The tobacco sector has maintained sales in the face of legislative challenges and a severe illicit trade. Asian Trader finds out what is happening in the market.
A major survey of the behaviours of over 12,000 adult smokers in the UK has found that over three-quarters are regularly avoiding taxes by buying tobacco from the black market, abroad or duty free.
The survey, commissioned by the Tobacco Manufacturers’ Association and now in its fifth year, has revealed that numbers avoiding UK duty now stands at an all-time high.
This supports HMRC analysis that untaxed and illegal tobacco remains a problem throughout the UK.
Moreover, the findings confirm that adult smokers are being pushed towards non-UK duty tobacco by high tobacco taxation, the introduction of plain packaging and the recent ban on minimum tobacco pack sizes.
These findings reinforce the concern that the illicit tobacco trade is continuing to be a major problem. Valued at £2.5 billion in 2016-17 by HRMC, the illicit tobacco trade reduces tobacco tax revenues, brings crime into communities, costs jobs and impacts legitimate business, particularly independent retailers.
The TMA recommends that, post-Brexit, the UK introduces fixed limits on personal tobacco imports to end the option for smokers to bring unlimited amounts of cheap tobacco back from the EU.
This would reduce the opportunity for criminals to buy tobacco, claiming it is for personal use and then selling it on illegally.
Giles Roca, Director General of the TMA, said: “This survey shows the issue of untaxed tobacco is becoming an even greater problem across the UK with over three-quarters of smokers buying non-UK duty paid tobacco in the last year, the highest ever figures. Smokers cite price as the chief reason for avoiding duty and with tax making up 90% of the price, combined with two duty increases in 2017 we can see the direct impact that the Government’s taxation policy is having.
“This survey also shows that the introduction of plain packaging and the ban on small packs of tobacco in the last year are also contributing to making the problem of untaxed tobacco purchases worse and encouraging smokers to buy from illegal sources.
“The Government needs to undertake a full review of its approach towards tobacco as their policies are contributing to this illegal activity, which affects local communities, public finances and small business.”
Biggest FMCG category
The latest data shows that there has been no significant impact on tobacco sales in the UK as a result of EUTPD2, says Ross Hennessy, Head of Sales at JTI UK.
“We have found that those retailers who prepared well were the best equipped to deal with the legislative changes and have seen the least disruption to their business,” said Hennessy. “Those who continue to invest in the category will reap the rewards and JTI is equally continuing to invest in product innovation and support for retailers to help them maximise tobacco profits.”
Tobacco continues to be the biggest FMCG category, with the total UK tobacco market currently worth £14.4 billion (Nielsen).
The total value of tobacco in independents and symbols totalled £6.2 billion in the last year, with the cigarette market accounting for £5 billion (Nielsen).
There are two clear trends in the current tobacco market – the growth of the capsule segment which is now responsible for 15.3% of total cigarette sales in the UK (Nielsen), and the growing value segment as consumers seek out value for money products.
As a result, JTI has opened opportunities for retailers to maximise sales by extending the Sterling Dual and B&H Blue ranges with the addition of three new value products; Sterling Dual Superkings 20, Sterling Dual Double Capsule King Size 20 and B&H Blue Dual Superkings 20.
Sterling Dual is the No. 1 capsule brand with 40.9%v of the sector and B&H Blue is the UK’s fastest growing cigarette brand (Nielsen).
As part of the trend towards value in the total tobacco market, the RYO category has increased 7.7% year on year as existing adult smokers seek out these value for money products. The RYO category now generates sales worth over £2.6 billion (Nielsen).
With over 6.5 million kilograms of rolling tobacco sold in the UK each year (Nielsen), there is significant opportunity for independent retailers to maximise sales by stocking up on value RYO products, such as JTI’s Sterling Rolling Tobacco, and the recently launched Kensitas Club RYO offering.
One of the most significant challenges currently facing the tobacco trade sector is ensuring the new Track & Trace system is implemented by 20 May 2019.
The new traceability system, which enables the monitoring of all tobacco products across the supply chain, will only be possible with collaboration between the manufacturing industry and the trade sector as a whole.
“To ensure timescales are met and continuity of supply is maintained, this collaboration should be a priority over the coming months,” Hennessy added.
Price continues to be a key factor for existing adult smokers when choosing where to shop, so JTI recommends that retailers remain competitive by selling at the Recommended Retail Price (RRP) or below.
Maintaining a full range and availability of tobacco brands across the pricing scale is of vital importance because customers are brand loyal – research tells us that 27% of existing adult smokers choose to buy elsewhere if their brand is unavailable (IPSOS JTI Tracker).
” Retailers should ensure their gantries are easy to navigate. Multiple facings of best sellers, such as Sterling Dual and Amber Leaf will help maintain the space and ensure customer needs are met,” Hennessy suggests.
“We recommend that retailers don’t make any snap decisions about changing the position of their gantry, diminishing brand range and stockholding. We have found that those retailers who continue to invest in the category will reap the rewards.
“JTI recommends ensuring tobacco is in a visible, easy to access location, to maintain best levels of service and avoid loss of custom.”
Innovation driving growth
Innovation and new product development are driving growth in the tobacco accessories market, according to Republic Technologies (UK) Ltd.
Consumers are demanding more from the category – now worth £266m in the UK (IRI) – with increasing pressure on suppliers to innovate to make their mark.
“The tobacco accessories market has seen YOY growth of 4.2%, with papers being the most buoyant area of the category, worth £92m and growing at 7.6%,” says Gavin Anderson, General Sales Manager at Republic Technologies.
“It’s crucial that suppliers maximise this opportunity by working with wholesale and retail customers to understand shoppers’ needs and, in turn, to enable retailers to drive sales of tobacco accessories in-store.
“We have recognised the need for greater choice with NPD that taps into consumer trends, including Swan Ultra Slim, the thinnest ever Swan filter and a premium quality product aimed at smokers; Swan ‘Eco’ filters, the most environmentally friendly Swan product ever; Swan Kingsize Cigarette Tubes, appealing to cash-conscious consumers looking for an alternative to ready-made cigarettes, and OCB Virgin Slim & Tips, for consumers looking for a less refined paper and a softer smoke.”
To make the most of this category, it’s vital that convenience retailers stock the right range of tobacco accessories and merchandise them accordingly to see the best results.
“Our sales team offers expertise and cross-channel category insight to our trading partners, and we’re committed to working with our customers to drive growth within the tobacco accessories category,” says Anderson.
“When it comes to the tobacco accessories category our advice is simple,” adds Anderson. “Cater to your shoppers needs and utilise NPD to grow your sales.”
In March, Republic Technologies announced a major overhaul for its matches range, including new packaging, and a category-boosting extension for its Swan brand.
In addition to modernising core brands to appeal to a broader, younger audience, the move marked the company’s commitment to sustainability and the increased demand for eco-friendly matches, following the removal of Strike Anywhere match formats from the range.
The relaunch activity included the modernisation of the Swan Vestas brand with a more contemporary image and a new, minimalist back of pack design, featuring impactful sustainability messaging.
A pocket-sized Swan match was introuded, with a vibrant new colour scheme for additional shelf standout.
‘Extra Long’ Bryant and May matches were given a new pack design, reinforcing the product’s positioning as ideal for lighting candles, open fires, log burners and BBQs, with new back of pack imagery reflecting key usage occasions and vibrant outer trays for better standout on shelf.
Ship Matches was modernised with a simplified but striking design, and more prominence given to ‘Ship’ branding.
A major consumer PR and marketing programme included a partnership with one of the UK’s most popular chefs, Tom Kerridge, who has contributed 12 mouth-watering recipes for the backs of the new Cook’s Matches packs, appealing to modern ‘foodies’.
A social media campaign included culinary competitions linked to the Tom Kerridge partnership.
Themed print advertorials ran in S Magazine, a Sunday supplement of the Daily Express, featuring Bryant & May, Swan and Cook’s, supported by extensive digital advertising on the express.co.uk website.
Advertising ran in leading cookery titles, Olive and Delicious.
A consumer survey sponsored by Bryant & May and entitled ‘Relight my Fire’ revealed the top signs that the spark in a relationship has begun to fade and what people can do to rekindle it. The survey received national press coverage.
“The relaunch of our matches range was one of the biggest initiatives to be seen in the UK’s £23+ million matches market for decades, re-energising a category where sales have been declining and both innovation and creativity had diminished,” Anderson concludes.
“This comprehensive move involving some of Britain’s best-known match brands has invigorated the category, enabling retailers to boost profits by aligning specific match brands to usage occasions.”
Marlboro Touch has an RRP of just £8.50.
The product offers Marlboro taste and quality, with a firm filter and with Pro-Seal.
At 7.1mm in diameter, thinner than Marlboro Gold Original, Marlboro Gold Touch offers a taste that is refined and smooth.
“The thinner design of the cigarette as well as the soft, subtle aroma of Marlboro Gold Touch offers UK adult smokers a new sensation both in touch and flavour,” says Xavier Ducarroz, Marketing Director at Philip Morris. “As part of the Marlboro range, retailers and adult smokers alike know that they are getting a quality product at an affordable price.”
Heets, from IQOS, offers retailers 9% POR.
The product contains real tobacco, is for use with IQOS products and heats without burning.
Three variants are available: Turquoise Label, which is smooth menthol, Yellow Label and Amber Label.
IQOS provides a choice of alternatives to smoking, both designed with sophisticated heating technology. Depending on individual preferences, IQOS offers two different solutions to move away from cigarettes: one that heats tobacco and one that heats liquid. Both products are better alternatives than continuing to smoke cigarettes. Over $3 billion has been invested over 10 years in research and development, and to perfect the technology and design of our smoke-free products.
IQOS MESH is next generation vaping technology.
Enjoy a consistent vape every time with IQOS MESH. It combines taste satisfaction with a convenient style, and is designed to prevent overheating and burnt taste.
Unlike wick and coil e-cigarettes, IQOS MESH contains a German-made MESH heater that is in constant contact with the e-liquid for a consistent vaping experience.
Its smart digital controls detect when e-liquid levels are low, thus avoiding overheating and burnt taste.
Established in 2011, Vapouriz Electronic Cigarettes is committed to providing premium quality electronic cigarettes accessories, and e liquids manufactured in the UK by Vapour Labs (a Vapouriz company).
The company offers over 50 different flavours of Vapouriz Premium E Liquid, in five different strengths of nicotine (including zero percent).
Vapouriz e liquids contain nicotine, propylene glycol and vegetable glycerol, which are all pharmaceutical grade as defined by the European Pharmacopoeia Standard Monograph, and all sourced within the EU. When it comes to flavours, the company uses only food-grade flavourings – also sourced within the EU – which are thermally stable when vapourized. Vapouriz only works with suppliers who adhere to the standards set out by the Tobacco Products Directive (2).
blu has several different types of e-cigarette to choose from, with each one designed to give consumers everything they need for the perfect vape.
The myblu allows vapers to experience the best vaping experience from blu yet, including a quick rechargeable battery, flavour options, click & go liquidpods.
The myblu e-cigarette comprises a rechargeable device and a liquidpod.
A simple to use e-cigarette, the myblu rechargeable device is what’s used to power the atomizer.
The atomizer is the element of the e-cigarette which heats the blu liquid stored in the tank.