Convenience retailers should review pricing strategies, strengthen supplier controls and prepare for increased cash-flow pressures ahead of the introduction of Vaping Products Duty (VPD) in October, according to IVG Group chief executive Ahsan Bawa.
In a detailed analysis of the forthcoming reforms, Bawa said the new tax and duty stamp regime would require businesses to rethink almost every aspect of vape category management, from pricing and product ranges to stock control and staff training.
“For retailers, this is not simply a supplier-side tax matter,” Bawa wrote.
“The reforms will affect shelf prices, margins, assortment, promotions, stockholding, supplier selection, staff training and the risk profile of the entire category.”
He warned that retailers and manufacturers that delay preparations could find the biggest challenge lies not in calculating the new duty, but in maintaining affordability, availability and compliance during the transition.
Under the new regime, from 1 October 2026 vaping liquids will attract a duty of £2.20 per 10ml, while products released onto the UK market will also require approved vaping duty stamps attached to retail packaging. Retailers will be allowed to continue selling eligible unstamped stock produced or imported before 1 October until 31 March 2027, after which all vaping products outside duty suspension must carry a duty stamp.
Pricing strategy under scrutiny
Bawa said retailers should look beyond the headline duty rate and understand how pricing is constructed throughout the supply chain.
While the direct duty on a 10ml product will be £2.20, he noted that VAT and margins applied by manufacturers, distributors, wholesalers and retailers could result in a much larger increase on the final shelf price.
“If a manufacturer, distributor, wholesaler and retailer each applies its normal percentage margin to a price containing the new duty, the cumulative shelf-price increase may be much greater than the tax announced by government,” he said.
Instead of simply preserving percentage margins, Bawa suggested businesses consider protecting cash margins while accepting that margin percentages may decline when calculated against duty-inclusive prices.
Ahsan BawaPhoto: Handout
He also urged retailers to ask suppliers to explain exactly how post-duty pricing has been calculated.
According to Bawa, unnecessarily inflating retail prices could create several risks, including encouraging consumers to blame retailers for government-imposed tax increases, widening the price gap between legitimate and illicit products, and prompting shoppers to trade down or leave the regulated market altogether.
Category review
Bawa believes the new duty is also likely to accelerate SKU rationalisation as higher-duty products become more expensive to hold in stock.
He said retailers and manufacturers are likely to reduce duplicate flavours, simplify colour variants, review pack sizes and liquid volumes, revise pricing structures and focus more heavily on best-selling lines.
However, he warned against removing too much choice.
“Over-rationalising the category could frustrate adult consumers whose preferred flavours or nicotine strengths are removed. Under-rationalising it could leave retailers carrying expensive, slow-moving inventory,” he said.
“Retailers should use rate-of-sale data rather than supplier enthusiasm when deciding which lines survive.”
Stronger retail controls
The IVG chief executive also called on retailers to strengthen operational controls before the new regime takes effect.
Among his recommendations are purchasing only from approved and traceable suppliers, introducing more robust goods-in checks, quarantining suspicious products before they reach shelves, training frontline staff on the new rules, monitoring ageing unstamped stock during the transition period and establishing clear procedures for reporting compliance concerns.
Bawa said the transition period means the absence of a duty stamp will not automatically indicate that a product is illegal, making supplier records and invoices increasingly important.
Cash-flow challenge
Beyond pricing and compliance, Bawa warned that duty-paid stock will require retailers to invest significantly more cash in their vape category.
“Duty-paid stock will absorb more cash,” he wrote.
He said businesses should forecast the additional funding needed to finance higher-value inventory, while wholesalers may also review credit limits and payment terms as the value of stock held across the supply chain increases.
Illicit trade risk
Bawa also warned that significant retail price increases could drive consumers towards illegal vaping products if enforcement is not sufficiently robust.
He urged retailers to treat suspiciously cheap products, unclear invoices, changing supplier identities, cash-only transactions and inconsistent packaging as warning signs of potential illicit supply.
“The commercial appeal of a low purchase price can disappear rapidly if the product is seized, the retailer is investigated or customers lose confidence,” he said.
Despite the challenges, Bawa argued the reforms could strengthen the legitimate market by improving traceability and making it more difficult for non-compliant suppliers to operate.
“Companies that can provide reliable availability, accurate data, retailer education and verifiable product history should be more valuable to national accounts and independent retailers alike,” he said.
Retail readiness checklist
Before 1 October, Bawa says retailers should be able to answer these questions:
- Do we know which suppliers are approved and accountable?
- Can we identify pre-duty transition stock?
- Do we know what the relevant duty stamps look like?
- Are goods-in checks documented and operating?
- Can suspicious stock be quarantined immediately?
- Are employees trained on the new rules?
- Have new retail prices and margins been modelled?
- Have we forecast the additional cash required to hold stock?
- Can we track ageing unstamped inventory?
- Is there a clear escalation route for compliance concerns?