The tobacco category, which is worth £14bn each year before tax (ITUK), provides a substantial sales opportunity for wholesalers. Looking at the sub-categories, Factory Made Cigarettes (FMC) currently hold the lion’s share of the market, worth 70% of tobacco sales, with Roll Your Own (RYO) accounting for 30% (ITUK).
As the cost-of-living crisis continues to impact consumer spending, we’re seeing shopper demand for value rise across the entire tobacco category. As a result, products in the lowest pricing tiers now account for the majority of all tobacco sales. In fact, the value tier, combined with the economy sector, now make up a substantial 69% of all FMC sales and 54% of all RYO sales (ITUK).
“In order to capitalise on the significant sales opportunities presented by the tobacco category, it’s crucial that wholesalers are stocking a wide range of products that cater for this value trend, especially those within the value and economy priced tiers,” comments Yawer Rasool, Consumer Marketing Director UK & Ireland at Imperial Brands. “While having the right product range is key, it’s also important that wholesalers are equipped with in-depth knowledge of the tobacco category to provide advice to retailers on what products they should be stocking.”
Worth the biggest share of all tobacco sales (70%, ITUK), the FMC category holds a huge amount of value for wholesalers. With products in the lowest pricing tiers (economy and value) now worth 69% of all FMC sales (ITUK), it’s clear that sales in the category are very much driven by demand for value. With this in mind, Imperial Brands launched a new update to its popular Embassy Signature New Crush and L&B Blue New Crush variants to enable wholesalers to cater to the ongoing demand for value tobacco.
The newly updated variants, L&B Blue New Crush Fusion and Embassy Signature New Crush Fusion, provide adult smokers with the opportunity to enjoy an instant cooling sensation thanks to its new and exclusive “Fusion” large bore filter. Nearly 20% larger than a standard-size bore filter the “Fusion” large bore filter offers smokers a new smoking experience.
The New Crush Fusion range also features a white tip for the ultimate contemporary look and feel, a resealable foil to guarantee continuous freshness, as well as special tipping paper to provide the innovative cooling sensation. L&B Blue New Crush Fusion and Embassy Signature New Crush Fusion, which are available for an RRP of £13.00 and £12.75 respectively, provide the same great tobacco blend as the New Crush range, making it the ideal product for adult smokers who are seeking a new smoking experience at great value.
As many consumers remain money-conscious, we’ve seen RYO product sales within the value price sector increase by an impressive 8% year-on-year (ITUK), making it the fastest growing segment that accounts for almost a quarter (24%) of all RYO sales (ITUK).
Data also shows that 30g packs of rolling tobacco are now the most popular with this format now making up a significant 69% of all RYO sales (ITUK). With this in mind, it’s clear that value focused customers are increasingly opting for budget-friendly RYO products that offer the lowest out-of-pocket spend.
“To cater for this demand, it’s key that wholesalers stock the right RYO product offering and we would highly recommend offering a wide range of leading brands such as Embassy Signature, Riverstone and Players JPS. Although 30g formats may be proving the most popular for shoppers, larger formats still account for 31% of RYO sales (ITUK) so ensuring a range of 50g formats is available should also be a focus,” adds Rasool.
“While products in the value and economy price tiers make up over half of RYO sales (ITUK), the premium price sector in fact holds the largest share of the RYO market at 36% (ITUK). This really demonstrates that, despite the focus on value, there are still many adult smokers who remain brand loyal and are willing to pay a more premium price for a brand that they know and trust. With this in mind, we’d recommend that wholesalers stock a range of leading premium RYO brands, including Golden Virginia.”
With 4.5 million RYO smokers in the UK (Imperial internal estimates), the tobacco accessories category provides a substantial sales opportunity for wholesalers. The rolling papers category has performed well over the last year, with recent figures showing that king size papers represent around 60% of the sales value and within this, combi papers is the fastest growing segment (EPOS data).
Value savvy consumers are increasingly migrating from king size into combi formats due to the added value and convenience they offer. To help wholesalers tap into this trend, Imperial recently extended its combi range to include a new Classic King Size Combi variant for the Rizla brand.
Available to buy now at an MRRP of £1.30, the new Rizla Classic King Size Combi includes 32 unbleached king size papers and tips to appeal to the rising number of smokers looking for papers with a more natural look and feel with the added benefit of tips in the same pack. This ensures Rizla Classic King Size Combi offers everything smokers will need for the perfect, authentic rolling experience.
“With volume sales of combi formats expected to exceed those of popular standard format king size papers thanks to the great convenience they offer, we’d highly recommend that wholesalers stock up on Rizla Classic King Size Combi to tap into this trend and grow their sales with an iconic and market leading paper brand,” says Rasool.
John Rennie, Director of Commercial Operations at Philip Morris Limited (PML) in the UK and Ireland, comments: “The UK is at a pivotal moment in its journey towards a smoke-free future; a downward trend in demand for combustible tobacco indicates a steady, but continuing decline in smoking itself.
“Over several years, cigarette sales have fallen in the convenience trade and in the grocery multiples, demonstrating that more smokers are abandoning cigarettes, which is always the best choice, or switching to smoke-free alternatives. This is a fundament shift that all retailers should acknowledge and respond to.”
At Philip Morris International (PMI), the parent company of brands such as Marlboro and IQOS – the world’s number one heated tobacco product (PMI global estimates) – the shift towards tobacco alternatives has been reflected by a significant milestone. During PMI’s end-of-year 2023 financial results, its CEO revealed that IQOS had surpassed Marlboro in global net revenues, becoming the company’s number one international nicotine brand (PMI). This success was replicated in the first quarter of 2024, where Philip Morris’ smoke-free business accounted for 39% of international net revenues, with IQOS maintaining pole position in eleven markets (PMI).
While it took Marlboro 115 years to establish its dominance as the world’s best-selling cigarette, IQOS has surpassed the world’s most valuable cigarette brand in less than a decade since its launch (PMI). In the UK, as with many other markets, the growth of heated tobacco has been a sharp contrast to the decline in cigarette sales similarly to Europe where heated tobacco unit sales have increased by 9.4% during the first three months of 2024, reflecting continuous growth momentum for IQOS across the continent (PMI).
Nationally, the percentage of convenience retailers now selling TEREA and HEETS tobacco sticks has risen by 42% in two years (Nielsen), while cigarette sales declined by 34% during the same period (Nielsen). This trend is also reflected in grocery multiples, where sales of IQOS kits grew by 269% between September 2021 and December 2023 (Nielsen), while cigarette sales declined by 27% (Nielsen).
The demand for heated tobacco products will continue to grow as more adult smokers seek better alternatives, but the impact will not be limited to combustible tobacco products alone.
“In the UK, 73% of adult smokers have tried vaping, but only 23% have stuck with it (Ash). Recognizing that no single smoke-free product can cater to every smoker’s preferences, embracing a multi-category approach becomes indispensable for those investing in their smoke-free portfolio,” adds Rennie.
“IQOS ILUMA complements gantries because it offers a real tobacco taste and satisfaction, with 95% less harmful chemicals compared to cigarettes and enables savings of up to £3,000 a year. It’s these attributes, coupled with evolving preferences among adult smokers and nicotine users, which have elevated IQOS beyond Marlboro.
“Retailers must grasp the significance of this pivotal moment and adjust their strategies accordingly. By incorporating innovative products like IQOS ILUMA and TEREA tobacco sticks into their offerings, they not only navigate these shifts, but also thrive in the emerging smoke-free era.”
HEATWAVE OPEN, Philip Morris’ cutting-edge new digital trade engagement platform bolsters online support for retailers stocking IQOS, the world’s number one heated tobacco device (PMI global estimate). Exclusively available to retailers enrolled in PML’s HEATWAVE OPEN programme, the platform serves as the sole channel for retailers to order IQOS ILUMA, the latest advancement in tobacco heating technology introduced in the UK last year. Retailers can also procure TEREA – the tobacco sticks used exclusively with the IQOS ILUMA device – alongside PML’s broader range of smoke-free products.
HEATWAVE OPEN provides a range of support services, educational tools, and reward schemes to help retailers get the most out of stocking PMI’s smoke-free portfolio. Enhancements include a gamification feature to drive engagement, offering instant rewards upon completion of various activities such as participating in the Watch & Win campaign and completing quizzes and tasks through the Level Up challenge. Moreover, the platform offers dynamic peer-to-peer guidance through the ‘IQOS ICONS’ section, featuring brief, informative videos from standout IQOS sales achievers. These videos provide valuable insights into product information, sales strategies, and the advantages of stocking IQOS ILUMA and TEREA.
Prianka Jhingan, Head of Marketing at Scandinavian Tobacco Group UK (STG UK), comments: “Our latest data shows the total UK cigar category to be worth £314.5m in annual sales, which is a value increase of just over 11% versus the same time last year (IRI).”
This positive performance is mainly down to cigarillo sales, which account for the largest of the four segments in the cigar category.
Cigarillos are now worth just over £130m in annual sales and are responsible for just over half of total cigar volume sales across the UK.
“I’m pleased to say our Signature Action brand is currently the fastest growing cigarillo, experiencing sales growth of 41.2% across the UK versus the same time last year,” adds Jhingan. “Of course, the key thing cigars and cigarillos offer retailers that other forms of tobacco don’t is great profit margins. On average, they are three times higher than cigarettes, so for example, our Moments Blue brand offers up to 18% margin when sold at its RRP, and there’s not many products in the tobacco category that can match that.”
“When we look at the cigar category in segments, I would recommend wholesalers start with cigarillos as they are now the biggest segment and have been the real success story of the cigar category over the last three or four years,” suggests Jhingan. “Next comes the miniature segment, where STG brands like Signature Blue, the UK’s best-selling ‘traditional’ cigar, and Moments Blue, which are both must-stocks. Finally, wholesalers would also want to be stocking the top performing brands in both the small and medium / large segments, where we have our Henri Wintermans Half Corona which is easily the best-selling cigar in that segment.”
Cigarillos which are the current success story within cigars. The category barely existed four years ago, but sales are now worth over £130m and they account for more than half of all cigars sold in volume terms (IRI). Cigarillos are small, often flavoured, cigars. They are shorter, usually about three to four inches long, and narrower than traditional cigars and typically take less time to smoke which can often appeal to adult smokers. STG’s Signature Action brand is currently the fastest growing cigarillo, experiencing sales growth of 40.4% versus the same time last year (IRI).
At the start of the year STG announced a contemporary redesign for its Signature cigar range. The new simple but smart design appears on packs of Signature Blue, Signature Original and Signature Red Filter and are available to retailers now. Last year the Signature brand celebrated its 60th anniversary with the launch of some limited-edition packs and the permanent return of the iconic tins for packs of 20’s. Now, the exciting news for Signature continues with the launch of these newly designed packs, which have been upgraded to full colour on all sides. The overall design has been simplified and more focus has been added to the leaf icon to emphasise the unique nature of the product. Whilst the packs have changed, the cigars inside certainly haven’t, and will continue to offer adult smokers a smooth taste and smoking experience with unquestionably high quality.
“Wholesalers will be well aware that cigar sales go up at Christmas as many adult smokers like to enjoy a large cigar as part of their festive celebrations. However, it’s not just Christmas time when retails can enjoy a seasonal spike in sales. With summer here, some adult smokers may again start to think about trading up to larger format cigars to enjoy in the sunshine,” says Jhingan.”
“We regularly have meetings with our wholesale partners, discussing the market dynamics and ensuring their product mix is what the consumers and retailers are asking for. We also support wholesaler to retail purchases of NPD through promotions and money off incentives. As we know, this can improve footfall into the wholesaler and potentially influence other purchases in depot, so a ‘win win’ for both parties.”
Wholesalers who offer tobacco accessories shoppers a broad range of products are benefiting most from the continued growth of the £376m market, which is currently growing at +10.2% (Circana) year on year. “Shoppers in this category have a range of different usage occasions and purchasing habits, so choice is absolutely key in maximising engagement and sales in tobacco accessories,” says Gavin Anderson, Sales & Marketing Director at Republic Technologies.
“Those wholesalers and retailers who offer a varied selection of product formats, from king size papers to eco-friendly filters are seeing the highest levels of repeat purchase which is a key driver for incremental sales.”
Backed by category-boosting NPD and sustained marketing support for all its leading brands, Republic Technologies currently accounts for approximately 40% (Circana) of total marketplace sales, with a diverse range of brands and products designed to meet the needs of every RYO shopper’s needs.
Papers remain the highest value sub-category in tobacco accessories, worth over £115 million and growing YOY (Circana). Republic Technologies’ eco-friendly OCB range continues to outperform other papers in both value and volume growth, maintaining its position as the UK’s fastest growing paper brand in the tracked market, at +40% (Circana).
Tobacco accessories can also be used as a signpost for related products and Republic Technologies’ space efficient perspex units are driving both awareness and demand. The multi brand units feature interchangeable inserts for multiple bestselling brands.
“They enable retailers to create eye-catching off-gantry displays and not only do they draw attention to new products, generating interest and impulse purchase, they also create more opportunities to upsell, as retailers can site them close to other tobacco related products,” says Anderson.
As shoppers continue to seek value in their everyday purchases, Anderson is also highlighting the benefit of stocking multipacks.
“Multipacks offer better value for wholesalers, retailers and consumers at a time when rising numbers of cost-conscious shoppers want to get an even better return from their sales across the tobacco accessories category,” he adds.
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