Value brands and hand rolling tobacco are all the rage, giving grounds for optimism despite the looming display ban threat. Gaelle Walker reports

Roll Your Own

2010 has been a mixed packet for the tobacco category with the threat of a UK-wide tobacco display ban and the impact of the illicit trade clouding even the sunniest of retailer’s dispositions.

However, there have been some breaks in the grey. A half-decent BBQ summer coupled with the World Cup helped to lift tobacco sales by 5.2% through the independent channel, according to Sales Out data. Much of this growth was driven by cigarettes in the lower-priced bracket and, of course, roll your own tobacco (RYO) brands the year’s real star performers.

After roaring through the £1bn sales barrier in July, RYO can no longer be described as the tobacco category’s poor relation, and that’s why we’ve decided to kick off our latest tobacco feature with an in-depth look at the category which is galvanising the gantries.

The segment, which continues to be dominated by big bold brands such as Amber Leaf and Golden Virginia, experienced an astronomical 19% rise in sales in the 12 months to July, culminating in a crashing crescendo of new product developments, range extensions and marketing support. Landmark Wholesale’s new value offering No3 handrolling tobacco was one of these, and the company says that its success has contributed heavily to the 9.5% increase in depot sales for the year to date.

Imperial Tobacco, meanwhile, has been busy throwing its weight behind Golden Virginia Yellow which, at the time of its first birthday in March this year, was already worth £14m and had a 3% share of sales.

According to manufacturers and retailers, the hubbub surrounding RYO is set to get even louder as more adult smokers continue to look for alternatives to the huge tax inflation affecting cigarettes.

“Growth within the RYO segment is predicted to go on for the next three years at least as adult smokers continue to seek out greater value for money, especially by purchasing larger pack formats such as 25g and 50g packs,” says Jeremy Blackburn, head of communications for JTI, which put its money where its mouth was in 2009 with the launch of an upmarket Benson & Hedges rolling tobacco, helping the more discerning RYO smoker to “roll up in style”.

The company also invested in its flagship offering, Amber Leaf, with contemporary new packaging at the start of the summer. The enhancement will ensure the brand remains relevant to today’s adult RYO smoker, Blackburn says. Not an easy task given that RYO’s consumer base has undergone some serious shifts in the past couple of years. In fact, Surrey Londis retailer Hiral Patel says he has noticed a change in the type of people buying RYO in the past 12 months alone.

“Last year sales were still predominantly made by over-50s and a few younger smokers, but this summer I have seen a huge amount of 20- to 25-year-olds start trading down from cigarettes to RYO. With graduate jobs so thin on the ground it is this age group that is suffering the most from the economic crisis, so it’s understandable that they are looking for greater value for money. It’s obviously also still very popular with the over-55s and newly retired for similar financial reasons,” he adds. “As time goes by I expect so see many more middle-aged professional people start buying into it, too.”

These are exactly the sort of people that Scandinavian Tobacco Group UK, which is better known for its Café Crème and Henri Wintermans cigar brands, is hoping to attract with its new all-natural Crossroad RYO brand.

And with a UK-wide ban on the display of tobacco products still on the cards for large stores from next year, and smaller stores from 2013, tobacco manufacturers will be keen to keep the NPD ball rolling as fast as possible to ensure maximum brand awareness before the lights go out.

“Given the tough economic climate, the threat of a tobacco display ban and the fact that the market is becoming more competitive means that there is the potential for more innovative new product lines,” says Ronan Barry, head of corporate and regulatory affairs at BAT. The company has seen its Cutters Choice brand increase market share to 11.24% in the past year.

Barry’s words will certainly come as music to the ears of the UK’s 43,300 independent tobacco retailers. After all, RYO products offer a good margin, can be stocked in greater quantities on the gantry and, most importantly, they drive other impulse purchases.

“RYO sales in my store are flying, which is fantastic news and I’d definitely welcome more new products,” adds Hiral. “I can make up to 9% profit on return on a RYO product compared with just 4% on cigarettes, so long may RYO’s success continue.”

However, it’s not all sweetness and light. As a growing number of retailers are learning to their detriment the lucrative RYO market is also proving irresistible to shadier characters and the criminal underworld and with some of the highest excise levels in the world, it’s easy to understand why.

“A major ongoing challenge for the RYO segment is the twin threats of smuggling and counterfeiting, and currently about 60% of RYO tobacco consumed in the UK each year is non duty-paid,” says Imperial Tobacco UK public relations manager Iain Watkins.

Despite some major progress made by the HMRC, Trading Standards and the tobacco companies themselves, large-scale smuggling and bootlegging of non-UK duty-paid tobacco products is still a big problem, and with fears over the reintroduction of a tobacco ‘duty escalator’ growing, and the threat of a UK-wide tobacco display ban, a solution is but a tiny tobacco flake on the horizon.

As many legitimate retailers have discovered to their detriment, the illicit trade is not just endangering their sales, but their safety, too.

Barely a week goes by without a shop raid and RYO theft making the headlines, and last year West Sussex retailer Steve Denham of Cherilyn Stores in West Chiltington became one of them.

“When my store was burgled last year, it was clear that RYO products were the primary targets,” Steve says. “They also took all the cigarettes, except menthol varieties, but left all the cigars. Thieves’ choices are probably the best indication of market trends that you can get,” he says.

Of course, the illegal cross-border smuggling of legitimate stock is only half the problem. The sub-category is also grossly affected by counterfeiting. China remains the hub for counterfeit tobacco production, but as recent newspaper reports illustrate, the problem is now creeping closer to home. In July of this year customs officers busted a rat-infested warehouse in Hackney, London, from where a 24/7 counterfeit rolling tobacco and vodka operation was being run.

The gang used sophisticated equipment to produce more than 10 tonnes of counterfeit hand-rolling tobacco, at a rate of 100 pouches per minute, valued at £800,000 in duty. According to HMRC officers: “The packaging of both the vodka and tobacco was so convincing that the public would have been duped into thinking they were buying the real thing.”

So, bad for public health, certainly bad for legitimate traders and manufacturers, and bad for the many thousands of exploited workers paid a pittance to work as cogs driving these powerful criminal machines.

But there is something that you can do to help stub out the problem. Apathy is one of the illicit market’s biggest allies, and with it now easier than ever before to report suspicions confidentially, there really is no excuse not to. Last month a survey by the Tobacco Retailers’ Alliance revealed that more than 50% of retailers were aware of illicit tobacco being sold in their area. However, only a small number had actually reported it to authorities. “In conjunction with other official bodies we are working harder than ever before to get these illicit products off our streets, but retailers must play a more active role, too,” adds JTI’s Blackburn. “Together we can really start making a difference.”

Retailers with any information or suspicions of illicit trade in their area should contact the Customs hotline on 0800 595000. Calls are confidential and, contrary to popular belief, all information is always logged.

Vital statistics 

- Annual market growth Value sales increasing at 16.5%

- Best-selling RYO brand Golden Virginia Green currently has a 40.3% share of sales 

- Most popular pack size 11.5g/12g accounts for 45.4%, but 23g/25g is catching up at 35.2%.
Source: Nielsen Market track 12 months to December 2009

RYO accessories 

We couldn’t mention RYO without talking about the accessories market, which is becoming increasingly colourful. 

Adult smokers currently spend more than £100m annually on rolling papers in retail outlets, and over half of these sales are made in convenience stores. And as RYO’s star continues to rise, the sector is set to become increasingly significant to retailers and their balance sheets. 

It is still dominated by medium- weight green papers whose cut corners make rolling much less fiddly a big bonus for all the former cigarette smokers now pouring into the category. Rizla Regular Green is king here with the lion’s share of all green sales, and accounting for more than 50% of the total papers market. Conversely, red papers, which offer a medium weight and no cut corners, are seeing their popularity dwindle. 

However, the surprise star performer in the past 12 months has been liquorice papers. Rizla’s regular liquorice papers now account for 3.2% of all rolling paper sales up 16% in the 12 months to December 2009, and Swan is reporting similar levels of success with its offering. 

Silver and Blue rolling paper varieties which offer a fuller flavour are also becoming increasingly popular, accounting for nearly 20% of regular booklet volume, and according to Swan the multipack category is also showing strong signs of growth. Earlier this year Swan extended its 5+1 multipack with Swan Ultra Fine Silver and Swan Blue. 

Swan’s tips for flying sales

- Ensure cigarette filters and papers are merchandised next to each other. More than 50% of RYO smokers use a filter 

-  Ensure you have a complementary lighter accessory range 

-  In the current economic climate customers want to reuse lighters so make sure you also stock gas, fluid and flints, and merchandise the lighters and accessories together.

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