With the country now returning to some semblance of normality in a post-COVID world, the tobacco category is proving once again to hold a substantial amount of value for wholesalers.
The market is now worth £14bn (before tax) per year (ITUK) and as it stands, there is almost a 50/50 market share split across Factory Made Cigarettes (FMC) and Roll Your Own (RYO) categories – at 54% and 46% respectively (ITUK).
“The future of the tobacco industry lies very much within the value of the product as consumers seek out ways to save money,” comments Tom Gully, Head of Consumer Marketing UK&I at Imperial Tobacco. “So, if wholesalers are to successfully cater to the needs of today’s customer and increase sales, then ensuring they are stocking a wide range of value tobacco products is crucial.”
Given the growing cost of living crisis and rising energy costs, this shift towards value tobacco products is a trend that is likely to continue for some time and one that should not be ignored – especially given tobacco customers can generate much wider sales in store. Tobacco shoppers spend more, visit more and have a higher basket spend than other shoppers (Lumina) so are key shoppers to attract.
With household costs and inflation soaring, shoppers are now even more aware of how much they are spending. As a result, we’re seeing a move towards low priced propositions across the entire category as a whole, resulting in the lower priced tiered products making up a majority of tobacco sales. In fact, the sub-economy segment now makes up 63% of FMC sales, while the economy segment accounts for 56% of RYO, with these value segments growing at an impressive 3% and 5% YOY (ITUK).
“To capitalise on the sales opportunities these value segments offer, wholesalers must ensure they stock the correct products, while also familiarising themselves with the key product types so they can help their customers fully understand the tobacco category and different product solutions available to them,” adds Gully.
With this in mind, Imperial Tobacco recently announced the launch of two new limited-edition products. Including the return of its popular range of 21s packs, as well as a 32g format of rolling tobacco, the two indie exclusives will help wholesalers and retailers respond to the rising demand for value that’s dominating shopping habits this year.
The independent exclusive line of 21s packs, which was first launched back in March 2022, features some of Imperial’s best-selling brands including Richmond 21s at a MRRP of £10.65, plus Players JPS and L&B Blue 21s, both at a MRRP of £10.90.
As well as bringing back the bigger box range of 21s, Imperial also launched an added convenience format of 32g packs of rolling tobacco. The new limited edition range features two of its best-selling brands including Riverstone and Players JPS Easy Rolling tobacco – Imperial’s fastest growing brand nationwide – both of which are available to buy at a MRRP of £14.55.
“Both bigger formats are available to buy for a limited time only, so we’d recommend wholesalers stock up now to take advantage of these added value offerings while stocks last,” says Gully.
With shoppers increasingly looking for products that provide value for money, there is now a significant rise in the sale of roll your own tobacco. In fact, this category now accounts for 46% of all tobacco sales (ITUK).
“With the growing cost of living crisis impacting households nationwide, we expect this consumer demand for value to increase even further in the months to come. Given this rising shift towards value products, and rolling tobacco in general, it’s important to make sure wholesalers cater for this demand with the right product offering,” suggests Gully.
“With this in mind, we’d recommend that they check they have a strong variety of leading roll your own brands, such as Riverstone and Players JPS, to ensure they are prepared for this rising demand for value tobacco products.”
When reviewing their range, it’s important to remember that value means different things to different people. Some customers might be focused on the lowest price point, while others may be looking for added value formats like Players JPS Easy Rolling Tobacco which offers filters and papers in one pack. Therefore ensuring there is a range on offer that allows retailers to tap into these different value needs is vital in order to effectively cater for their customer base.
“From an FMC perspective, as demand for value tobacco continues to grow, many consumers are looking for a familiar brand that they know will deliver satisfaction at a low price,” Gully continues. “With this in mind, we’d highly recommend stocking our Embassy Signature and Richmond ranges to help unlock sales amongst adult smokers seeking out top brands at great value price points.”
With more consumers now moving towards RYO products, wholesalers are presented with new sales opportunities within tobacco accessories. It is therefore essential that they cater for this rising demand by ensuring they are fully stocked up with filters, papers, lighters and other flavour-related innovations, for example, Rizla Xtreme Flavour Cards.
Imperial’s Rizla Xtreme Flavour Cards range has been extremely well received by both the trade and consumers. The Rizla Xtreme range comprises flavour cards that can be used with traditional factory made cigarettes or roll your own tobacco products. Simply insert a flavour card into a packet of cigarettes or roll your own tobacco and wait at least 30 minutes, or leave it in longer for a stronger, more intense flavour.
Latest figures show they are flying off the shelves and currently selling around 400,000 packs per week (ITUK) as smokers look to recreate the menthol experience.
Another product line gaining traction with tobacco shoppers is Rizla Silver Kingsize Combi which has an RRP of £1.20 and offers papers and tips together in one pack for the ultimate in convenience. Thanks to its convenient format, Rizla Combi is now proving extremely popular with shoppers looking for added value product solutions.
Imperial works closely with wholesale customers through a range of tactics, including promotions, to help them maximise their tobacco sales and ensure they are offering the right products to cater for their retail customers.
James Hall, Anti-Illicit Trade Manager, Imperial Tobacco UK&I, comments: “The sale of illicit tobacco is a global industry that harms honest tobacco traders and damages communities, and we firmly believe it should not be tolerated.”
Between 2019-20, estimates show 9% of cigarettes and 34% of tobacco were non UK duty paid, meaning the Government lost £2.3bn in tobacco tax revenue (HMRC). As such, since 2000, £49bn in tax revenue has been lost as a result of non-UK duty paid cigarettes or tobacco being sold in the UK (HMRC).
“The sale of illicit tobacco and vape products has a direct impact on wholesalers, especially where there is illicit trade taking place nearby,” adds Hall. “It’s therefore important that wholesalers and their staff are well educated on the issue so they can stay vigilant and notify the relevant authorities of any suspected illicit sellers in their area.”
The findings of the Tobacco Manufacturers Association (TMA) latest Anti-illicit Trade Survey highlight that there’s still much more to be done to support the fight of illicit tobacco trade. Despite the fact that ‘branded’ tobacco products have been banned from sale in the UK for over 6 years, 20% of consumers say they still only buy ‘branded’ cigarettes or RYO (TMA). With this in mind, education clearly has a big role to play in encouraging consumers to move away from buying illicit products, and wholesalers can help raise awareness of the issue of illicit trade through their customer base.
Changing consumer behaviour is of the upmost importance and anyone who suspects illicit activity must report it. This will then enable law enforcement to be able to take action and seize illicit tobacco.
“As a business, we take the issue of illicit tobacco extremely seriously and play an active role in reporting any illegal activity,” says Hall. “In fact, we’ve now shared over 3,700 reports provided through our dedicated anti-illicit trade app, SARA (Suspicious Activity Reporting App) with the relevant authorities.”
This has resulted in almost 300 positive seizures to date and the removal of over 152 social media posts. Before the app was launched in 2017, Imperial provided around 180 reports but in the last 12 months alone, it submitted 713, demonstrating a huge increase in the information it has been able to share thanks to responsible retailers taking action against suspected illicit traders.
In 2021, Imperial launched a new and improved anti-illicit trade website as part of its continued ‘Suspect it? Report it!’ trade campaign to tackle illegal sales of tobacco. The redeveloped website, www.suspect-it-report-it.co.uk, is a valuable resource for information about the illegal tobacco problem in the UK, with the site containing information about the latest developments in illicit tobacco via an updated news page, LinkedIn page and Twitter feed. Imperial’s aim is that this redeveloped site will help retailers to remain vigilant and raise awareness of the scale of the problem at hand. As well as keeping retailers informed, Imperial wants to encourage retailers to report any suspected sellers in their area to its salesforce through the dedicated SARA trade platform or call Imperial directly through its anti-illicit trade hotline on 0800 0495992.
Gemma Bateson, Sales Director at JTI UK, comments: “Now more than ever, value tobacco is a key trend. Over the last two years we have launched products that tap into the growing demand for value tobacco – from Sterling Rolling Tobacco Essential through to Benson & Hedges Blue Rolling and new RMC range – Mayfair Silver.”
JTI is currently the No.1 RMC manufacturer in the UK with a market share of 43.7% (IRI) and B&H Blue is the UK’s No.1 cigarette brand (IRI).
With 7.1 million kilograms of rolling tobacco sold in the UK each year (IRI), this category offers a significant opportunity for retailers to maximise sales by stocking up on Value RYO products, such as JTI’s Sterling Rolling Tobacco, the UK’s leading Value RYO brand (IRI).
RYO is the leading combined price sector, with a market share of 46.5% (IRI).
The total value of the cigar market in the UK is approximately £288 million (IRI). Cigarillos is the leading cigar category, with a current market share of 46.9% (IRI), while JTI is the No.1 cigar manufacturer in the UK, with a market share of 53.5% (IRI).
Mark McGuiness, Marketing Director at JTI UK, comments: “In 2022, JTI launched two of its most iconic brands into the ultra-value segment to provide high quality value for existing adult smokers. Featuring the lowest recommended retail prices from JTI – including Benson & Hedges Blue, a new rolling tobacco offering, and a new RMC range – Mayfair Silver. By offering iconic brands like Mayfair and Benson & Hedges at new ultra-low prices, wholesalers can capitalise on both products’ brand heritage, that also offer a competitive price point.”
Available across all channels now, Benson & Hedges Blue Rolling includes quality Virginia tobacco blend and 100 papers within the 30g and 50g pouches. Mayfair Silver is available in both King Size and Super king, and is available across England, Wales and NI.
The UK tobacco accessories category continues to perform strongly, worth £334m and showing YoY growth of +4.3% (IRI).
Rolling papers is the star performers in the category as the highest value sector within tobacco accessories. OCB from Republic Technologies is helping to drive this success as the UK’s fastest growing mainstream paper brand (IRI) making it a must stock for wholesalers.
The Slim & Tips subcategory is showing impressive growth of +28.5% YoY (IRI) as we see an increasing move to premium Paper & Tips formats. This again highlights a big opportunity for wholesalers to tap into this growth with popular brands such as OCB.
With the current economic climate forcing shoppers to seek products at lower price points, roll-your-own products, which typically offer shoppers more for less money, will become more attractive to shoppers. The continual move towards value in tobacco and tobacco accessories is only going to increase as shoppers seek alternative ways to cut costs.
Gavin Anderson, Sales & Marketing Director at Republic Technologies (UK) Ltd, says: “Tobacco accessories, including filters, papers and lighters, provide an important opportunity for wholesalers to benefit from impressive margins and incremental sales. The right range of brands and effective POS gives wholesalers the potential to make sure their store stands out.
“RYO shoppers tend to be repeat purchasers, so having a good variety of products, with a fully stocked display, will keep them coming back.
“We work with wholesalers to highlight their bestselling product lines and NPD to help them drive impulse sales. Our compact displays can be of real benefit to wholesalers as they grab shopper attention. “Our iconic brands – including Swan, Zig-Zag and OCB – have considerable history in the market and are synonymous with quality and value for money. This, combined with our team’s valuable expertise in the category, means that we are well placed to add real value for wholesalers.”
The latest IRI data shows the total cigar category to be up by 2.2% in value terms on last year at just over £287m. This is driven by the rise in the cigarillo segment which is now worth just under £99m and accounts for over 46% of all cigar volume (IRI). The more traditional cigar segments are all in decline of around 4% 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.
Alastair Williams, Country Director at Scandinavian Tobacco Group UK (STG UK), comments: “There is no doubt that consumers are going to be increasingly price conscious as the cost-of-living crisis continues to bite, and this will affect cigars and the wider tobacco category purchases just as much as any other category in-store. Having said that, the search for value has been a trend in cigars for some time now, evidenced by the success of our Moments Blue brand, which offers a quality smoke at a low price. It is now the seventh best-selling cigar brand in the UK in value terms, but interestingly most of its sales go through the multiple grocery channel, so I wonder if it’s one area where some independent retailers and wholesalers might be missing a trick by not stocking it? And with the current cost of living crisis only likely to get worse in the coming 12 months or so, it’s sensible to assume that value products will only increase in importance across the store, and that will certainly include cigars so wholesalers who don’t currently stock Moments should absolutely do so.”
STG’s most prominent brand is Signature which is by far the best-selling miniature cigar in the UK. STG also has Moments Blue as a value offer in the miniatures segment, Signature Action in the fast-growing cigarillo segment, and Henri Wintermans Half Corona holds the position as the UK’s favourite Medium to Large cigar.
“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 so don’t tie up your cashflow with slow moving brands,” adds Williams. “It’s Miniatures which remain the engine room of the cigar category, so it is important to get this segment right. By far the biggest player here is our Signature range, which is ably supported by our Moments brand, which offers a good quality smoke at a cheaper price.”
The Cigarillos category barely existed three years ago but now makes up over 46% 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 it’s growing steadily in popularity and a good option for adult smokers who enjoy the peppermint flavour.
“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,” says Williams. “Our Henri Wintermans Half Corona is easily the best-selling brand in the Medium / Large segment and accounts for nearly 73% of sales in this segment.”
“I believe it is very important to ensure our products are merchandised in a way that it makes it easier for the retailers to navigate, find them and purchase them,” Williams continues. “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.”
STG regularly has meetings with its wholesale partners, discussing the market dynamics and ensuring their product mix is what the consumers and retailers are asking for. The company also supports wholesaler to retail purchases of NPD through promotions and money off incentives. This can improve footfall into the wholesaler and potentially influence other purchases in depot, so a ‘win win’ for both parties.
Kate O’Dowd, Head of Commercial Planning UK & Ireland, Philip Morris Limited, comments: “This is the real upshot of increased competition in the smoke-free category; not so much pitting products against each other, but rather providing smokers with a greater choice of alternatives that enables them to switch away from cigarettes, if they can’t or won’t quit completely.”
To illustrate how competition is being overlooked to achieve this smoke-free goal, Philip Morris recently commissioned a study of more than 1,400 convenience retailers which found that over two thirds would look beyond local competition and work together to help their community go smoke-free.
“Competition can be a fantastic driver – even more so if the efforts involved lead to something meaningful, such as delivering a smoke-free future,” adds O’Dowd. “With manufacturers bringing better products to market and more retailers than ever before broadening their smoke-free offering, I truly believe we can help millions of adult smokers make a better choice.”
IQOS first launched in the UK in 2016. As a new tobacco product, IQOS quickly established heated tobacco as a category acceptable to the adult consumer with several indicators highlighting its potential in the market.
IQOS is a viable alternative to cigarettes because it heats real tobacco for a more satisfying taste experience. That’s why the majority of smokers who trial it, switch away from smoking for good (PMI).
IQOS is more affordable with 20 HEETS costing less than half the average price for a pack of 20 cigarettes. Customers also have access to ten HEETS variants – ranging from menthol to traditional tobacco blends – which means there is a variant to meet every consumer need.
Philip Morris Limited has commenced the roll-out of IQOS ORIGINALS DUO, a revamped and renamed version of IQOS 3 DUO – the UK’s number one heat-not-burn product (Nielsen) – to indirect retail channels in the UK. As part of the IQOS portfolio, IQOS ORIGINALS DUO combines revamped design features with Philip Morris Internationals’ time-tested, unique, and patented HEATCONTROL™ TECHNOLOGY which uses a flat wide ceramic blade to heat tobacco from the inside, delivering a real tobacco taste and satisfaction—backed by 6 years of scientific research and development.
Fully compatible with existing HEETS tobacco sticks, IQOS ORIGINALS DUO will begin replacing IQOS 3 DUO, with no buy-back or product swapping necessary. The new stock will filter through naturally, although retailers will be able to order the new kits via PML’s Digital Trade Engagement Platform from December. With an RRP of £39, IQOS ORIGINALS DUO will be sold as a kit, consisting of the two-piece device – with a compact and lightweight holder – and two packs of HEETS.
Data from Nielsen found that heated tobacco represented 18.6 percent of the total Reduced-Risk Product (RRP) market in the UK in 2021 (Nielsen), growing 86 percent versus 2020 (Nielsen).
The number of stores selling HEETS has increased seven-fold since January 2018. PML are now selling almost 40 times the volume of HEETS each month than it did on average in 2017.
The IQOS tobacco-heating system is the No. 1 heated tobacco product in the world (PMI estimates).
PMI estimates that 12.7 million adult smokers having switched to IQOS and stopped smoking.
“Manufacturers, like Philip Morris International (PMI), are answering the call by using the competitive landscape as a driver to increase access to, and awareness of, products like IQOS, which offers a cigarette-like satisfaction that whilst not risk-free, is a better choice than continued smoking,” adds O’Dowd.
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