grown by 10% over the past 12 months, the company says. Launched as recently as January 2006, the brand has recently been extended with Superkings Menthol 10s, in response to wider consumer interest in menthol cigarettes. "Sales of menthol flavour cigarettes are growing year on year and now have a share of over 6.5% of the total cigarette market, up by nearly 2% since 2001," Gallaher says.
Fate of launches
The big question for the industry is how it will succeed with further brand launches - and encourage consumers to switch from value to more premium lines - if the government presses ahead with a tobacco display ban in stores.
The Association of Convenience Stores has been fighting the retail trade's corner, urging ministers to focus resources on tackling illicit tobacco and banning proxy purchasing.
Chief executive James Lowman says: "A tobacco display ban will cost our industry millions of pounds, and we now know that there is no compelling evidence that a ban will reduce youth smoking. Having considered the evidence,
the government has to conclude that pursuing a display ban is a distraction that prevents them from addressing the more pressing and difficult problems of the black market and adults who willingly provide tobacco to under-18s."
Michael Prideaux, British American Tobacco's director of corporate and regulatory affairs, agrees. "Because of the health risks associated with tobacco products, getting the regulation right in this area is important," he says.
"But great care is needed to avoid ineffectual laws with significant unintended consequences: fuelling the black market that makes cigarettes more accessible to children, ruining the livelihoods of small retailers, undermining a competitive market and breaching companies' intellectual property rights."
A total display ban would "obstruct and distort free market competition among
tobacco companies and the right to communication with adult consumers about legally available products", BAT believes.
It would also have the effect of increasing illicit trade by forcing all tobacco sales under the counter, "making it even harder for consumers to know what's counterfeit and what's genuine" and "blurring the distinction between legitimate and illicit product, making it harder to reinforce public appreciation that smuggling, counterfeit and piracy are crimes".
The ACS believes that
banning the display of tobacco will cost retailers a minimum of £1,850 per store and the costs of removing tobacco from display could rise to over £250 million across the industry. It argues there is no evidence from elsewhere in the world that a display ban will reduce smoking. In fact, suggests BAT, there is evidence to the contrary.†When Saskatchewan became the first Canadian province to ban retail displays, the percentage of adults who smoked increased from 21% in 2002 to 24% in 2003, it says.
Government casts its spotlight
A ban on displays is not the only thing on the government agenda. The Department of Health is also seeking views on enforcing plain cigarette packets with no branding or logos, minimum pack sizes of 20 and a ban on the advertising of cigarette papers.
Public health minister Dawn Primarolo, announcing the consultation, said: "Protecting children from smoking is a
government priority and taking away temptation is one way to do this. If banning brightly-coloured packets, removing cigarettes from display and removing the cheap option of a pack of 10 helps save lives, then that is what we should do - but we want to hear everyone's views first.
"Smoking related disease kills 87,000 people a year, the equivalent to the entire population of a major city such as Durham. Despite much progress over the past 10 years with 1.9 million fewer smokers since 1998, smoking
is still the biggest killer in England. The number of smokers is declining, but we must do more if we are to continue to tackle a public health issue that kills 10 times more people a year in England than road traffic accidents."
Lowman says the ACS is willing to discuss how existing tobacco display rules work with the Department of Health. "We understand that some retail marketing practices are perceived to go beyond the spirit of the existing regulations," he says. "With that in mind we are willing to discuss with government ways in which they could be tightened to allay concerns without placing costs and operational burdens on retailers. If we approach these issues constructively we can resolve these concerns quickly and focus on the big strategic issues."
In its submission to the Department of Health the ACS urges ministers to make it illegal for adults to proxy purchase tobacco for those under 18. Government figures show that 89% of under-age smokers say they are either given tobacco or buy it from adults who purchase it on their behalf.
Lowman says: "One-in-three young smokers get tobacco from the illicit trade, but as its stands almost nothing is being done to catch and deter those criminals that are selling tobacco to children on our streets.
"We have spelled out the concrete actions that will make a real difference on this issue."
Size of the market
41.2 billion (-4.2%)
£10.2 billion (-0.3%)