With tobacco retail displays now banned in the UK, Scandinavian Tobacco Group is well placed to help multiple grocers make the best of the dark market.

Scandinavian Tobacco Group is one of the world’s largest tobacco companies, and its products are sold in over 115 countries worldwide. Scandinavian Tobacco is the world’s largest player in the area of pipe tobacco, as well as global leader in cigar manufacturing. Best known in the UK for the Café Crème cigar brand family, worth over £70m in annual sales, and the Henri Wintermans range of cigars, the ST Group UK also has numerous other products in its portfolio, including Salsa, a new range of premium Virginia Roll Your Own (RYO) tobacco, and Natural American Spirit rolling tobacco and cigarettes, which it distributes here under licence from SFR Tobacco International.

Alan Graham, Head of Marketing at Scandinavian Tobacco Group UK Limited spoke to The Grocery Trader.

The Grocery Trader – Alan, what is your role day to day, as Head of Marketing? Are you personally involved with the major retailers?

My role as Head of Marketing involves aspects of both brand and trade marketing. All aspects of external PR and communications are coupled with building our iconic brands such as Café Crème, Henri Wintermans and Clan. With regards to the major multiples I do get involved, particularly when presenting NPD and major brand initiatives.

GT – When was Scandinavian Tobacco Group UK, as it is now, formed? Are you based in the UK?

The current STG was formed in October 2010 when we merged globally with Swedish Match. Prior to that the company started as Loretta cigars in 1947, before being bought by Henri Wintermans in 2000. A further change of ownership happened in May 2009 when we became Scandinavian Tobacco Group UK. In the UK our head office is in Elstree. STG can trace its roots back to 1750, when Augustinus Fabrikker was formed.

GT – Who are the other companies in the STG group?

STG has subsidiaries in over 20 countries, and trades in well over 100! STG are the world’s biggest pipe tobacco company and the largest global manufacturer of cigars.

GT – What proportion of STG’s business currently comes from the UK?

STG UK delivers just under 8% of STG’s global cigar volume and approximately 5% of the pipe tobacco total.

GT – How is the UK different from the other countries where STG operates?

The UK is a much more highly centralised market, compared to most of our other subsidiaries. The major multiple grocers sell over 50% of all cigars, and this figure rises to 62% for pipe tobacco. In many of the other markets there are a huge number of independent tobacconists who dominate the landscape such as France, who have over 28,000 tabac stores and many large multiples are excluded from tobacco sales.

GT – What does Scandinavian Tobacco Group have to offer retailers as the cigar and pipe category expert?

At STG UK we pride ourselves as the leaders in cigar and pipe category management. We continually analyse the market data, and the key retailers within it, to spot trends and ensure we always have the best range advice available. The advice we give our retail partners is always impartial and tailored to the customers’ category requirements.

GT – How do you work with the multiples to capture this market?

STG UK has been the dominant supplier in terms of new launches and innovation within cigars over the last five years. This has helped keep the category fresher and stimulated consumer interest. This allied to our range review work has helped STG grow market share from 32% in 2007 to 44% in 2012.

GT – How are you structured to service the multiple grocers in the different channels – supermarkets, c-stores, forecourts, in terms of national accounts, supply chain set up?

STG UK has a channel specific structure with two retail channels, one for direct-delivered customers and one via Palmer and Harvey. There is also a wholesale channel to support the independent trade.

GT – We’re now in a ‘dark’ market in terms of retail tobacco displays. What are the current rules about displays of cigarettes, cigars, Pipe and RYO tobacco in the UK?

Each of the four countries in the UK has slightly different timings and details on the display ban. Large stores of over 300sq m in England – those with Sunday trading restrictions – have not been able to display any tobacco products since 6th April this year. Small stores will have to implement this on 6th April 2015. Large stores in Scotland, Wales and Northern Ireland will go “Dark” in October this year, with small stores to follow, also in 2015. There are also some differences in the size of opening allowed in Scotland.

GT – What effect has the ‘dark’ market had on purchasing behaviour so far?

While it’s a little too early to say categorically that the dark market has had an effect on sales, we have seen independent retailers, CTNs and petrol forecourts take share from the major multiples in the build up to the legislation coming into effect. After three weeks of the ‘dark’ market being in force on date the Major Multiples had lost 1.2% share and the Independent sector had grown by 0.7%. This may turn out to be only a short-term trend, but there is a chance of shoppers further changing their tobacco buying behaviour.

GT – What is your advice to multiple retailers to make the most of sales in the ‘dark’ market?

We recommend you make it clear with signage, that you still stock a full range of Tobacco products; stay stocked up on the best selling lines; and stay up to date on new trends driving the industry, such as the rise in popularity in value for money cigars, like STG UK’s Moments. NPD and Limited Editions are still an important part of the category mix. It’s certainly very important that all retailers are speaking to their customers on a regular basis and finding out what products and ranges they are looking for, and engaging with them and understanding what is influencing their purchasing decisions. Talking to customers and showing them that they are valued and understood will go a long way to helping communicate what range you have in store.

GT – What factors are influencing individual consumers’ purchasing decisions?

It varies from shopper to shopper. It could be value, in terms of price or loyalty to a particular brand. Cigar and pipe consumers tend to be extremely brand loyal in the mainstream price segments, with very little brand switching.

GT – Looking at the different tobacco categories, what’s happening in the cigar market?

The total Cigar category is worth £252m in terms of value. Miniature cigars, such as our Café Crème family, are must-stock for retailers, with the segment share growing by 2% and making up just under 64% of all sales in terms of volume. Small cigars are the next biggest segment, commanding a third of the market (32%) in terms of volume. The UK Cigar market has recently returned to growth, which is in no small part due to the performance of STG UK’s brands. Cigars have had a very strong start to the year, and in the four-week period to 14 April Miniatures drove the market and were up 7% in value. Specifically, sales of Café Crème Blue, Café Crème and Café Crème Filter Arôme were up 3%, 9% and 14% respectively and are three of the top five brands in the Miniatures segment.

GT – Which are your best selling cigars in the UK?

ST Group UK Limited has six out of the top ten selling Miniature cigars, and Café Crème Blue, Café Crème and Café Crème Filter Arôme are three of the key selling SKUs in Cigars. More than one in every three Miniature cigars sold is a Café Crème Blue cigar.

GT – What new cigars have you launched recently? How are they doing?

We recently launched Moments, a value for money cigar, and Moments Miniatures Blue has recently taken its place in the top ten selling Miniature cigars. The value for money trend took longer to develop in cigars than it did in other categories during the recession, but now there is an established market for products that meet this need. Moments has been received extremely well by the trade and we expect it to have a strong year.

GT – How is the rest of the cigar market doing?

The Small segment continues to have a tough time of it at the moment, with sales down 3% in the four weeks to 14/04/12 date, as consumers continue to look towards Miniature cigars that can be smoked quicker than Small cigars. People are still venue restricted and are favouring imported brands, like Café Crème. Like Miniatures, Medium / Large cigars have also recently enjoyed a small sales growth, with sales of the Henri Wintermans Half Corona increasing by 2%.

GT – What’s your merchandising advice for the cigar category?

Although cigars sell in smaller volume than cigarettes, cigars generate more profit per pack than cigarettes due to greater margins and are also important to the tobacco category. There are plenty of sales opportunities, which can peak during key seasonal occasions, particularly around the summer and festive periods. It’s also true that as many as 80% of customers smoke cigarettes as well as cigars, so retailers should make sure they can talk knowledgeably about both and their differences. Understand your customers. Also make sure the cigar category is given visible shelf presence to maximise the margin opportunity.

GT – What are your stocking and range recommendations for cigars?

It’s crucial to stock a significant proportion of the best sellers, including Café Crème Blue, Café Crème, Hamlet, Hamlet Miniatures and Henri Wintermans Half Corona. Stock a range of products from the three main cigar segments: Miniatures, i.e. Café Crème Blue; Smalls, i.e. Café Crème Grande; and Medium-Large, i.e. Henri Wintermans Half-Corona. Make sure that you stock a balanced assortment of quality imported cigars, as they stimulate the tobacco category and drive incremental sales and impulse purchase. Value For Money cigars, such as Moments, are growing in popularity, so stock up on a range that meets the needs of cash-conscious customers, and don’t forget new products and Limited Editions, which can reinvigorate this established category.

GT – How is Roll Your Own performing?

The RYO market is extremely buoyant at the moment with an increase of 7.5% year on year, and one that we are looking to grow our presence in significantly. Consumers are still looking for value for money products, and RYO’s continued growth can be very much attributed to this. STG’s newly launched Salsa brand is positioned ideally for retailers to make the most of this trend. We feel that there is also a great opportunity to grow the additive-free segment of the RYO sub-category with the Natural American Spirit (NAS) brand, which is the number 1 additive free brand in the UK and is continuing its strong growth since we acquired its distribution rights early this year.

GT – Can you tell us about Salsa?

Salsa is a new range of Roll Your Own (RYO) tobacco. Following a successful trial in a limited number of cash and carry and multiple retail accounts, Salsa is now widely available to help retailers capitalise on the growing RYO market. Salsa is a premium Virginia blend which, together with eye catching packaging and competitive trade margins, will help retailers make the most of the rapid growth in the RYO market. The range consists of four pack variants, 5×12.5g, 10×12.5g (both RRP £3.35 per pack), 5x25g (RRP £6.73 per pack) and 5x50g (RRP £12.85 per pack). The 5×12.5g format that has just been launched is designed specifically to reduce cash outlay for independent retailers.

GT – What’s the story with Natural American Spirit?

Scandinavian Tobacco Group UK has been awarded the distribution rights for the Natural American Spirit® (NAS) brand by the SFR Tobacco International GmbH (SFRTI), which provides STG UK with an increased presence in the growing Roll Your Own tobacco (RYO) market and establishes us as a player in the cigarette category.

GT – What products are in the Natural American Spirit range?

The NAS brand offers consumers a range of products that made from the highest quality, premium grade tobacco and are completely additive-free. The NAS Rolling Tobacco range compromises three SKUs that are available in outers of 10 x 12.5g (MRRP £4.15 per pack), 5 x 25g (£7.99 per pack) and 5 x 35g (£10.29 per pack) formats. The Cigarette range is made up of two SKUs, Yellow and Blue of 20 cigarettes, each at an MRRP of £7.49.

GT – How is pipe tobacco performing in terms of sales? Which pipe brands do you offer in the UK?

Pipe tobacco is currently declining at a rate of about 4% versus last year. STG’s biggest brand in the category is Clan Aromatic, which is the third largest brand with an 11.2% share of the market. Clan is the biggest selling aromatic pipe tobacco and as such should be stocked by all retailers wishing to offer consumers real choice.

GT – Do you offer any other smoking related products that we haven’t mentioned so far?

STG also sell a wide range of specialist brand cigars such as Macanudo, the world’s best selling hand-made cigar, and over 35 pipe tobaccos for the specialist trade.

GT – What are your marketing plans for 2012? Is there anything you are allowed to do in terms of promotions?

We have a busy year ahead, despite the restrictions to the trade. The only promotions we can do are trade facing, and as a result we will be carrying out a full calendar of promotions on our brands through the wholesale channel. We also have further plans for NPD, limited editions and trade events – so watch this space!

GT – Are you exhibiting at any trade shows during 2012?

STG has exhibited at the CRS show, Pro-Retail, the NISA show, and will also be at the IRS show in October. We also attend several NFRN events, cash and carry trade days and many other regional events.

GT – Finally, where do you see Scandinavian Tobacco Group going from here in the UK?

Despite the legislative restrictions we have in the UK our future is both exciting and bright. Further category innovations, NPD, limited editions, profitable trade initiatives, focused growth in RYO and much more besides mean STG UK are looking to rapidly grow their business and that of their retail partners.

* Data source: SymphonyIRI, 52 w/e 18/4/12

Scandinavian Tobacco Group

Tel: 020 8731 3400

email: enquiries.uk@st-group.com   


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