The UK tobacco market is worth £2.0bn after tax (Imperial Tobacco estimates) and remains heavily price driven.
A trend that has developed in recent years is a move towards more of a nicotine portfolio with adult smokers buying different RYO and FMC products to suit different occasions.
In fact, figures show a quarter of consumers are now dual smokers.
While many smokers may be experimenting with the nicotine products available across segments, shopper demand for value continues to dominate buying habits in tobacco overall.
“This is a trend we expect to continue and grow in 2021 and beyond,” comments Duncan Cunningham, UK Corporate Affairs Director at Imperial Tobacco & blu. “With this in mind, retailers must be well-equipped with a strong product range across all categories in order to cater for this trend and keep one eye on their sales so they can adapt their range to meet the needs of their customers.”
As the true economic impact of the pandemic becomes a reality for many, we may see shoppers down trade from premium brands to more value focused offerings. To help retailers cater for these shoppers, Imperial Tobacco has been busy developing a range of products across both the RYO and FMC segments that offer the exceptional value shoppers are looking for, but with the premium features they’ve become accustomed to.
As a result of this continuing shift into RYO, the segment has expanded its market share and now accounts for 45% of tobacco sales (Imperial Tobacco estimates), with recent data showing volume sales are growing by an impressive 30% as consumers seek out greater value for money.
In line with this growing demand for value, sales in the economy RYO segment are also rising.
Lambert & Butler RYO benefits from 120 years of premium brand heritage and has become Imperial’s fastest growing rolling tobacco brand. The range now includes an improved freshness seal to keep the product fresh for longer, plus the addition of filter tips and high-quality papers.
Another recent innovation is the launch of JPS Players Easy Rolling Tobacco, a new blend of fine cut tobacco that offers an easier rolling experience and benefits from the brand recognition of one of the UK’s best-selling cigarette brands. JPS Players Easy Rolling Tobacco features a more vibrant colour and lower levels of moisture, making the blend easier to handle and to roll, and is available to buy in 30g and 50g and priced at £11.95 and £19.60, each pouch will include a set of quality rolling papers.
“This increasing consumer shift towards RYO products also presents new sales opportunities for tobacco-related accessories,” adds Cunningham. “In order to tap into this trend and take advantage of the incremental sales on offer, retailers should make sure they’re fully stocked at all times of filters, papers, lighters and other flavour-related innovations like Rizla Flavour Cards and Rizla Polar Blast Crushball filters, to cater for the rising number of consumers buying into the RYO segment.”
In 2019, Imperial launched Rizla Flavour Infusions range which has been extremely well received by both the trade and consumers. Rizla Flavour Infusions comprise flavour cards that can be used with traditional factory made cigarettes or roll your own tobacco products. Simply insert a flavour card into a packet of cigarettes or roll your own tobacco and wait at least 60 minutes, or leave it in longer for a stronger, more intense flavour. Latest figures show they are flying off the shelves and currently selling around 900,000 packs per week (Imperial estimates) as consumers look to recreate the menthol experience.
While there is a growing trend towards RYO, FMC still account for the majority of tobacco sales with a 52.7% share of the market. As in the wider category, interest in value for money remains a leading trend, with many consumers seeking products that offer the lowest out of pocket spend.
The Embassy Signature range launched with Gold and Silver variants that are available to buy with an MRRP of just £9.50 per pack of 20s, plus Embassy Signature Gold in packs of 100 at an MRRP of £47.50.
Embassy Signature Gold Superkings was next to join the line up as a straight swap for Embassy No.1 Red Superkings and the very latest addition to the range, Embassy Signature New Crush, comprises a modern blend of the finest Virginia tobaccos wrapped in premium paper with a unique cooling sensation filter. When coupled with flavour cards, New Crush provides one of the closest menthol alternatives available on the market today.
“Ensuring staff understand the different segments and respective products on offer is arguably more important in tobacco than any other FMCG category,” says Cunningham. “Shoppers have been largely reliant on the knowledge of staff ever since the display ban resulted in tobacco products being hidden away from sight, meaning browsing the gantry at the till point to see what’s on offer was no longer an option.”
“Most smokers are brand loyal so many will know what they want to buy when they walk into the store,” Cunningham continues. “However, if their product of choice is out of stock, it can be quite an intimidating process choosing another product when you can’t see what’s on offer, especially if a big queue of people starts forming behind you.”
“With this in mind, retailers need to ensure their staff know what products are stocked in store and where they’re positioned on the gantry at the bare minimum,” suggests Cunningham. “Better still, if they can be armed with advice on what solutions they should offer if a product does go out of stock for any reason, this will go a long way to helping retain customers. Otherwise, there’s a high likelihood the shopper will simply walk out of the store and go elsewhere. For this reason, it’s also crucial for retailers to make sure they maintain stock levels at all times, especially of their top sellers. As I say, smokers tend to be brand loyal so if they walk out due to their product being out of stock, they simply may not return, especially if they do find it in stock at a store nearby.”
Imperial’s Ignite app allows retailers to keep up to date with the latest news, information and training opportunities to help them perform at maximum efficiency. It includes a wide range of tools and advice, including incentive articles, downloadable POS, product information and top tips on how to increase sales in store.
Ross Hennessy, Sales Vice President at JTI UK, comments: “Smokers continue to seek good quality tobacco at an affordable price – including for RYO brands.”
With 8.3 million kilograms of rolling tobacco sold in the UK each year (IRI), this category offers a significant opportunity to maximise sales.
“Price remains a key factor for existing adult smokers,” says Hennessy. “Retailers should therefore stock up on Value RYO products, such as JTI’s Sterling Rolling Tobacco, which is currently the UK’s fastest growing tobacco brand (IRI).”
RYO smokers are looking for convenience, and 3-in-1 formats are the perfect solution.
JTI’s Sterling 3-in-1 Rolling Tobacco, which transitioned from a box to a pouch last year, offers existing adult smokers the fuss-free and convenient format they want, at the same value price as before.
JTI has introduced a new member to the Sterling family, with the launch of Sterling Rolling Tobacco Essential 30g. Available at an RRP of just £12.35, it offers a great value tobacco option for customers, whilst staying true to Sterling’s reputable quality, from the No.1 Value RYO brand (IRI).
Sterling Rolling Tobacco Essential 30g offers the lowest price point in the Sterling Rolling family as a less for less alternative, with no filters and papers providing existing adult smokers the freedom to purchase their preferred tobacco accessories. It also comes in a paper insert pouch packaging which contains less aluminium, and the blend generates less leaf waste compared to other RYO brands due to its unique whole leaf blend.
JTI recently repositioned the Kensitas Club Rolling Tobacco range in Scotland with RRPs of £11.95 for 30g 3-in-1 as well as £19.60 for 50g pouch formats. This offers the same great quality and convenient tobacco product in easy-to-use formats as previously sold, now with a better value price.
The decision to lower the RRP reflects consumer demand for value RYO tobacco, which is currently leading the RYO Price Sector with a 50.2% market share (IRI).
“Having up-to-date knowledge on the latest products is key to offering an informed and good level of customer service, adds Hennessy. “To confidently talk about new products, retailers and their staff should use all the platforms available to them – including JTI’s trade retailer website, www.JTIAdvance.co.uk. This will help them to understand key category insights and product developments.”
“Through stocking a full, range and maintaining good availability of products, retailers and their staff can provide a successful vaping offering and service to their customers,” suggests Hennessy. “It is also important to recognise which devices and liquids are proving particularly popular with vapers so that retailers can meet this demand and vapers can get their preferred product without having to shop around.”
“By having a clear and tidy display, customers will find it easier to find their preferred product, in turn experiencing a better level of customer service,” Hennessy continues. “For smaller stores, or those looking to introduce vaping products for the first time, a countertop display solution is a viable option to test consumer response to the introduction of the category. Once stores expand their range, it is best to move to a category solution where next-gen and tobacco products can be displayed in the same gantry to ensure quick service time and repeat custom.”
Kate O’Dowd, Head of Commercial Planning UK & Ireland, Philip Morris Limited, comments: “By replacing cigarettes with smoke-free products as fast as possible, Philip Morris is on track to achieve its ambition of becoming a majority smoke-free company.”
PMI aims to increase the net revenues for its smoke-free portfolio to more than 50 percent by 2025. Strengthening the support our retailers receive will be critical if that ambition is to be achieved.
“In the UK, we have rewired our entire business to do exactly that; investing more money, people and resources to build a community of retailers that is driving large-scale switching, faster,” says O’Dowd. “This is important, not only to their communities but to their businesses.”
Smoke-free categories, like heated tobacco and e-cigarettes, continue to eat into the market share of conventional tobacco products, like cigarettes. IQOS, PMI’s heated tobacco system, remains the category leader as well as the UK’s number one smoke-free product (Nielsen).
Not only are these smoke-free products a better choice for adult smokers who do not quit tobacco or nicotine products completely – they also represent the future of retailer economics.
“Innovative new product development combined with consumers spending more time at home over the last 12 months, with less day-to-day restrictions on tobacco use, has led to the UK’s tobacco accessories market continuing to show strong performance,” comments Gavin Anderson, Head of Sales, Republic Technologies.
Since the start of the UK’s first lockdown last year, many people have started to shop more frequently at stores local to home, avoiding longer trips and large numbers of shoppers in supermarkets, and this is helping to maintain the strong performance of tobacco accessories.
Market growth has also been accelerated by the record number of consumers turning to roll-your-own products from factory-made cigarettes, recognising the quality and affordability they deliver, as cost-conscious shoppers look for greater value for money in both tobacco and accessories.
“Retailers and wholesalers should be continually reviewing their range of tobacco accessories, utilising innovative NPD and a renewed focus on merchandising solutions,” says the Gavin.
Following the change in legislation last May, there has been a significant number of consumers looking for flavour alternatives to menthol cigarettes and a raft of tobacco related NPD has hit the market to help retailers cater to this demand.
Swan Fresh Burst Crushball filter is already the best performing menthol capsule filter in the market (IRI) a little over a year since launch and along with the other three menthol SKUs from Swan – Swan Cool Burst Crushball, Swan Cool Menthol Extra Slim and Swan Menthol Extra Slim – has been enabling retailers to offer even more choice in flavour and format that deliver on quality, brand assurance and value for money. The tobacco accessories market is currently worth more than £314 million (IRI), highlighting a big opportunity for retailers to maximise profits within this category.
Swan’s latest new product launch, Flavour Fusion Cards, enables consumers to create their own level of flavour in a packet of cigarettes or roll-your-own tobacco from just 30 minutes and are available in two variants, Fresh Burst and Menthol. Each small, lightweight outer contains 25 individual cards and allows retailers to manage shelf space more effectively.
Meanwhile, environmental considerations continue to influence shoppers, with increasing demand across all categories for more natural products, reduced packaging and removal of single-use plastics.
This has led to a surge in demand for category-boosting products such as OCB Virgin Slim & Tips and OCB Organic Hemp Slim & Tips, which are unbleached papers and made using OCB natural gum which is sustainably sourced from African Acacia trees.
Alastair Williams, Country Director at Scandinavian Tobacco Group UK (STG UK), comments: “One current trend in cigars definitely worth highlighting is the medium / large segment enjoying something of a renaissance at the moment, growing by 17.4% in volume and 23.4% in value versus the same time last year. This may potentially be down to people being at home more with increased time on their hands to enjoy a larger format cigar. And as lockdown eases and consumers are out and about enjoying their newfound freedoms, we expect a good number of adult smokers will continue to trade-up to enjoy a larger format cigar. The trend is led by our Henri Wintermans Half Corona brand, which is responsible for three quarters of all sales in this segment, and in value growth of 25.4% since the same time last year.”
Value has been a consistent trend in cigars for quite some time which is evidenced by the success of the Moments Blue brand, which is growing by 2.3% and offers a quality smoke at a low price (IRI). It is now the sixth best-selling cigar brand in the UK in value terms, and with the added impact of the pandemic on the economy for the foreseeable future, this move towards value is likely to increase.
Outside of traditional cigars, the cigarillo segment has emerged of over the last year or so, where STG’s Signature Action brand continues to play an important role. Launched at the beginning of last year, it’s a Filter Cigarillo with a peppermint click filter which comes in a convenient and stylish pack of ten. In addition, a carefully selected blend of Virginia tobacco and a light real leaf Ecuadorian wrapper deliver a smooth taste, making it a very credible option for those smokers who enjoy the peppermint flavour.
“I think cigarillos and medium / large cigars will probably continue to grow in importance, so retailers need to ensure they are stocking the right brands to meet consumer demand,” suggests Williams. “But let’s not forget it is miniatures which are responsible for nearly three quarters of all cigars sales and are still very much the engine room of the category so ignore the top brands like Signature at your peril!”
“Retailers need to ensure they are stocking the right brands and following the relevant consumer trends,” advises Williams. “When it comes to cigars, nearly 90% of total sales come from the top ten brands so there’s little point in having a vast range. Knowing what those top ten brands are, and ensuring they are always in stock should be the key focus to maximising sales.”