In spite of all the legislative challenges, tobacco remains the biggest FMCG sector and retailers still need to get the category right.

Tobacco continues to be the biggest FMCG category, with the total UK tobacco market currently worth £14.5bn, and the RMC market accounting for £11.6 billion (Nielsen).
In terms of cigarettes, there are two clear trends in the current tobacco market – the growth of the Capsule segment which is now responsible for 15.4% (Nielsen) of total cigarette sales in the UK, and the growing Value segment, as consumers seek out value for money products
The tobacco category has remained bullish in 2019, despite smoking rates and overall sales volumes continuing to decline.
In terms of current trends, downtrading continues to be a feature of the market.
Sub Economy FMC sector share increased from 50% to 55% between November 2017 and November 2018.
In RYO, Economy sector share increased from 35% to 41%1 in that same period.
Another notable trend in recent times is RYO’s growing share of the overall tobacco category. However, since the introduction of the EUTPD II regulations in May 2017 the speed of the shift from factory FMC has increased significantly.
For instance, between 2014 and 2016 RYO saw an average monthly gain in White Stick Equivalent (WSE) share of 0.07%, Imperial Tobacco estimates. However, through 2017, RYO’s share of WSE grew more sharply – increasing by an average of 0.18% per month in 2017, almost triple the rate of overall category growth.
UK RYO market share in relation to FMC stood at almost 39% in November 2018, and current trends suggest this pattern is set to continue.
Duncan Cunningham, Head of Corporate & Legal Affairs at Imperial Tobacco UK&I suggests ‘brand-blocking’ as one solution – organising tobacco products by brand, range and price segment – sub economy to premium ensures availability is consistently maintained. Retailers can also take note of their bestselling FMC and RYO SKUs and always ensure their stock rooms contain enough backups to replenish gantries should supplies run low. To find out more, we recommend retailers contact their dedicated Imperial sales representative.
“In terms of the situation of gantries, Imperial still firmly believes in the importance of the traditional behind-the-counter solution – it clearly signposts that tobacco products are for sale, plus offers secure storage, says Cunningham. “That said, we recognise that the category landscape is shifting (the growing popularity of e-vapour products, including our brand blu, for instance), and are working with our customers on a case-by-case basis through our salesforce to achieve the optimum merchandising conditions for both tobacco and e-vapour.”
Menthol
Menthol currently enjoys a significant share of the UK tobacco category (17.5% including crushball, 7% without).
With the impending banning of both traditional menthol flavour and Crushball products in May 2020, Imperial is working to develop a range of alternatives in our portfolio that will appeal to adult smokers who favour flavours.
“We will be working to educate our retailers via our salesforce of the opportunities available to adult menthol smokers post-May 2020 in due course,” adds Cunningham. “Until then, Imperial remains committed to ensuring that adult smokers have access to the latest innovations in menthol.”
For instance, Imperial recently launched Rizla Polar Blast, the UK’s first Roll Your Own (RYO) filter tip to contain a Crushball. Its squeezable filter tip allows smokers to ‘click’ to enjoy the taste of mint whenever they roll their own. Rizla Polar Blast is available in pack sizes of 60 tips with an RRP2 of 99p.
Looking to the future, a menthol ban may potentially result in a migration of some adult smokers towards the vape category.
Our newest innovation is L&B Blue Bright Air Filter, which combines a recess in the filter tip with a firmer filter structure. The product has been developed to satisfy the needs of modern adult smokers looking for a combination of premium features and a smoother smoking experience at a great value price point. L&B Blue Bright Air Filter is available in King Size 20s at an RRP2 of £8.70.
Track & Trace
Recognising the threat posed by the illicit tobacco trade, the revised European Tobacco Products Directive (EUTPDII) introduced secondary legislation on Track and Trace (T&T) and Security Features (SF) for all tobacco products.
The legislation requires tobacco products to be marked with a unit level unique identifier (UI) plus five additional security features – designed to stop illicit products entering the legal tobacco supply chain, therefore bolstering existing AIT efforts.
Ensuring readiness for T&T across the supply chain presents a significant financial and logistical challenge for tobacco manufacturers. However, T&T’s advantage is that this new system will help identify illicit tobacco products in the supply chain more easily, contributing to combating the growing UK trade in illegal tobacco.
Imperial has established a dedicated team of experts across the EU and UK who are working to ensure compliance by 20 May 2019.
Members of Imperial’s project team visited as many of the company’s partners in the supply chain as possible, communicating the regulations, the possible impact on their businesses and the steps they need to take to ensure compliance.
Once the T&T system is in place, the majority of parties involved within the tobacco supply chain will have to scan products in and out of their facilities.
The legislation will impact wholesalers more heavily than retailers, especially in terms of specific equipment and scanning, since T&T’s tracking element ends with the outbound scanning to the first retail outlet.
Although retailers will therefore not need to scan tobacco products into their stores, they will need to register and apply for a facility code to be able to receive tobacco orders from their suppliers or to collect stock from cash and carry depots.
Every tobacco retailer will need to register and apply for a facility code to be able to receive tobacco orders from their suppliers or to collect stock from cash and carry depots.
All retailers will be required to register and apply for a facility code, distributed through an ID issuer appointed by HRMC. An announcement regarding which company this will be is imminent.
The legislation has now become UK law. Irrespective of the UK leaving the EU, the UK government appears to remain committed to introducing a global Track and Trace system for tobacco products under the World Health Organization Framework Convention on Tobacco Control Illicit Trade Protocol.
Manufacturers, retailers and wholesalers across the UK are currently working hard to implement the new requirements, which are complex and require significant preparation and planning.
“Imperial continues to work closely with our valued customers across all parts of the tobacco supply chain to help them understand and implement the new requirements,” says Cunningham. “We are confident of achieving compliance by 20 May 2019.”
Imperial anticipates that the year- long sell-through period be enough to iron out any difficulties that may arise.
A similar situation occurred during the transition between TPD I and TPD II compliant stock (‘plain packaging’) back in 2016/2017, and this was largely managed well by manufacturers and retailers alike.
“However, we do recommend retailers concentrate on selling through older, T&T non-compliant stock during this period,” adds Cunningham. “More broadly, we do not believe the implementation of T&T will have any discernible impact on tobacco sales in independents, wholesalers or supermarkets.”
Capsules
Ross Hennessy, Head of Sales at JTI UK, says: “We’ve seen the Capsule segment grow significantly in recent years and expect that to continue into 2019. Since the introduction of TPD2, we’ve also seen brand loyalty and the trend towards Value become even more engrained in the purchasing behaviours of adult smokers. Our activity in 2018 reflected this, as we launched a series of new Value products across two of our most iconic brand houses; Sterling Dual Superkings 20 and Double Capsule King Size 20, and B&H Blue Dual Superkings 20. All three Capsule products showed strong performance over the course of the year, with Sterling Dual Double Capsule becoming the fastest-growing Capsule product in the UK in 2018.”
In January of this year, JTI bolstered its Capsule offering with the launch of two new products: Sterling Dual Triple Green and Benson & Hedges Blue Dual Double Capsule.
Sterling Dual Triple Green is the first triple menthol cigarette in the UK tobacco market. The innovative mentholated cigarette has two capsules, one peppermint and one spearmint, and offers a new proposition for existing adult smokers from the UK’s no.1 Capsule brand. The new SKU builds on the brand’s successful 2018 single and double Capsule launches, offering adult smokers greater choice and driving sales in the growing Capsule segment.
Similarly, the new B&H Blue Dual Double Capsule will bring a more intense flavour option to the UK’s fastest growing cigarette brand (Nielsen).
Entering the market as the UK’s lowest priced Double Capsule offering, it will also help retailers tap into the growing Value segment, as tobacco customers continue to seek out quality, affordable products from a brand they can trust.
With the growing Capsule cigarette segment now responsible for 15.4% (Nielsen) of total cigarette sales in the UK, the two new innovations reflect JTI’s commitment to meeting consumer demands and will enable those involved in the tobacco market to maximise sales in the category before the menthol ban comes into effect in May 2020.
Cigars
The Cigar market in the UK, currently worth £199.6m, is reporting a minor increase of 1.3% overall, with the Miniatures and Medium / Large cigar segments reporting an increase of 5.2% and 5.6% respectively (IRI).
Miniature cigars continue to dominate the market, accounting for an impressive 73.1% of the total cigar volume and £104.7m in value sales (IRI).
Within this segment, STG UK’s portfolio of miniature brands contributes 70% of all value sales.
This includes Signature Blue (previously Café Crème Blue) (30.1%), Moments Blue (18%) and Signature (previously Café Crème) (11.5%) which account for three of the top four brands within miniatures.
This means that STG UK’s miniature brands collectively represent £72.8m in value sales over the last 12 months – that’s nearly 2 ½ times bigger than all the other miniature brands combined – highlighting what a major player in the market STG UK is.
In fact, when looking specifically at value for money miniature cigar brands, Moments Blue is bigger than the total of all the other brands together, at a value of £15.2m, making it an important must stock for any tobacco stockists.
Within the Medium / Large cigar segment, which is also in growth (+5.6%), Henri Wintermans Half Corona holds the top position as the UK’s favourite Medium / Large cigar brand with a 74% market share and value of £14.8m.
“This positive performance could, in part, be attributed to the incredible summer weather we experienced in the UK last year and with a seasonal rise in cigar sales over Christmas, this growth may well continue,” comments Alastair Williams, Country Director at Scandinavian Tobacco Group UK (STG UK). “As a result, it’s a must stock for any tobacco stockists looking to capitalise on the sales opportunities available through larger, celebratory cigars.”
Overall, the top 10 cigar brands account for 89% of the total cigar sales and 85% (£170m) of value sales, highlighting just how important it is for wholesalers to ensure they’re stocking the leading brands to take advantage of the sales and strong profit margins available within the cigar category.
“In terms of the core range, it’s important for retailers to tailor their cigar range to their store and customer demographic,” suggests Williams. “By engaging with shoppers and discussing what they’re looking for, retailers can adapt their range accordingly to ensure it meets their needs and aren’t at risk of losing out on sales to competitor stores, or using up valuable space with products that aren’t right for their store.”
Depending on space and the store demographic, Williams would usually suggest a basic cigar portfolio, covering the Miniatures, Panatellas, Premium and VFM segments is a good place to start.
Williams also recommends Signature and Signature Blue (two bestselling SKUs – previously known as Café Crème and Café Crème Blue), Moments Blue (UK’s biggest VFM brand) for Miniatures and Hamlet 5’s and Moments Panatella to cover off the Panatella / Small Cigars segment.
“It’s worth remembering, cigars are exempt from the packaging restrictions which apply to many other tobacco products, so will naturally stand out on the shelf when doors are opened,” adds Williams. “To make the most of the opportunity this presents, don’t hide cigars away at the bottom or the top where they can’t be seen.”
STG’s research for its Let’s Talk campaign shows that consumers are open to trying cigars, especially when recommended by their local retailer.
But, less than half of retailers (46%) seem to be taking advantage of this by proactively engaging with their customers.
This highlights a huge opportunity for retailers to upskill their knowledge and train their staff to help them to reap the sales rewards as a result.
“Retailers should invest time into going through the gantry with the staff and talking to them about the different segments and products within the category,” Williams advises. “This will go a long way to improve the level of service customers are receiving and help to raise profit margins.”
Aside from making sure they’re stocking the right brands for their store, the simplest, yet most effective piece of advice for any retailer is to stay stocked up, at all times.
Ultimately, if a cigar smoker comes into their store and can’t find what they’re looking for, they’ll go elsewhere and may not return, so it’s crucial to maintain availability to ensure they don’t miss out.
At the end of last year, STG UK announced a name change for the UK’s leading cigar brand from Café Crème to Signature, aligning the name further to the positive consumer perceptions of the brand as authentic, premium and a contemporary high-quality product.
To celebrate its new trade website www.stgtrade.co.uk going live, STG UK has launched a new initiative inviting retailers and wholesalers to share their stories of how they have, or intend to, give back to their local community. The deserving ‘Local Heroes’ will be awarded a host of prizes, including a £2,000 cash prize to put towards their proposal.
The Local Heroes initiative is running as part of STG UK’s ongoing ‘Let’s Talk’ campaign which has been developed as a result of research that highlighted retailers and wholesalers are missing out on vital tobacco sales due to a lack of proactive engagement with customers. STG UK has created this unique, virtual space on www.stgtrade.co.uk that will welcome retailers and wholesalers free of charge to come and browse forward thinking industry advice to help them open the conversation with their customers to maximise the cigar opportunity in their stores.