Scandinavian Tobacco Group Helping c-stores and wholesalers capitalise on the tobacco opportunity

Scandinavian Tobacco Group UK Ltd (STG UK) is a leading player in the cigar and pipe tobacco markets, with a portfolio of wellknown brands including the UK’s leading cigar brand, Café Crème, which is changing its name in February to Signature, Henri Wintermans cigars and Clan pipe tobacco.

STG UK is committed to helping independent retailers and the wholesalers who supply them maximise the tobacco opportunity, and has developed a new campaign, ‘Let’s Talk’ and a new trade website to help retailers make the most from these products. Jens Christiansen, Head of Marketing & Public Affairs at STG UK spoke to Wholesale Manager.

“It might be difficult for people reading this to understand what a marketing manager does in a market where regulation dictates you can’t speak directly to the end-consumer. But that makes my job even more important. Most of my work involves strategic branding and portfolio management, making sure STG UK has the right portfolio, at the right price, at the right time to ensure our portfolio reflects consumers’ needs and our sales team have the tools to do their job. As all this is heavily regulated, it makes perfect sense that I’m also overlooking the regulatory bit.”

Jens helps prepare the Key Account Managers (KAMs) for their meetings with wholesale customers and develop activation strategies. He also visits depots with KAMs and meets important stakeholders:

“We have a very strong tradition of relationships with wholesale customers and our category and trade partners in national and regional accounts. We actively promote in wholesale to stimulate sales and awareness among retailers. We also assist in educating retailers and wholesalers through POS, leave behinds and depot days.”

Cigarette packs and rolling tobacco packs have had to change to ‘plain’ under the Tobacco Products Directive (TPD2), says Jens Christiansen but this doesn’t cover cigars and pipe tobacco.

“As TPD2 was an EU directive transitioned into UK law, the addition of standardised packaging (SP) was purely a choice made by the UK Parliament. As the primary objective of the directive and UK Parliament was to stop young people picking up smoking, it was rightfully argued that SP shouldn’t cover cigars and pipe tobacco as both categories cater to much older, mature smokers.”

“When you take into consideration that tobacco is a low hanging fruit when it comes to the Government bringing in regulation that benefits public health, I’m sure both cigars and pipe tobacco will come into scope within a foreseeable future, simply because it’s easy to do.”

Jens points out that TPD2 didn’t change anything legally on how tobacco is displayed in stores, it remains exactly the same as this was prior to the display ban coming into effect back In April 2015, “though, as cigarettes and RYO are now in SP, all looking the same, there is a sane argument to arrange the gantry so branded products are visible to get some life on shelf.”

Through its research, STG UK identified that 79% of smokers who regularly visit a convenience store would try an alternative tobacco product, such as cigars, if it was recommended by store staff, “so, taking time to understand the category, the different products available, and proactively discussing them with customers, presents a key opportunity for retailers to increase their sales.”

Since its launch in 1963, as the first ever miniature cigar in a tin, Café Crème has been continuously innovating and re-defining itself to cater for the latest generation of cigar smokers. This has resulted in steady growth for over 50 years and today the brand leads the market with 35.9% market share overall, and 67.8% share in the miniatures segment.

The new Signature brand name will be rolling out in stores from February 2019 with a phased transition, to ensure high awareness amongst retailers and consumers alike. This will include new transition packs featuring an on-pack flash highlighting that the name will soon be changing to Signature. Each pack will also include an inlay inside the tin with additional details informing consumers of the name change and reassuring them the cigars will remain the same.

So who buys cigars these days? Jens explains: “Our products appeal to a large range of smokers, though as a rule of thumb, no one tends to start out in either the cigar nor pipe tobacco category. Our source of business is existing cigarette smokers looking for an upgrade or a change. Historically, this means very, very few young adults buy into the category. In terms of gender, it’s predominantly men that are cigar smokers, but there are more women than you would probably think.” These products are traffic builders for independent retailers, he goes on, “although the rotation is not as high as cigarettes. That said, with cigarettes now only available in 20 packs as a minimum and cigars still in 10 packs, cigars are closing that gap as they are often now the cheapest option available on shelf.”

Another attraction for selling cigars is that, depending on whether the RRPs are followed, cigars and pipe tobacco are generally much more profitable stick for stick than cigarette and RYO tobacco:

“Based on RSP and average margins for cigars and cigarettes, cigars have double the profit margin of cigarettes, enabling retailers to possibly make an additional £250 profit for each consumer that switches to cigars, so there is a clear opportunity to capitalise on this. Though we have no control over the final RRP, we can only advise.”

STG UK’s recent research also showed that over half (51%) of independent retailers aren’t offering customers guidance on which tobacco products to purchase, hence the launch of the ‘Let’s Talk’ campaign to educate retailers on the opportunities and trends in the cigar category.

“Our research showed the positive sales impact achievable by proactively engaging with shoppers. Most smokers are very open to trying out cigars and by taking time to talk to customers about their preferences and being able to offer advice on cigars, retailers can push up their cigars sales and benefit from increased margins and higher profits.”

Take our advice

STG UK has been working with a number of wholesalers to activate the message in tobacco rooms to promote the research insights further to retailers. It has also just launched a new trade platform, www.stgtrade.co.uk, which is heavily focused on sharing important advice on how to take advantage of this category opportunity.

The online platform includes information on brands and products, the top-sellers in each segment, recommended ranging and planograms, as well as category management advice and tips on how to build customer loyalty, along with retailer testimonials and success stories.

You can be Heroes

STG UK also recently launched ‘Local Heroes,’ a new initiative inviting local retailers to share their stories of how they have, or intend to, give back to their local community:

“We recognise the essential role independent retailers play in local society. They are often considered the hub of the community and are greatly affected by issues in the areas they operate in.

“Retailers are in the business of serving their local community, but often go above and beyond the call of duty to offer support to those in need. By celebrating their achievements and ambitions through our new Local Heroes initiative, we want to help them strengthen their relationship with the local community, and therefore help strengthen their business.

“We’ve already had some great feedback on the campaign so far and are looking forward to celebrating the achievements of our local heroes further throughout the course of 2019.”

Track & Trace

From May 2019 retailers who sell tobacco will have to apply to receive an ‘economic operator identifier code’ for their business and a ‘facility identifier code’ for each of their stores. Jens explains where cigars fit in:

“Track & Trace is split into two phases; cigarettes/RYO and the rest. Cigarettes and RYO have to comply by May 2019, while cigars and pipe will be included in 2024. Official regulations and guidelines are still not finalised so we’re not able to comment further on this until they are. Rest assured we, and the rest of the industry, will have a workable solution ready before the deadline.”

Jens has more reassurance regarding the effect on cigar supplies to the independent sector from the recent structural changes in the wholesale industry in terms of consolidation of ownership, with the disappearance of Palmer & Harvey, Tesco buying Bookers and so on.

“Consolidation of this sort doesn’t really disrupt the supply to independents as most of the pressure is directed towards suppliers.”

Traditionally the peak times for cigar sales have been the big occasions such as Christmas, Father’s Day and the birth of babies. That hasn’t changed either, says Jens:

“The trends have largely remained the same over the years with celebratory and seasonal occasions often driving sales of cigars, especially larger cigars like Henri Wintermans Half Corona.

“Obviously, it’s difficult to measure the impact of wider celebratory occasions like the birth of babies and weddings but in the lead up to Christmas, we tend to see sales of cigars increase. In fact, in December 2017, cigar sales increased seven percent in comparison to the previous month, with larger cigars from the Medium / Large cigars segment, such as Henri Wintermans Half Corona, reporting a fourteen percent increase.”

So, how can wholesalers make the most of this continuing opportunity? They can do a lot, says Jens:

“Within the cigar category, the trends and therefore the advice we offer wholesalers largely remains unchanged. To succeed in cigars, it’s all about taking time to train staff on the category and ensure you have the right products for your customer base, at the right price. And, above all, engaging with retailers to educate them on the importance of talking to customers about the category. Upskilling depot staff on their category knowledge so they can pass on this insight onto retailers, who can then in turn train their team and reap the sales rewards, will ultimately benefit everyone in the supply chain. As well as helping to raise profit margins, this will go a long way to improve the level of service customers are receiving and encourage repeat visits from satisfied customers.”

Numbers of UK cigarette smokers are in long term decline, but Jens is optimistic about cigars:

“Given the positive growth within the Miniatures segment, there is clearly still a major drive towards value and given the uncertainty of what lies ahead for the UK’s economy, it’s unlikely we will see a shift in this trend anytime soon.

“Growth within the Medium/Large segment could be down to a trend towards premiumisation as consumers seek out products such as Henri Wintermans Half Corona that give the perception of a luxurious lifestyle. Given the consumer openness to trying cigars identified through our research, this could well be a sales trend we see continue to grow year on year if wholesalers and retailers can harness the opportunity effectively.”