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    Tobacco in a pandemic, post-menthol world

    Photo: iStock

    When we last looked at the tobacco sector, almost exactly six months ago, the market was a very different place.

    Then, all the talk was about the impending ban on menthol cigarettes. The tobacco companies were launching new products that worked around the new law – separate filters, menthol crush-balls, flavoured pack inserts and so on.

    At the same time they were developing and promoting their menthol vape or (in the case of PML) their heat-not-burn (HNB) products, as were the pure-play vape companies, to take advantage of the fact that vaping was unaffected by the ban, which only targeted tobacco.

    A rapidly changing landscape

    By the time the menthol ban was enacted on May 21, the UK had been under lockdown conditions due to the coronavirus pandemic for two months. That meant the ban came and went very much as a minor headline, given everything else that was happening.

    Tobacco in a pandemic, post-menthol world
    Photo: iStock

    In fact, the lockdown produced some interesting effects in the tobacco sector, and what has happened over the spring and summer has been far from injurious to tobacco sales, although the market has shifted and adapted to extreme circumstances.

    Kenton Burchell, Trading Director at Bestway Wholesale, points out that the global travel ban has had a massive effect on sales.

    “Due to the reduction in travelling as a result of Covid-19, there has been an increase in demand for tobacco and tobacco products across the whole country,” he says. “This is partly due to the reduction in the volume of non-UK duty paid stock entering the UK.”

    The plight of airlines and travel companies has revealed just how much the population was constantly on the move across borders, for business or pleasure – and bringing back with them duty-free allowances after every journey.

    That importation basically stopped dead and the demand had to be satisfied domestically.

    Not only was this good for UK tobacco sales, it was especially good for the independent sector.

    “A further factor has been the restricted access to supermarkets and the need to queue at a social distance, which has led convenience stores seeing an increase in footfall for tobacco products,” explains Burchell.

    As we stayed close to home, we shopped more at the local store – much less hassle than a big supermarket – the second leg of the stool of beneficial consequences.

    “Whilst not all of this footfall will last as travel resumes in the longer term, and government guidelines ease around lockdown measures, it has given independents the opportunity to encourage new footfall through their doors,” Burchell continues – and he is probably correct that the new habits are not going to revert overnight.

    As Jessica Markowski of Budweiser Brewing Group presciently noted in our last issue, people have had time to establish new routines and take advantage of conveniences they never knew were on their doorstep, in many cases. Some of that will stick, which is great news for C-store owners, who for a long while have been watching tobacco sales fall about three per cent every year – with some of those sales lost to the multiples but now being clawed back.

    The third leg of the Good News Stool is another paradoxical result of the pandemic’s ill-fortune, in that many people now have less money, and even those that don’t are keeping a close watch on their finances – leading to a surge in consumers seeking more value in tobacco.

    Tobacco in a pandemic, post-menthol world
    Dawood Pervez

    Reading how the tobacco market is shifting will raise your sales and profits, as Bestway MD Dawood Pervez clarifies:

    “By selling the products at competitive prices – at or close to RRP – we believe retailers can maintain this increased footfall and cross-category spend.  Lower price cigarettes and RYO continue to drive category sales – hence selling competitively is important to maximise sales. RYO are particularly selling very well across all variants but especially from larger pack sizes – 40g/50g.”

    The desire for value is expressing itself in two ways as consumers either seek lower prices in their regular cigarettes, or use more RYO products – a fact Pervez underlines when he adds, “There has also been an increase in demand for smokers’ accessories such as papers and filters.”

    Note also that the consumer is matching less frequent trips with a preference for larger packs.

    Further, smokers might not switch completely from one form of tobacco to another to save money, as Imperial Tobacco’s UK Corporate Affairs Director Duncan Cunningham explains. Instead, they might experiment and adjust:

    Tobacco in a pandemic, post-menthol world
    Duncan Cunningham

    “The continued consumer demand for value is shaping the tobacco category,” he says.“As adult smokers increasingly shift their purchasing habits between segments, they are expanding the range of nicotine products they buy to cater for different occasions. This has led to a rise in the number of dual users buying both factory made cigarettes (FMC) and roll-your-own products, as well as moving into vaping and new, emerging segments such as nicotine pouches.”

    Stock a wide range of products, is Duncan’s advice. As well as nicotine pouches and vape – which predictably attracted a portion of the smokers after the menthol ban – the lockdown also threw up another interesting trend.

    With many smokers at home, leading less hectic lives without commutes and deadlines, the sales of cigars and cigarillos appear to have been improving – a relaxed smoke for a relaxed new lifestyle maybe? Could pipe tobacco also benefit from Covid-19 as our lifestyle reverts to a slower, local and home-based one, at least for the time being?

    Value remains paramount: think portfolio

    “As consumers move towards more of a nicotine portfolio approach, shopper purchasing decisions remain heavily influenced by this constant drive for value,” Says Cunningham.

    Ross Hennessy, Sales Vice President at JTI UK,adds that “The value of tobacco in the UK totalled £14.6 billion in the last year, with the value in the independent and symbol channel accounting for £6.4 billion of that.”

    At approaching half of all tobacco sales in a grocery industry where C-Stores account for under 20 per cent of the total market (about £40 billion out of £200 billion UK revenue), it is obvious that the nation prefers to by its cigarettes from the corner shop. And while tobacco might be in long-term secular decline, the industry is remarkablyinventive and responsive to its value-seeking customers.

    “As one of the biggest and most resilient FMCG categories, traditional tobacco should not be overlooked and as part of the growing Value trend, the RYO category has increased 9.9 per cent year on year, so retailers should stock a range of products to cater to the needs of their existing adult smokers” Hennessy advises. Again it is the range that counts – as well as the staff’s knowledgeability – in catching sales from smokers moving amongst products as conditions change.

    What does the move towards seeking value in tobacco mean for the independent store-owner? A combination of trust and price should be pursued.

    “In the wake of the menthol ban, we expect this [portfolio] trend to accelerate further, with smokers seeking out different nicotine solutions that suit their lifestyle,” says Imperial’s Cunningham, although this migration across products will have to be led by trusted brands, which consumers will follow willingly into a new area – Imperial’s Riverstone being the touchstone here: “Since its launch, Riverstone has become one of the fastest growing tobacco brands in the market,” he says: “It taps into this trend with its high quality, easy-to-roll blend and affordable price.”

    Tobacco in a pandemic, post-menthol world“Value has become a clear trend in the current tobacco market,” JTI’s Hennessy stresses. “Retailers can maximise on this by stocking Value brands, such as JTI’s Sterling Rolling Tobacco– which is now the UK’s fastest growing tobacco brand, and Amber Leaf, the UK’s No.1 tobacco brand with a 29.6 per cent share of the RYO market.”

    He agrees with Dawood Pervez when he recommends retailers should look to remain competitive by selling at the RRP or below to help drive sales.

    Factory made cigarettes (FMC) are still the largest segment within the tobacco category, accounting for approximately 60 per cent of total volume sales and for £10.8 billion of total revenue in a £14.6 billion market (2019).

    As part of the sustained shopper demand for value, sub-economy brands are proving particularly popular, and as Cunningham points out, the suppliers are addressing the need for economy packets and brands.

    “Over the last few years we’ve repositioned a number of our FMC products to help retailers cater for this down-trading trend,” he says.“This includes shifting L&B Blue into the sub-economy sector in 2018 and, more recently, repositioning Embassy from the premium price sector to the more popular economy sector, both with competitive price points that will appeal to adult smokers looking for premium quality, at an affordable price.”

    At JTI the innovation also continues, as Hennessy outlines.

    “Launched in 2020, the ‘New Dual’ range is available across Sterling New Dual, Benson & Hedges New Blue Dual, Sovereign New Dual and Benson & Hedges New Dual, providing adult smokers with a unique dual pack which includes two chambers of ten cigarettes. In addition, the Sovereign New Dual range also contains a new ‘Flow Tech’ centre hole in the filter, which provides further product differentiation within the market.”

    The smoother, cooler smoking experience (achieved by tobacco blend and/or tech) is one more way the manufacturers have attempted to deal with the menthol ban – and the innovations will no doubt keep coming, which makes it vital that all staff know what they are selling and can explain the latest products to shoppers.

    “It is crucial that retailers and their staff understand the products they are selling so they can offer informed advice to their customers and help them find the right product for their needs,”  Cunningham sums up.

    The rise of RYO – and accessories!

    The menthol ban, and then the social behaviour engendered by the lockdown, have been a boost to RYO and the accessories that go with it.

    Unsurprisingly, the economy RYO segment continues to go from strength to strength and now accounts for 45 per cent share of Fine Cut Tobacco sales, against 38.3 per cent last year. That is nearly a 20 per cent YoY rise, with further growth expected to come, says Cunningham.

    “With 6.9 million kilograms of rolling tobacco sold in the UK each year, this category offers significant opportunity for retailers to maximise sales by stocking up on Value RYO products, says Hennessy.

    rolling tobacco
    Photo: iStock

    Republic Technologies, whose lighters, papers and filters can be found in every shop, are acutely aware of the role the Convenience channel plays in RYO tobacco sales. General Sales manager Gavin Anderson reveals that threequarters of the value in the accessories market goes through independent stores. The indies basically control the trade – and it’s a significant one. “The tobacco accessories market is currently worth £295 million, up 2.9 per cent year-on-year,” says Anderson,“with filters the best-performing sector, showing value growth of 7.1 per cent year-on-year.”

    This is huge growth, even if given a boost by the menthol ban, and it is vital to be able to supply all the accoutrements the RYO and general FMC smoker requires, from flame to filter.

    “We know that former menthol cigarette smokers have a strong preference for the distinctive flavour and are looking for quality alternatives, turning to retailers for advice and guidance,” he says, and outlines how Republic have responded to that need with three new Swan brand menthol filters that have to be Must Stocks:

    • Cool Menthol Extra Slim: A sister product to the best-selling Swan Menthol Extra Slim in a pocket-sized pack containing 120 filters. This product delivers a cool menthol flavour. RRP: £1.09.
    • Cool Burst Crushball: In a 2-part sliding pack containing 54 filters, this crush capsule delivers a cool menthol flavour sensation. RRP: £1.29.
    • Fresh Burst Crushball: A crush capsule that delivers a strong peppermint flavour and also comes in a 2-part sliding pack containing 54 filters. RRP: £1.29.

    The three new filters are complemented by a new Swan carbon paper filter for enhanced filtration, a Swan Long Extra Slim Filter (50 per cent longer than standard) and the most environmentally-friendly filter in the UK market.

    “We’re developing a broader range of products for improved customer choice, enabling retailers to capitalise on the strong performance of the accessories category and to take advantage of the high margin opportunities offered by Swan,” says Anderson.

    Republic Technologies is boosting awareness and demand for its menthol filters with the launch of a countertop display unit which holds five packets of each Swan variant.The company has also invested heavily recently to ensure it has a very clear understanding about RYO smokers and their requirements.

    “Most of our customers have been smoking for some time and whilst value for money is a key consideration, particularly in times of economic uncertainty, many prefer the tactile aspect of roll your own which for some also provides the added benefit of reducing consumption as smoking becomes less instant,” Anderson reveals

    This is an element that may play well for RYO as the interest in health under lockdown has increased if RYO is seen to cut tobacco consumption.

    Tobacco in a pandemic, post-menthol world

    Imperial Tobacco launched its Rizla Flavour Infusions range at the end of last year. They have been “extremely well received” by both the trade and consumers, says Cunningham. Rizla Flavour Infusions comprise flavour cards that can be used with traditional FMCs or RYO 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.

    There are two variants – Menthol Chill which provides a stronger, more intense flavour and Fresh Mint which is slightly smoother and more mellow – which are packed and wrapped separately, allowing retailers to sell them individually at an RRP of 25peach.

    “In addition, we launched a new Green Filter range and a brand-new product, JPS Bright, to help retailers maintain menthol customers and grow their sales. While these new offerings don’t contain menthol they do benefit from various characteristics that will appeal to ex-menthol smokers,” says Cunningham.

    For the new Green Filter range, these include a white-tipped firm filter that retains its shape and structure until the end of the smoke and delivers a smoother, more consistent smoking experience. JPS Bright comprises a premium two-piece white stream filter tip that delivers a smoother smoking experience, while allowing a full rounded tobacco flavour to flow more freely.

    In addition, Imperial has now launched its new Lambert & Butler RYO variant as the perfect partner for its new filters.

    JTI’s Hennessy states that “Existing adult smokers are looking for convenience, and 3-in-1 formats are the perfect solution. Just take our recently launched Holborn Yellow 3-in-1 variant which provides 30g of tobacco, 100 papers and 77 filter tips all in one pouch for a fuss-free experience. What is more, this variant has the same RRP (£12.20) as the 2-in-1 version, offering adult smokers even more value for money.

    Added to this is the new Sterling Rolling 3-in-1 Pouch, which will be available from October.

    “Sterling 3-in-1 will transition from a crush-proof box to a pouch format, tapping into the growing demand for convenience – offering adult smokers the format they want, at the same value price as before. With an RRPof £12.30, tobacco, papers and filter tips will be available all in one pouch for a fuss-free experience.”

    The cigarillos are coming!

    Cigarillo and cigar smokers were always a mellow bunch, and the pace of lockdown life has been a boon for the cigarillo-minded.

    “There are two key seasonal opportunities for cigar and cigarillo sales with a spike in volume during the summer months and in December,” says JTI’s Hennessy.

    In December 2019, for example, he notes that cigar sales volume increased by 6.9 per cent versus the prior month, “So retailers should take full advantage of these seasonal opportunities by stocking up on brands such as Hamlet, which is the number-three cigar brand, with a 17.4 per cent share of the cigar market, and Sterling Dual Leaf Wrapped, which is the No.1 cigarillo brand, with a 97.9 per cent share of the UK cigarillo market .”

    Miniature Cigars are the leading cigar category and growing in share terms, with a current market share of 61.1 per cent, he points out (and that JTI is the second- biggest cigar manufacturer in the UK, with a market share of 35.5 per cent)

    He explains about the new Sterling Dual Capsule Leaf Wrapped cigarillos, which are mentholated and contain a peppermint capsule that smokers can click to increase the menthol flavour. “The King Size Cigarillos are available in packs of 10 and contain a Virginia blend tobacco which, unlike conventional cigarettes, are wrapped in tobacco leaf. With an updated formulation, the cigarillo is now produced with a mentholated stick and has a new tipping design.”

    This is useful support for the “homeless” menthol smokers who walked into their local store back in May only to find their favourite brands were now illegal.

    Chris Street, Market Manager UK at Imperial Tobacco comments: “When the menthol ban hit the market, many shoppers were left disappointed that their product of choice was no longer available. This new solution from one of our leading brands will help bridge the gap left by the ban with a product that benefits from crushball technology to deliver a fresh menthol flavour that will appeal to these shoppers.

    “For ex-menthol smokers who are keen to stick with their flavour of choice, we have a couple of recent innovations that will appeal,” Cunningham reassuringly explains.

    Tobacco in a pandemic, post-menthol world

     

    “We have just announced the launch of a new Crushball Cigarillo variant from our popular JPS Players brand to help retailers cater for consumers seeking out new nicotine solutions in the wake of the Menthol Ban. JPS Players Crushball Cigarillo comprises an American Blend tobacco, wrapped in a natural tobacco leaf and features a menthol crushball within the filter. This provides consumers with the choice of releasing the fresh flavour contained within or smoking as a standard cigarillo. The JPS Players Crushball Cigarillo is rolling out in stores now and available to buy in packs of 10 with an RRP of £4.20 in a price marked pack.

    As JPS Players Crushball Cigarillo is wrapped in a natural tobacco leaf, packs can legally be branded and so the range benefits from the addition of attractive branding which will help grab the attention of shoppers when the gantry doors are open.

    In other important news for lovers (and sellers) of fine tobaccos, Scandinavian Tobacco Group (STG) has inked an agreement with Denmark’s Mac Baren, the second largest producer of pipe tobacco in the world.

    Besides their specialist heritage portfolio including Three Nuns, the Mac Baren UK range includes St. Bruno Ready Rubbed, which is the number two pipe tobacco brand with a value market share of 22.6 per cent, St. Bruno Flake with a share of 6.1 per cent, and Gold Block which has a value market share of 8.1 per cent. When added to STG’s existing pipe tobacco brands, including the aromatic blend Clan, it will give STG a significant market share of just over 60 per cent of the £27.5m UK pipe tobacco market.

    STG’s UK Country Director, Alastair Williams, says: “This deal firmly positions STG as the leading player, not only in cigars, but now also in traditional pipe tobacco too, and means we can now offer the trade two of the top three significant brands in the category. Pipe tobacco customers are typically very brand loyal and over 90 tonnes of it were sold in the UK in the last 12 months, so we’d strongly encourage retailers to ensure they remain fully stocked of the best-selling brands like St. Bruno Ready Rubbed and Clan.”

    The independent strategy

    Independents sell relatively more tobacco products and absolutely more accessories, and the game has been swinging their way over the lockdown summer.

    To capitalise on this, and changing consumer habits, which include a new propensity to try a wider range of products – the “portfolio effect” – we look at the advice from the experts on how to make the best merchandising and sales decisions.

    “Stocking a range of products from the different nicotine segments is of key importance for retailers,” repeats Duncan Cunningham. “However, it’s even more crucial that retailers and their staff understand the products they are selling so they can offer informed advice to their customers and help them find the right product for their needs.”

    Local stores can win out by having a strong relationship with shoppers, and this he says presents significant opportunities for retailers: “As a result of this bond, consumers will be more likely to ask questions and listen to advice from their local retailers on what products are most suited to them, be it from a tobacco perspective or otherwise. By offering these customers well informed advice, retailers can strengthen this relationship further and encourage shoppers to return to the store again and again.”

    In order to retain these customers and grow the relationship further, Cunningham believes one of the most important things to focus on is education.

    “If retailers and their staff know the products well so they can talk comfortably to adult smokers about them in answering any questions they may have, this will pay off massively in terms of sales and repeat visits.”

    There are various ways to train staff. First and foremost, it’s essential they know what products are stocked in store and where they are positioned on the gantry, so they easily find them. “This is especially key for best-selling lines so they can always keep an eye on stock levels to avoid running out,” he says.“This should also be a focus for any accessories, such as Rizla Flavour Infusions and lighters, so they know to upsell where possible.”

    Also, encouraging staff to read up on the latest category developments and news in features such as this, the trade press is a really great way to increase their understanding of the key trends and new products. There’s a wealth of information at their fingertips that will go a long way to help them get to grips with the category – our ‘Ignite’ app is a great resource.”

    It’s a new tobacco season, and there’s everything to play for in increased sales.

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