Nearly all market reports on UK Tobacco will carry some version of the line ‘the UK tobacco market is going through a process of significant upheaval’. For suppliers the response might be: well, when has it not in recent times?
In-fact you could say that for tobacco, every year over the past decade has seen its fair share of upheaval. Legislative changes, EU directives and aggressive taxation has seen the sector absorb plain packaging, enforced pricing & pack sizes and format changes.
Indeed, cigarettes, cigars, pipe tobacco and RYO products can’t be advertised or displayed instore any more.
However, the ability of suppliers to plan ahead, move with trends and invest in the market means tobacco remains a major seller and traffic builder for wholesalers and retailers.
Furthermore, convenience stores remained the leading distribution channel in cigarettes in 2018-19, while supermarkets and convenience stores were the largest channels in cigars and cigarillos (Euromonitor), meaning wholesale remains a vital cog in the tobacco sector.
A crystal clear behaviour change amongst smokers has seen a dominant trend emerge in the past few years, that of down-trading.
While all cigarettes price bands saw volumes decline in the final year of the review period, the economy segment proved to be the most resilient as it absorbed smokers trading down from higher price bands. This consumer trend has seen the major players in the category – such as Imperial Tobacco, JTI, BAT and Philip Morris – increasingly focused on economy and sub-economy brands.
Furthermore, consumer price-consciousness is set to exert a growing influence on the development of the UK tobacco market during the forecast period, says market analysts Euromonitor, as rising taxation and increasing costs related to the introduction of regulations such as “Track and Trace” drive up prices.
As a result, cigarette smokers are expected to continue to trade down to sub-economy products or shift to alternative categories, leading to volume growth in cigarillos and fine cut tobacco.
The value of tobacco in the UK totalled £14.5bn in the last year (IRI).
Factory made cigarettes (FMC) remain the largest segment within the tobacco category, accounting for approximately 60% of total volume sales (ITUK estimates).
As part of this sustained shopper demand for value, sub-economy brands are proving particularly popular.
“We continually monitor the latest market trends and adjust our portfolio to ensure it meets the needs of shoppers, while also providing retailers with the right products to grow their sales,” says Duncan Cunningham, UK Corporate Affairs Director at Imperial Tobacco.
“Over the last few years we’ve repositioned a number of our FMC products to help retailers cater for this down trading trend.
“This includes shifting L&B Blue into the sub-economy sector in 2018 and, more recently, repositioning Embassy from the premium price sector to the more popular economy sector, both with competitive price points.”
Another behavioural change amongst tobacco shoppers emerging from the value driven trend is dual smoking.
As adult smokers increasingly shift their purchasing habits between segments, they are expanding the range of nicotine products they buy to cater for different occasions.
“This has led to a rise in the number of dual users buying both FMC and RYO products, as well as moving into emerging nicotine segments such as vaping,” says Duncan.
“As consumers move towards more of a nicotine portfolio approach, shopper purchasing decisions remain heavily influenced by this constant drive for value and we expect an acceleration of this trend to follow in the years to come.”
JTI is currently the leading tobacco manufacturer in the UK with a combined market share of 44% (IRI), and the group’s Head of Sales for the UK, Ross Hennessy says RYO is benefitting most from the price-conscious smoker.
“With 6.5 million kilograms of rolling tobacco sold in the UK each year (IRI), the RYO category offers significant opportunity for wholesalers to maximise sales,” says Ross. “[Wholesalers] should stock up on Value RYO products, such as JTI’s Sterling Rolling Tobacco – which is now the UK’s fastest growing tobacco brand.
“Other brands to stock include, Amber Leaf, which is the No.1 tobacco brand in the UK with a 30.1% share of the RYO market (IRI).
To maximise the RYO opportunity, Ross advises wholesalers to be knowledgeable in the category. One way to do this is to make the most of JTI Advance training modules for advice on trends, merchandising and products.
“Maintaining full availability and stocking a wide range of products that cater towards different retailer needs will also ensure repeat custom in your depot,” says Ross.
While offering great value for money is crucial, many consumers making the move into RYO may be looking for reassurance on quality.
Seeing products from well-known brands they know and trust can be a major driver in their purchasing.
With its strong tobacco heritage and brand recognition, Lambert & Butler is well placed to respond to this behaviour with its new RYO variant.
The Lambert & Butler brand was first launched in 1838 and since then, the brand has grown its share through sales of its factory made cigarettes and now accounts for 4% of the total market (HBT).
Today, the brand awareness of Lambert & Butler is at 51% (HBT), highlighting the popularity of the range within the UK.
Available in both 30g and 50g formats and priced at £11.00 RRP and £18.15 RRP respectively, the new Lambert & Butler RYO blend offers premium quality at an economy price point.
The unique blend benefits from reduced moisture levels to make it easier to roll which has proved exceptionally popular with consumers during testing, outperforming competitor brands, says Duncan.
He adds: “While the move into RYO will be a first for the brand, the high consumer awareness of Lambert & Butler as a trusted, reliable brand, combined with the premium quality product and economy price point, makes this new variant a must stock for wholesalers.”
More innovation from Imperial Tobacco came last year in the shape of new economy RYO brand, Riverstone.
“Our research has shown that the handy box formats currently available on the market tend to compress the tobacco inside, making it difficult to separate and roll,” says Duncan.
“We are addressing this issue head on with the launch of our new combi pouch solution for Riverstone.
“As the first brand to bring to market such an innovative packaging solution, we’re confident this latest launch for Riverstone will attract even more interest and sales from adult smokers looking for great quality RYO tobacco at an affordable price.”
The Riverstone Combi Pouch priced at £11.00 RRP, ticks all the boxes for new entrants into the fine cut tobacco (FCT) category and dualists with a format that includes 30g of easy-to-roll tobacco and 60 papers and 60 filters.
2020 will be another year of change for Tobacco as 20th May ushers in a complete ban on flavoured tobacco products.
The UK Government began the process of phasing out flavoured tobacco products in May 2016 as part of the European Tobacco Products Directive (EUTPD) which places limits on the sale and merchandising of tobacco products in the EU.
In line with the EUTPD regulations, flavoured Roll Your Own tobacco has already been banned from sale. The latest ban will be enforced on menthol tobacco products which contain menthol flavourings in any of their components.
Menthol and crushball sales are collectively worth 26% of the total UK tobacco market (ITUK), which means they make up nearly 1 in 4 cigarette sales.
“Given its sizeable share of the tobacco market and store sales, this is an important change that wholesalers and their retail customers need to be prepared for to avoid missing out on sales,” says Duncan.
“Experience tells us that consumer awareness of tobacco legislation tends to be relatively low until it hits the shelves and they can’t buy product they want, so encouraging retailers to talk to consumers ahead of the ban is important.”
By engaging with menthol shoppers early on, wholesalers and retailers can raise awareness of the menthol ban and encourage customers to consider what alternative products will be available to them after the 20th May 2020.
Duncan adds: “As well as providing great customer service, having conversations with shoppers ahead of time will help retailers gain valuable insights into what action they should take once the ban is in effect.
“For some, this may mean simply moving into other traditional tobacco alternatives, while other menthol consumers may use the ban as an opportunity to explore other ways to stick with their flavour preference.” In order to cater for ex-menthol smokers looking to stay in tobacco, products such as Rizla Polar Blast, the UK’s first Roll Your Own filter tip to contain a Crushball, is a viable alternative for wholesalers and retailers alike.
Its squeezable filter tip allows smokers to ‘click’ to enjoy the taste of mint whenever they roll their own.
Over the past two years JTI has extended their capsule range with the addition of two new products – Sterling Dual Triple Green and Benson & Hedges Blue Dual Double Capsule.
“Sterling Dual Triple Green is the first triple menthol cigarette to launch in the UK tobacco market. The innovative, mentholated cigarette has two capsules, one peppermint and one spearmint, offering an exciting new proposition for existing adult smokers,” says Ross.
“The Benson & Hedges Blue Dual Double Capsule brings a more intense flavour option.”
The total value of the cigar market in the UK is approximately £196 million (IRI). The key trends in the cigar category have remained pretty consistent over the last few years.
Chief of these trends is the continued rise in Miniature cigars which now account for just over 74% of total sales.
“We’re very fortunate to have a portfolio which ticks all the boxes when it comes to the UK Cigar market,” says Alastair Williams, Country Director at Scandinavian Tobacco Group UK (STG UK). “Aside from Signature, we also have Moments Blue, which is the UK’s fastest growing cigar and second best-selling Miniature cigar.”
“Finally, our Henri Wintermans Half Corona holds the position as the UK’s favourite Medium to Large cigar, so if wholesalers simply stock these three, they should be able to perfectly meet the needs of each and every one of their cigar customers.”
Back in the RYO sector, the accessories products sub-sector is contributing to strong growth to RYO overall.
The RYO accessories market is currently worth more than £290m, up 6.4% year-on-year (IRI), and strong performing filters are leading the charge, with value growth of 9.3% (IRI) year-on-year.
“As category specialists, we’re continuing to innovate with NPD and new merchandising solutions to help our retail partners meet the needs of the growing number of RYO smokers. This is helping to maintain the strong growth the category has seen in recent years,” says Gavin Anderson, General Sales Manager at Republic Technologies (UK) Ltd.
The company has also invested heavily recently to ensure it has a very clear understanding about RYO smokers and their requirements.
“Most of our customers have been smoking for some time and whilst value for money is a key consideration, particularly in times of economic uncertainty, many prefer the tactile aspect of roll your own which for some also provides the added benefit of reducing consumption as smoking becomes less instant,” adds Gavin.
“There is quite a bit of overlap with pre-made cigarettes and vaping, but with RYO smokers this is occasion or influence driven as most of our consumers prefer the RYO experience.
As environmental considerations are influencing smokers more than ever before, with demand for more natural products, reduced packaging and removal of single-use plastics at record levels, Republic Technologies is accelerating its environmentally friendly NPD, with the promise of more to come in 2020.
The company’s focus on more environmentally friendly NPD has led to the introduction of category-boosting products such as OCB Virgin Slim and Slim & Tips, both of which are available in a slim vertical box, enabling retailers to manage shelf space more efficiently.
“We’re really optimistic about the future of the RYO accessories market,” says Gavin.
“The combination of rising cigarette prices and the higher margins offered by RYO products will continue to drive growth.
“Whilst the vaping sector continues to expand, it’s not inhibiting the sustained rise in demand for RYO accessories and with menthol cigarettes being discontinued from May 2020, accessories may well provide the solutions and options which consumers will be seeking.”
Indeed, one brand has already made significant strides in this department.
Rizla last year announced the launch of an innovative new product with Rizla Flavour Infusions.
Offering menthol shoppers a fresh new proposition that allows them to discover flavours and help retailers protect their sales ahead of the full menthol ban this year.
Rizla Flavour Infusions comprise flavour cards that can be used to mentholate traditional factory made cigarettes or RYO tobacco products.
The Rizla Flavour Infusions range of flavour cards includes two different variants – Menthol Chill which provides a stronger, more intense flavour and Fresh Mint which is slightly smoother and more mellow – which are packed and wrapped separately, allowing retailers to sell them individually at an RRP of just 25p each.
“The new Rizla Flavour Infusions are incredibly easy to use,” says Chris Street, Market Manager UK at Imperial Tobacco.
Smokers simply insert a flavour card into a packet of cigarettes or RYO tobacco and wait at least 60 minutes for the contents to mentholate, or leave it in longer for a stronger, more intense flavour.
Chris comments: “As a tobacco accessory, the new Rizla Flavour Infusions don’t need to be hidden from the sight of shoppers, so we recommend stocking them at the till point or on an open gantry.
“As well as drawing the attention of shoppers to the new range, this will help encourage conversations with them about the forthcoming menthol ban to raise awareness of the changes to come and help retailers prepare their range.”