Worth £14bn each year (before tax), the tobacco category continues to hold a significant amount of value for wholesalers (ITUK).
There is nearly a 50/50 market share split between Factory Made Cigarettes (FMC) and Roll Your Own (RYO) categories, at 54% and 46% (ITUK) respectively, and with more consumers looking for ways to reduce spending amid soaring household costs, we’re seeing a shift towards low priced propositions across the entire tobacco category.
We’ve seen shopper demand for value gain momentum as a result of the cost-of-living crisis and we’re now seeing the lower priced tiered products account for the largest proportion of tobacco sales. For example, the sub-economy segment now makes up for 63% of FMC sales, while the economy segment accounts for just over a half (56%) of RYO, and these segments are showing strong growth at 3% and 5% YOY respectively (ITUK).
“It’s clear that there are significant sales opportunities for wholesalers given the amount of value that these segments offer,” comments Tom Gully, Head of Consumer Marketing UK&I at Imperial Tobacco. “However, in order to tap into these, they need to make sure that they are not only equipped with the right products, but that they have a strong level of knowledge of the tobacco category in order to help any customers looking for advice.”
With many shoppers looking to cut down their household spending, there has been a significant increase in the number of RYO sales. In fact, the category now accounts for nearly a half (46%) of all tobacco sales (ITUK).
“As the cost-of-living crisis continues, it’s likely that the need for value products is going to continue to be a dominant trend in the category for some time, so wholesalers need to make sure they can cater for this demand by stocking the right product offering,” adds Gully. “With this in mind, we strongly advise that they stock a wide range of leading roll your own brands, including Riverstone and Players JPS, so that they are fully prepared for this continuing rise in demand for value tobacco products.”
As demand for Roll Your Own (RYO) tobacco grows in light of the rising consumer appetite for value, the tobacco accessories category provides a substantial sales opportunity for wholesalers.
Recent figures show that filter tips are worth a sizeable £114m of sales, and while regular papers account for £44m, king size papers £29m and combi papers are also proving to be popular at £33m (ITUK).
“With this in mind, we strongly recommend stocking a wide range of products across each of these segments to cater for customer needs and maximise the sales opportunities on offer,” says Gully. “While it’s important that wholesalers stock a wide range of different tobacco accessories to cater to different customers, such as filter tips, papers and flavour cards, given the prevalence of brand loyalty in tobacco overall, it’s even more important that they are stocking the most popular brands that consumers will be looking for, like Rizla, in order to avoid missing out on any sales opportunities.”
With over 200 years of heritage, Rizla is the No.1 Rolling Paper in the UK (EPOS data) and the perfect brand to stock to tap into this trend. One product that is proving popular with value savvy tobacco customers is Rizla King Size Combi Silver. With an RRP of £1.20, it offers both papers and tips in one pack to provide shoppers with the ultimate convenience so is a must stock product for any wholesaler.
Looking at the FMC category, as the need for value-focused products continues to increase, many tobacco shoppers are seeking a familiar brand that they know and trust but at a low price point. With this in mind, Imperial Tobacco recently announced the launch of newly improved Embassy Signature Silver Edition which offers a host of premium features without the premium price tag.
Imperial also recently launched a range of updates and upgrades to the Lambert & Butler (L&B) brand. The new range offers consumers more premium products from a familiar brand they can trust, but for the same prices, delivering value to shoppers and helping to drive sales for wholesalers and retailers.
As part of the L&B brand developments, Blue Real Blue and Blue Bright Air Filter has been renamed to Blue Original and Blue Bright respectively, to further align the product with the rest of the brand family and create a more recognisable presence for retailers in wholesale depots and on shelves. While L&B Blue Bright and New Crush now features Fresh Protect, offering customers a more protected pack with a premium resealable foil. All variants are available to buy at an MRRP of £11.85 for a pack of 20s.
Imperial has recently announced the launch of newly improved Embassy Signature Silver Edition to help customers unlock sales amongst adult smokers who are looking for a familiar brand that delivers satisfaction at a low price point.
Available to buy for a limited time only, the enhanced variant provides signature quality in a modern blend and a range of premium features, but for the same cost. With an MRRP of just £11.60 per pack of 20s, Embassy Signature Silver Edition delivers value to shoppers, in turn helping to drive sales for wholesalers and retailers alike.
Embassy Signature Silver Edition provides reduced smoke smell paper, allowing those who are socialising outside this summer to benefit from the limited lingering smoke and odour on their hands and clothes after smoking. To continue the evolution of the brand, Embassy Signature Silver Edition also now features a brand-new shaped filter to provide adults with an enhanced smoking experience.
The pack has been designed with a resealable foil feature to fully protect and secure the freshness to ensure that each cigarette taken out from the pack is as fresh as the very first. The brand’s modern trade outer also features a modern and engaging design with a new luxury printed sleeve to further promote the brand’s premium positioning.
Gemma Bateson, Sales Director at JTI UK, comments: “As existing adult smokers continue to look for more affordable options in the market, wholesalers should focus on stocking ultra-value tobacco brands now more than ever. From B&H Blue RYO to Mayfair Silver, we are dedicated to innovating in this sector to help wholesalers answer the current demand.”
What’s more, in December last year, JTI also reformatted Sterling Essential Rolling, to feature rolling papers, including an enhanced blend and a convenient zip pouch. The new features offer an easy and accessible format for existing adult smokers, with everything they need in one pouch. The new Sterling Essential Rolling offering taps into the ever-increasing ultra-value segment, with 58.7% of all sales volumes currently in the value or ultra-value RMC and RYO sector (Circana).
New for 2023, JTI broadened its cigarillo portfolio by introducing Sterling Dual Double Capsule Leaf Wrapped which features a blend of peppermint and berry mint capsules, providing a dual flavour and enhanced taste.
The growth of the category in convenience channels (IRI), now worth approximately £8m a month (IRI), provides a large opportunity for wholesalers looking to expand their range and make the most of the category. The innovation joins the already successful Sterling Dual Capsule Leaf Wrapped range – the fastest growing cigar brand in the UK (IRI) and the number one cigarillo brand, with a 92.4% share of the market (IRI). The new flavour is a valuable addition to existing portfolios, giving retailers another way to maximise sales in a growing category.
Victoria Lopez Aguas, Reduced Risk Products Director at JTI UK, comments: “The Heated Tobacco category provides a big opportunity for wholesalers, now worth £91 million in the last year in Traditional Retail (IRI), with growth of 14.9% year on year (IRI). Building on our growing presence in the evolving heated tobacco category and responding to the needs of existing adult smokers and vapers, last year we announced the launch of a new and enhanced device, Ploom X.”
Representing the next generation of Heated Tobacco, it offers existing adult smokers an alternative but familiar experience by heating tobacco instead of burning it. The device can be used exclusively with EVO tobacco sticks.
Sales of Tobacco flavoured Heated Tobacco variants account for 50% of all refill sales in Traditional Retail (IRI), with Menthol flavoured accounting for 43% (IRI).
“JTI always looks to keep on top of trends and listens to what consumers want when it comes to meeting demand for new flavours,” adds Lopez Aguas. “As a result, JTI has established itself as a destination for flavoured tobaccos and flavoured capsules within the sector.”
With a range that is designed to tap into consumers’ top flavour preferences, JTI offers eight EVO tobacco flavours including: Bronze, Amber, Green, Magenta, Purple, Ruby, Green Option and Purple Option.
Kate O’Dowd, Head of Commercial Planning at Philip Morris Limited (PML) in the UK and Ireland, comments: “With the cost-of-living crisis soaring, consumers are looking to make savings wherever possible. It’s only natural that many may consider ‘trading down’ to battle inflationary costs of everyday items – forgoing their usual brand selection for more affordable options.
“The switch from combustible tobacco products to smoke-free alternatives is no exception here. While the best choice anyone can make is to quit completely, convenience retailers agree that many adult smokers are looking to offset the rising cost-of-living by choosing smoke-free alternatives that are a better, and more affordable choice to cigarettes – which are now priced at £12.77 (on average) per pack (ONS).”
This change in consumer spending was reflected in a recent PML-commissioned survey, looking at emerging trends in the smoke-free category in 2023. The survey found nearly two-thirds (65%) of convenience retailers agreed that adult smokers were switching to smoke-free products, like e-cigarettes and heat-not-burn products, to save money in the current economic climate (KAM).
In fact, retailers agreed that smokers would prioritise affordability above all else when choosing a smoke-free alternative this year – with roughly half believing customers would select the cheapest products available (KAM), followed by those products offering the best overall value for money (18%, KAM).
“The current economic climate has greatly impacted consumer spending, with shoppers looking to offset rising costs incurred over the Christmas period, while battling against the inflationary costs of everyday goods,” adds O’Dowd. “This tightening of purses means that existing adult smokers and adult nicotine users may look for cost-effective nicotine-containing alternatives and forgo their usual brand selection for a more affordable option.”
When asked what adult smokers will look for when choosing a smoke-free alternative, convenience retailers prioritised price – with over half (57%) agreeing that adult customers would select the cheapest products available, followed by those products offering the best overall value for money (18%, KAM).
The survey also found that 60 per cent of convenience retailers are likely to recommend smoke-free products, such as e-cigarettes and heat-not-burn products, to adult smokers as more affordable choices in 2023 (KAM).
With HEETS tobacco sticks costing less than half the price of an average pack of cigarettes, IQOS – the UK’s number one heat-not-burn product (Nielsen) – provides adult smokers with a better choice, at a fraction of the price of smoking.
Nataly Scarpetta, Marketing Manager at Scandinavian Tobacco Group UK (STG UK), comments: “Our data shows the total cigar category to be down slightly by 3.2% in value terms compared to last year, at £282.5m. Whilst cigarillo sales continue to grow (currently £99.3m, and up 2.1% on last year), the more traditional cigar segments are all in slight decline which is likely to be due to a combination of factors such as some smokers moving into vaping or pouches, and / or people cutting down due to the on-going cost of living crisis.”
The Cigarillos segment within cigars barely existed three years ago but now makes up over 47% of the total volume and just under £100m in value sales. STG’s Signature Action brand is not the best-selling cigarillo on the market, but its sales have grown by over 39% in the last year and it remains a good option for adult smokers who enjoy the peppermint flavour.
“I think there’s little doubt that the cost-of-living crisis is highlighting the importance of value as a consumer trend at the moment,” adds Scarpetta. “Many consumers are going to be increasingly price conscious, and this will affect cigars and the wider tobacco category purchases just as much as any other category in-store, so retailers should ensure they are highlighting their value brands to customers to help them save money.”
Aside from the obvious trends of the rise in cigarillos and impact of the cost-of-living crisis, it’s worth highlighting that flavoured cigars are growing steadily in popularity here in the UK. The Signature Red Filter brand is currently the UK’s best-selling aromatic filter cigar, with a smooth taste and vanilla flavour which proves consistently popular with those adult smokers who enjoy an aromatic cigar.
STG’s best-selling products are Signature Blue, Henri Wintermans Half Corona, Moments Blue and Signature Original, while the Signature Action cigarillo brand has grown sales by over 54% in the last twelve months.
To celebrate the 60th anniversary of Signature, the world’s first small cigar, STG UK has just launched a range of limited-edition packs to bring excitement and interest to the cigar category. The new limited-edition packs have been designed to celebrate the brand’s anniversary and give retailers a talking point to their customers, as well as giving consumers something new and different. The pack messaging highlights not only the longevity of the brand but also the consistent quality that has made it a preferred choice for well over half a century.
“Retailers should take the opportunity to stock up, as limited-edition packs usually prove popular with regular smokers and will be in demand,” says Scarpetta. “They may even become collectors’ items in the future!” In further exciting news for the brand, STG has also recently confirmed that the iconic tins are permanently returning for packs of Signature Blue 20’s and Signature Original 20’s.
“To boost cigar sales, it’s important that wholesalers stock the right range rather than a big range, as the top ten brands account for over 90% of sales. Aside from cigarillos, wholesalers should also consider brands in both the small and the medium / large segments to ensure they are covering their bases, so think about including the top-selling brands from each segment as a minimum. Our best-selling brand is of course Signature Blue which is by far the most popular miniature cigar and currently worth over £30m in annual sales. Aside from that, our biggest-selling brands are Moments Blue and our Henri Wintermans Half Corona, which is easily the best-selling medium / large cigar,” suggests Scarpetta.
“I believe it is very important to ensure our products are merchandised in-depot in a way that it makes it easier for the retailers to navigate, find them and purchase them. Of course, consistent availability and competitive cost prices are essential, but keeping the range in sight for the retailer to buy, will ensure we have our products at the ‘risk of sale’ within their outlets. Brand blocking is an effective tool to merchandising, along with a clear category versus market trend approach to stocking products.”
Gavin Anderson, Sales & Marketing Director at Republic Technologies (UK) Ltd, comments: “As demand for factory-made cigarettes continues to decrease, tobacco accessories are very well placed to offer a quality and value alternative, but they must be effectively displayed. Our customers who create an eye-catching display off-gantry while stocking brands such as Swan, ZIG-ZAG and OCB, benefit most. Our latest branded display units not only enable you to showcase the very latest NPD, creating awareness and driving impulse purchase, they also act as a signpost for the wider tobacco category.”
RTUK’s brands have a proven track record of delivering quality, affordability and, in relation to new products, all-important innovation, and shopper loyalty is high. The added bonus for stockists of the most popular brands is that tobacco accessories’ consumers are creatures of habit, with strong levels of repeat purchase.
Effective merchandising and display can play an important role in boosting category sales. Republic Technologies provides various space-efficient display units (CDUs) for its ranges to support retailers and wholesalers.
Republic Technologies acts as a one stop shop for retailers serving the needs of RYO smokers across filters, papers, lighters, matches and rolling accessories. The company has developed an unrivalled broad consumer offer which includes innovation in flavour and format, such as Swan Fresh Burst Crushball which continues to be the best performing menthol capsule filter in the market (IRI), offering great sales and margins.
The crush capsule delivers a strong peppermint flavour and comes in a 2-part sliding pack containing 54 filters (RRP: £1.35).
Sustainable products remain high on the agenda for shoppers across all categories, including more natural ingredients, and reduced single-use packaging.
Swan Eco Loose, the most environmentally friendly filter in the UK market, is 100% biodegradable and made from unbleached paper (RRP: £1.45, 200 per box).
OCB Virgin Slim (RRP £1.04) and OCB Virgin Slim & Tips (RRP £1.63) unbleached papers are manufactured using OCB natural gum, which is sustainably sourced, vegan and GM free.
“Shoppers are more demanding than ever, looking for quality and value in every purchase. Top quality products, displays and innovation are important, complemented by broad availability and distribution, but the importance of a competitive price point should not be under-estimated,” concludes Anderson.
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