With the country now returning to some semblance of normality in a post-COVID world, the tobacco category is proving once again to hold a substantial amount of value for retailers.
The market is now worth £14bn (before tax) per year and as it stands, there is almost a 50/50 market share split across Factory Made Cigarettes (FMC) and Roll Your Own (RYO) categories – at 54% and 46% respectively, Imperial Tobacco estimates.
“The future of the tobacco industry lies very much within the value of the product as consumers seek out ways to save money. So, if retailers are to successfully cater to the needs of today’s customer and increase sales, then ensuring they are stocking a wide range of value tobacco products is crucial,” comments Tom Gully, Head of Consumer Marketing UK&I at Imperial Tobacco.
Given the growing cost of living crisis and rising energy costs, this shift towards value tobacco products is a trend that is likely to continue for some time and one that should not be ignored – especially given tobacco customers can generate much wider sales in store. Tobacco shoppers spend more, visit more and have a higher basket spend than other shoppers (Lumina) so are key shoppers to attract.
With household costs and inflation soaring, shoppers are now even more aware of how much they are spending. As a result, we’re seeing a move towards low priced propositions across the entire category as a whole, resulting in the lower priced tiered products making up a majority of tobacco sales. In fact, the sub-economy segment now makes up 63% of FMC sales, while the economy segment accounts for 56% of RYO, with these value segments growing at an impressive 3% and 5% YOY (ITUK).
“To capitalise on the sales opportunities these value segments offer, retailers must ensure they stock the correct products, while also familiarising themselves with the key product types so they can help their customers fully understand the tobacco category and different product solutions available to them,” adds Gully.
With shoppers increasingly looking for products that provide value for money, we’re now seeing a significant rise in the sale of roll your own tobacco. In fact, this category now accounts for 46% of all tobacco sales (ITUK).
“With the growing cost of living crisis impacting households nationwide, we expect this consumer demand for value to increase even further in the months to come. Given this rising shift towards value products, and rolling tobacco in general, it’s important to make sure retailers cater for this demand with the right product offering,” says Gully.
“With this in mind, we’d recommend that they check they have a strong variety of leading roll your own brands, such as Riverstone and Players JPS, to ensure they are prepared for this rising demand for value tobacco products.”
“When reviewing their range, it’s important to remember that value means different things to different people,” Gully continues. “Some customers might be focused on the lowest price point, while others may be looking for added value formats like Players JPS Easy Rolling Tobacco which offers filters and papers in one pack. Therefore ensuring there is a range on offer that allows retailers to tap into these different value needs is vital in order to effectively cater for their customer base.”
From an FMC perspective, as demand for value tobacco continues to grow, many consumers are looking for a familiar brand that they know will deliver satisfaction at a low price.
“With this in mind, we’d highly recommend stocking our Embassy Signature and Richmond ranges to help unlock sales amongst adult smokers seeking out top brands at great value price points,” adds Gully. With more consumers now moving towards RYO products, retailers are presented with new sales opportunities within tobacco accessories.
“It is therefore essential that they cater for this rising demand by ensuring they are fully stocked up with filters, papers, lighters and other flavour-related innovations, for example, Rizla Xtreme Flavour Cards,” says Gully.
The Rizla Xtreme Flavour Cards range has been extremely well received by both the trade and consumers. The Rizla Xtreme range comprises 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 30 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 400,000 packs per week (ITUK) as smokers look to recreate the menthol experience.
Another product line gaining traction with tobacco shoppers is Rizla Silver Kingsize Combi which has an RRP of £1.20 and offers papers and tips together in one pack for the ultimate in convenience. Thanks to its convenient format, Rizla Combi is now proving extremely popular with shoppers looking for added value product solutions.
“Retailers are a hugely important route to market for us, representing a significant proportion of our sales,” Gully comments. “As such, we continuously invest in supporting retailers so that they can make the most out of our products with sales and trends advice, promotions, store visits and in-store furniture.”
Mark McGuinness, Marketing Director at JTI UK, comments: “In 2022, JTI launched two of its most iconic brands into the ultra-value segment to provide high quality value for existing adult smokers. Featuring the lowest recommended retail prices from JTI, Benson & Hedges Blue, a new rolling tobacco offering, Benson & Hedges Blue Rolling, whilst Mayfair introduced a new RMC range – Mayfair Silver. By offering iconic brands like Mayfair and Benson & Hedges at new ultra-low prices, retailers can capitalise on both products’ brand heritage, that also offer a competitive price point.”
Now available across all channels, Benson & Hedges Blue Rolling includes quality Virginia tobacco blend and 100 papers within the 30g and 50g pouches, with an RRP of just £13.65/£22.35 per 30g/50g and is available across England and Wales only. Mayfair Silver is available in both King Size and Super King at a RRP of £10.15 per 20 pack, and is available across England, Wales and NI.
Sales of tobacco flavoured Heated Tobacco variants account for 52% of all refill sales in traditional retail (IRI), with Menthol flavoured accounting for 44% (IRI).
“JTI always looks to keep on top of trends and listens to what consumers want when it comes to meeting demand for new flavours,” adds McGuinness. “As a result, JTI has established itself as a destination for flavoured tobaccos and flavoured capsules within the sector.”
To cater to current trends, JTI recently launched a crisp apple and menthol variant named Ruby, alongside two new alternative variants with crush capsules, Green and Purple. These new flavours allow the consumer to discover a new taste sensation with EVO flavoured capsules. Both are a well-balanced and smooth tobacco flavour, with a subtle mint infusion that releases a burst of flavour when the capsule is crushed.
With a range that is designed to tap into consumers top flavour preferences, retailers across London can maximise this huge sales opportunity by stocking all eight EVO tobacco flavours.
The Heated Tobacco category is estimated to be worth a staggering £250 million by 2025, with 66% of consumers buying through traditional retail (IRI). There is a huge opportunity in the market, so JTI expanded and upgraded its portfolio with Ploom X – a new and improved device with upgraded technology designed to deliver a truly unique experience for customers. Representing the cutting edge of the next generation of heated tobacco products, it offers an alternative but familiar tobacco experience by heating tobacco instead of burning it.
This smaller and more compact device has a more consistent nicotine delivery and an enhanced flavour sensation. It also has a longer session time of up to 5 minutes and the ability to use more EVO Tobacco Sticks per charge. One simple heating mode makes the device easy for customers to use.
“The Ploom brand has gone from strength to strength over the past few years. Building on our growing presence in the evolving heated tobacco category, the launch of Ploom X offers a truly unique experience for customers,” says McGuinness. “We’re looking forward to providing you with the opportunity to capitalise on the category, which is already worth £91 million in traditional retail (IRI)”.
JTI Advance, a micro-site for retailers, is an instant guide to the tobacco and next-generation categories. With a free subscription to the platform, retailers can gain 24/7 access to a whole host of information. JTI Advance subscribers are the first to know about the latest news and advice, enter competitions, enrol in invaluable training modules and access product information. With this content and material, retailers can become category experts in tobacco and nicotine products.
JTI is constantly updating and refreshing content and materials on the website, so retailers should check in as often as they can. The news page, for example, is regularly updated with all the latest developments at JTI, as well as wider industry stories and tips on how retailers can boost their sales. This includes details on new products such as the Ultra-Value launches from Mayfair and B&H and new Nordic Spirit flavours and strengths.
Kate O’Dowd, Head of Commercial Planning at PML in the UK and Ireland, comments: “Although awareness of the heat-not-burn segment remains comparatively low to that of e-cigarettes, we’re expecting more adult smokers to discover the category in 2023 – thanks to the increasing availability of heat-not-burn devices and consumables through the convenience channel.”
Data from KAM on behalf of PML, found that more than half (56 per cent) of UK convenience retailers will stock heat-not-burn products to help adult smokers choose a better alternative in 2023 (PML).
Acceptance of the heat-not-burn category as a viable alternative to cigarettes, together with improved access through indirect retail channels, has broadened the appeal of IQOS – the UK’s number one heat-not-burn product (Nielsen) – to adult smokers throughout the country.
For instance, in 2020, growth of the heat-not-burn category was confined largely to the south east, with the majority (79 per cent) of IQOS kit sales – which combine HEETS variants and the IQOS device – taking place in London (PML). In 2022, 41 per cent of IQOS kit sales occurred in key cities other than of London (PML).
Furthermore, sales of IQOS kits are now weighted more evenly between the north and the south of the country. In 2020, 9 in 10 IQOS kits were purchased in the south. In 2022, over a third of IQOS kits were purchased in the north of the country (PML).
While London remains a key trend indicator for the heat-not-burn category – with HEETS accounting for 6.4 per cent market share of the total industry sales volume for Heated Tobacco Units (HTUs) and cigarette volumes (PMI) – more adult smokers are discovering a better choice, thanks to those retailers embracing IQOS and the heat-not-burn category.
“With the cost-of-living crisis soaring, consumers are looking to make savings wherever possible,” adds O’Dowd. “It’s only natural that many may consider ‘trading down’ to battle inflationary costs of everyday items – forgoing their usual brand selection for more affordable options.”
The switch from combustible tobacco products to smoke-free alternatives is no exception here. While the best choice anyone can make is to quit completely, retailers agree that many adult smokers are looking to offset the rising cost-of-living by choosing smoke-free alternatives that are a better, and more affordable choice to cigarettes – which are now priced at £12.77 (on average) per pack (ONS).
This change in consumer spending was reflected in a recent PML-commissioned survey, looking at emerging trends in the smoke-free category in 2023. The survey found nearly two-thirds (65%) of convenience retailers agreed that adult smokers were switching to smoke-free products, like e-cigarettes and heat-not-burn products, to save money in the current economic climate (PML).
In fact, retailers agreed that smokers would prioritise affordability above all else when choosing a smoke-free alternative this year – with roughly half believing customers would select the cheapest products available (PML), followed by those products offering the best overall value for money (18%, PML).
However, the same survey identified potential barriers to switching for those adults who would otherwise continue to smoke, with almost a quarter (23%) of retailers accepting that smokers may simply trade down to less expensive tobacco brands (PML) or reduce the rate at which they smoked each day (PML), respectively.
“Despite these challenges, I feel encouraged that seven in ten convenience retailers will look to expand their multi-category of smoke-free products to offer adult smokers better, more affordable alternatives to cigarettes in 2023,” says O’Dowd.
With HEETS tobacco sticks costing less than half the price of an average pack of cigarettes (ONS), IQOS – the UK’s number one heat-not-burn product (Nielsen) – gives adult smokers and existing adult nicotine users access to a science-based smoke-free alternative, at a fraction of the price of smoking.
“Our aim is to become the UK’s leading smoke-free manufacturer; a key player in the market offering affordable and best-in-class products in each major category and providing the variety and choice adult consumers are looking for – all coming from one portfolio that delivers nicotine without combustion,” O’Dowd continues.
With IQOS, PMI has already cemented its leadership position in the heat-not-burn category, with more innovation in that category coming soon. PMI’s recent acquisition of Swedish Match, one of the world’s largest suppliers of nicotine pouches, provides leading oral smokeless alternatives – such as ZYN – that meet vital need states of adult consumers.
“We also plan on broadening our smoke-free portfolio further in the UK by re-entering the e-vapour category, with quality and responsible devices designed to meet the specific needs of existing adult smokers and adult nicotine users. Details on our launch plans will be shared in due course,” adds O’Dowd.
“We believe strongly that offering a broader range of better, more affordable alternatives to smoking will deliver a smoke-free future in the UK, faster.”
Nataly Scarpetta, Marketing Manager at Scandinavian Tobacco Group UK (STG UK), comments: “Our latest data shows the total cigar category to be up by 0.8% in value terms on last year at just under £286m. This is driven by the rise in the cigarillo segment which is now worth just over £98m and accounts for 46.7% of all cigar volume.”
The more traditional cigar segments are all in decline of around 4% which is likely to be due to a combination of factors such as some smokers moving into vaping or pouches, and / or people cutting down due to the on-going cost of living crisis.
“I think there’s no doubting the importance of value as a consumer trend at the moment,” adds Scarpetta. “Many consumers are going to be increasingly price conscious as the cost-of-living crisis continues to bite, and this will affect cigars and the wider tobacco category purchases just as much as any other category in-store, so retailers should ensure they are highlighting their value brands to customers to help them save money.
Having said that, the search for value has been a trend in cigars for some time now, evidenced by the success of our Moments Blue brand, which offers a quality smoke at a low price and is now the seventh best-selling cigar brand in the UK in value terms.”
STG has Signature Blue, which is easily the best-selling miniature cigar, Moments Blue which is the best-selling value cigar and Henri Wintermans Half Corona which has over 73% of all sales in the medium / large segment (IRI).
STG very recently announced a modern and eye-catching re-design for the Moments brand. The new pack design can be seen now on packs of Moments Blue and Moments Original, with packs of Moments Panatella following closely behind in May. Moments Blue has been the fastest growing VFM cigar in the UK and is well-known amongst tobacco-selling retailers as a popular choice amongst those customers who are looking to save money.
“Now, more than ever, it is important for retailers to offer their customers a range of credible value options across the store, as the current cost of living crisis continues to put pressure on households and forces consumers to make difficult decisions on what they can afford to purchase,” says Scarpetta.
Towards the end of last year STG also announced its entrance into the fast-growing nicotine pouch category with the introduction of its first ever non-tobacco product. Originating from Sweden, the home of snus and most nicotine pouches, STRÖM (which is Swedish for stream / flow) is a premium nicotine pouch which is truly inspired by its Scandinavian heritage. Launching in three flavours (Fresh Mint, Minty Orange and Juicy Berry), STRÖM will initially only be available to retailers across Manchester for a six-month trial period between October to March, before being rolled out to other cities across the UK throughout 2023 and beyond.
“At STG we consider ourselves as the ‘cigar category champions’, meaning we work closely in partnership with all our multiple grocer customers, from offering promotional support, to visiting head offices providing up to date advice on adult cigar consumers’ smoking habits or assessing inventory levels in order to maintain continuity of supply,” adds Scarpetta.”
The UK tobacco accessories category continues to perform strongly, worth £334m and showing YoY growth of +4.3% (IRI).
Rolling papers is the star performer in the category as the highest value sector within tobacco accessories. OCB from Republic Technologies is helping to drive this success as the UK’s fastest growing mainstream paper brand (IRI) making it a must stock for retailers.
The Slim & Tips subcategory is showing impressive growth of +28.5% YoY (IRI) as we see an increasing move to premium Paper & Tips formats. This again highlights a big opportunity for retailers to tap into this growth with popular brands such as OCB.
With the current economic climate forcing shoppers to seek products at lower price points, roll-your-own products, which typically offer shoppers more for less money, will become more attractive to shoppers. The continual move towards value in tobacco and tobacco accessories is only going to increase as shoppers seek alternative ways to cut costs.
Gavin Anderson, Sales & Marketing Director at Republic Technologies (UK) Ltd, says: “Tobacco accessories, including filters, papers and lighters, provide an important opportunity for retailers to benefit from impressive margins and incremental sales. The right range of brands and effective POS gives retailers the potential to make sure their store stands out.
“RYO shoppers tend to be repeat purchasers, so having a good variety of products, with a fully stocked display, will keep them coming back.
“We work with retailers to highlight their bestselling product lines and NPD to help them drive impulse sales. Our compact displays can be of real benefit to retailers as they grab shopper attention.
“Our iconic brands – including Swan, Zig-Zag and OCB – have considerable history in the market and are synonymous with quality and value for money. This, combined with our team’s valuable expertise in the category, means that we are well placed to add real value for retailers.”
Laura Haggerty, Business Unit Manager – Tobacco at Parkside Flexibles, comments: “The latest estimates from the World Health Organisation say that if all illicit cigarettes that were sold across the globe in 2021 were sold legally, it would have generated an additional €40bn in tax revenue. One in every ten cigarettes sold today is estimated to be illicit. And illicit tobacco is set to penetrate even further in the aftermath of the pandemic as the cost-of-living crisis starts to bite.”
Packaging has a key role to play in the enforcement of illicit tobacco as it allows for the layering of overt and covert anti-counterfeit features.
“One magic bullet solution to defeat illicit tobacco once and for all does not and will never exist – but at Parkside, through our development of printing and material technology including metallised inner liners, laser-scribed pack wraps, and tear tapes, we have developed a number of solutions that can be layered onto each pack to make counterfeiting as challenging as possible,” adds Haggerty.
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