With its double-digit growth figures and sweeter profits, Roll Your Own tobacco (RYO) has long since been the darling of the tobacco category and convenience store retailers alike. And over the next 12 months they look set to fall even deeper in love.
Last month it was revealed that for the first time ever, a RYO product took the mantle of biggest overall seller in the tobacco category. According to Nielsen Market Track data for May, JTI’s Amber Leaf brand is officially the number one tobacco brand in the UK, with a 9.4% volume share of the combined tobacco market. It’s a development which perfectly reflects the astronomical rise in demand for products which offer greater value for money and flexibility within the tobacco category.
The value of the RYO category has bloomed by 26% year on year, according to JTI estimates, with sales pepping up even further over the summer months, driven by the raft of national and sporting events, not least the Olympic Games, which has seen about six million extra people flood into London alone.
Wholesale orders of the Scandinavian Tobacco Group’s (STG) Natural American Spirit brand increased almost ten-fold in the weeks leading up to the Olympic Games and STG is expecting to report a significant sales uplift thanks in part to adult European smokers’ much larger appetite for additive-free products.
“Consumers are becoming increasingly interested in the sustainability of, and ingredients in, their purchases, a fact which is being reflected in the tobacco market and other FMCG sectors,” STG head of marketing Alan Graham says. “While demand for these types of products is growing in the UK they still represent a tiny slice of the market compared with other European countries where they are in the majority. One of the best-selling tobacco brands in Sweden, for example, is additive free,” he adds.
The best-selling RYO brands in the UK
1. Amber Leaf
2. Golden Virginia Green
3. Cutters Choice
4. Gold Leaf
5. Golden Virginia Yellow
7. Old Holborn
8. JPS RYO
9. Sterling Rolling
10. Pall Mall RYO
Nielsen Market Track May 2012 (volume share)
Graham is sceptical additive-free in the UK will ever reach this level of popularity, but says: “I wouldn’t be surprised if it accounts for 10% of sales in the next five to 10 years.”
Sales of STG’s Natural American Spirit brand are growing steadily, and since January alone it has made significant distribution gains in convenience stores, with an additional 2,000 now stocking it.
Imperial Tobacco’s launch of Drum Additive Free and Zig-Zag’s Rasta earlier this year will only help fuel growth of additive-free and propel the general popularity of RYO even further.
“One in three adult smokers choose to smoke RYO and the growth of the sector is predicted to continue for the next three years as adult smokers continue to seek out greater value for money,” JTI head of communications Jeremy Blackburn says.
And it’s not just sales that are swelling - the volume of different brands and variants available in the category is also on the up. This year alone has seen the launch of Salsa RYO from STG and Sterling Rolling, which is showing really strong performance in independents and across London, East Midlands, the North and Northern Ireland, according to JTI. This has led to a 1.4% volume share of the RYO market in just five months, the company says.
Closing the male/ female divide
Traditionally, the RYO market has been the domain of older males, but the past 10 years have seen this demographic change dramatically as the RYO segment has become more accessible to female adult smokers. The latest consumer data shows there are about two million adult female RYO smokers in the UK. About 1.6 million of these women can be classed at dualists (people who smoke both RYO tobacco and factory-made cigarettes). RYO tobacco still has a male bias and there are about 3.2 million adult male RYO smokers, 2.5 million of whom are dualists.
And that’s just the developments from the UK’s big tobacco manufacturers. Smaller independent suppliers have also been busy launching an array of interesting new flavoured products, such as Gawith Hoggarth’s new pina-colada flavour, helping innovative independent retailers to spice up the category.
However, this explosion of products is requiring store owners to think much harder about how they display RYO, especially since large stores are now trading in a dark market.
“The space on retailers’ tobacco unit filled with RYO tobacco products has increased dramatically over the past five years,” Imperial Tobacco head of convenience Mike Laney says. “The proportion of space given to RYO will vary from region to region but, on average, it has increased from about 6% to more than 15%.”
BAT’s Lewis points out that about 80% of that space should be allocated to top-selling brands and 20% for new brands, and that RYO should also be relocated to a more prominent spot on the gantry.
In recognition of this, Imperial created its RYO gantry solution. Bolted down the side of a retailer’s existing gantry, the slimline RYO unit gives the segment more room, and allows leading brands the luxury of double facings.
In Droitwich, Costcutter retailer Sat Sohal saw his sales of 25g packs jump by 23% in the four months after the unit was installed.
JTI has also developed dedicated RYO merchandising equipment, which retailers can add to their gantries to accommodate the extra room
“I owned an off-licence for 21 years before taking on this CTN store two years ago and am absolutely loving the change.
“Tobacco forms a huge part of our sales and Roll Your Own (RYO) is the real hero category. Sales of RYO have rallied by 15% since the Budget earlier this year when tax hikes made cigarettes unaffordable for many people.
“I think that my new RYO gantry from Imperial also helps as the category is really well signposted, with a large dedicated section down the right-hand side. The big brands such as Amber Leaf and Golden Virginia clearly lead sales, and I’ll always buy pricemarked packs where possible as people really look out for these.
“Service also makes a huge difference to sales and I try to interact with my tobacco customers as much as possible, finding out what they like and why.
“Rizla Regular Green is by far the most popular paper, and sales of Golden Virginia Yellow have really picked up of late, as have my sales of loose tobacco, which I bag up for people. They can choose to buy £1-, £2-, or £3-worth of tobacco, which I then put into a pouch carrying pictorial health warnings.
“Illicit trade is a big worry, though, and you really can tell when a shipment has come in as my sales fall off a cliff, dropping by half overnight, before going back up a few days later. That’s why I’m so worried about these plain packaging plans as it would make it so much easier for products to be counterfeited.”
Harry Haria, Seaford News, Seaford, East Sussex
Packaging within the RYO segment has also undergone something of an overhaul of late as Imperial’s Laney explains. “Over the past five years new printing inks and innovative new materials have become available for use with RYO packaging. These improvements in technology have enabled manufacturers to produce more varied colour schemes while keeping the packaging quality consistent and durable. New mechanisms to seal pouches to keep the tobacco fresh have also been introduced.”
The use of laminate pouches which help to keep products fresher for longer - particularly important for additive free tobaccos - has also increased. “Back in 2009, JTI introduced ‘Foil Fresh’ technology to the launch of Benson & Hedges Gold and Silver RYO, which incorporates a thin layer of foil in the pouch to ensure the tobacco stays fresher for longer.
“Whether it’s through the materials used or devices applied, pouch technology is constantly evolving,” JTI Amber Leaf brand manager Javier Roa adds.
And as adult smokers’ demand for products that offer the best value for money increases, the development of new and convenient pouches that also enable the storage of RYO accessories such as cigarette papers and filters also comes to the fore.
One of the biggest and most recent developments in this area is Imperial Tobacco’s new Golden Virginia Smooth 8g Handy Pack.
Available now, it contains a zip-lock pouch containing 8g of tobacco, rolling papers and filter tips all in one convenient flip-top box - everything an
“Our tobacco sales have gone through the roof in the past three months, partly as a result of the tobacco display ban in supermarkets, but also because of the closure of a neighbouring convenience store. We are currently having to order in more than 200 outers a week to keep up with demand, and this week it was 210.
“Price flashed stock is another huge sales driver in these austere times. If it’s got a price flash it will sell, and fast. I think brand loyalty has fallen by the wayside for many adult smokers. Last week one of our oldest male customers who had always smoked Windsor changed to a cheaper brand.
“It’s certainly making it harder for us retailers. We have to monitor the sales data so much more closely to ensure that we keep up with changing demand. You do get your old core smokers who wouldn’t switch for anything, but they are becoming fewer and far between, and I think that this trend will continue.
“Roll Your Own (RYO) tobacco has been a star performer in the past couple of years, and over the past 12 months in particular. Just over 30% of our total tobacco sales are now accounted for by RYO and this percentage is growing, while cigarettes account for 70% with sales being driven by the cheaper varieties. I’m happy about this switch to RYO as the margins on it are so much better. RYO sales tend to be highest Monday to Thursday as people smoke it in the week, before switching to cigarettes on the weekend.”
Janis Brackatt, Pipers News, Hailsham, East Sussex
“Value-seeking is, and has been for some time now, the dominant trend in the tobacco category and the new 8g Golden Virginia Smooth Handy Packs offer consumers a premium product in a convenient format at a low price,” head of consumer marketing Amy Kiss says.
“There are currently about 5.2 million adult smokers who choose to smoke RYO, and more than four million of them choose to smoke RYO during the week and cigarettes at the weekend.”
While we’re on the subject of value, we couldn’t fail to mention pricemarking, which continues to increase in popularity. They might not offer store owners the best margins, but as most retailers attest, this is more than made up for by the key sales and footfall boost that they provide.
“Price flashed stock is a huge sales driver in these austere times. If it’s got a price flash it will sell, and fast,” says Pipers News’ Janis Brackatt.
“PMPs give adult smokers reassurance of a fair deal,” BAT’s Lewis adds. “We advise that retailers stock them wherever possible as they provide confidence that the product is being bought at the best price and this confidence encourages repeat visits.”
However, the value-seeking trend is also sparking other interesting changes, namely the erosion of brand loyalty. While traditionally UK adult smokers are fiercely loyal to their brand of choice, barrelling out and away from stores in an instant if their brand is not available, cash constraints mean a growing number are switching between brands, choosing those that offer the best deal on any given day. It means that effective sales monitoring and eagle-eyed stock management are even more essential to limit out of stocks.
Says Lewis: “Simply getting the basics right in retail will always contribute to maximising profits. Through effective inventory management, clear merchandising and excellent customer service, retailers will maintain adult smoker loyalty as well as attracting repeat business.”
However, the reality is that even the most immaculately merchandised gantry and gold standard customer service can struggle to fend off the category’s toughest competitor: the illicit trade.
“Amid the positive news on the growth of legitimate RYO tobacco, the threat from the illicit trade is still having a major effect on consumers, wholesalers, retailers, manufacturers and the economy,” Imperial’s Laney says. “Excessive taxation increases, as well as the unintended consequences of disproportionate tobacco regulation, fuel the growth of illicit trade, and last year about 50% of all RYO tobacco consumed in the UK was non-UK duty paid, costing the treasury millions in lost revenue (HMRC/UKBA 2011.)”
It’s never out of the news and with a £13.3bn value and a principal footfall driver, the cigarette category is certainly never far from retailers’ minds, either.
The market is broken down into four distinct price sectors: premium, which accounts for 23% of sales sub-premium at 18% mid-priced at 28% while leading sales with a 31% share are value cigarette brands.
However, when it comes to new product development this summer, it’s been the premium end of the market that has received the most attention.
British American Tobacco (BAT) made further in-roads into the capsule cigarette market with the launch of Vogue Perle Capsule in June. Unlike other capsule cigarettes, which deliver a fresh menthol taste when the filter capsule is squeezed, Vogue Perle Capsule delivers a spearmint-flavoured burst.
The innovation allows the adult smoker the opportunity to tailor his or her smoking experience. Capsule cigarettes have already generated 20 million sticks of volume sales in the UK to date this year, and the category is tipped for further growth thanks to the success of earlier launches from the likes of Silk Cut Choice, Lucky Strike Click&Roll, which has already sold more than 3.8 million sticks since launch in December 2011, Lambert & Butler Fresh Burst, and Benson & Hedges Dual.
Premium cigarettes have also been getting thinner of late, as manufacturers look for other ways to offer the adult smoker the best quality at the most affordable price. Take Philip Morris’ slightly thinner Marlboro Gold Touch, for example. Following a trial period in the affluent South East, the brand was rolled out nationally this summer. And, following the launch of Lambert & Butler Profile in April, Imperial Tobacco introduced new Richmond Profile across the UK in June. The ‘compact’ cigarettes are king size in length, but have a smaller diameter and are therefore offered at a lower recommended retail price of £6.50 for 20.
Sales of compact cigarettes, which provide an alternative to king size cigarettes, have tripled since January this year, according to Imperial head of consumer marketing Amy Kiss.
So just why is RYO so much more susceptible to counterfeiting and smuggling? Well, the fact that it is so much cheaper to produce than ready rolled cigarettes is a key factor. “In addition, unlike cigarettes, RYO products do not suffer so badly from being crushed,” BAT head of corporate and regulatory affairs Ian Robertson adds. “Smugglers are therefore able to carry large quantities in a small container. Adult smokers go to illicit traders because of price, and so the supply and demand of these products is assured.”
The good news is that retailers, manufacturers and enforcement agencies are working together like never before to tackle the problem and, given the marked increase in reports of illicit seizures and sentencing, it does appear to be having an impact. However, with government plans to introduce plain packaging across tobacco, and further tax hikes in the offing, this progress is looking markedly perilous.
“The seriousness of plain packaging, if introduced, cannot be over-stated,” JTI UK’s managing director Martin Southgate explains.
“Plain packaging will make it easier to make fakes, putting money in the pockets of criminals and taking money out of the tills of legitimate shopkeepers. It also risks increasing underage smoking, by driving tobacco further ‘underground’.
“The crooks and the counterfeiters from the criminal underworld will never have found their work to be so easy or so cheap.”
Last month JTI launched a nationwide advertising campaign against the plain packaging proposals. The government consultation is now closed, and the following few weeks will tell if it, and the many hundreds of responses from other manufacturers, retailers, trade associations, packaging companies and, of course, Convenience Store have been successful in convincing the government to shelve plans. •
While not yet produced by any of the UK’s big tobacco manufacturers, a growing number of independent convenience store retailers are stocking flavoured products produced by smaller independent producers to add colour and interest to their RYO ranges.
Bipin Haria of Seaford News in East Sussex is one such retailer. “Earlier this year I used my experience gleaned from 21 years as an off-licence retailer to start introducing monthly ‘guest’ tobaccos from the supplier Gawith Hoggarth. I buy the tobacco loose and then bag it up in special packs with pictorial health warnings. I sell a wide variety of different flavours including vanilla, strawberry and menthol. It’s displayed on the shelf in large glass jars, which look quite smart and definitely create a talking point among our adult smoking customers, particularly when a new guest flavour comes in.
“I started out with a tiny order and I’m now buying in £500-worth every month. Vanilla is by far the most popular flavour and it’s chiefly bought by adult females between the ages of 25 to 35. In addition to creating a talking point the margins are excellent, at least 25%,” he says.
“I also sell some pre-packed varieties of flavoured rolling tobaccos and have just introduced a range of cocktail flavours including pina-colada, which is proving popular. It brings something exciting to a normal everyday experience and it keeps people coming back to see what you’ve got every week.
“That’s why I’m also really worried about the tobacco display ban. I know us small shops have the three-year advantage over the supermarkets, but once it is enforced in smaller stores I’ll lose all of this that element of surprise and fun. People won’t be able to come in and browse all the flavours anymore and gossip over the guest varieties. It’s quite sad.”
ones to watch
Imperial Tobacco recently unveiled the first RYO tobacco Handy Pack, containing a zip-lock pouch, papers and filter tips in a flip-top box. The packs are available in Golden Virginia Original and Smooth tobacco. They have an rrp of 20p above a standard Golden Virginia 12.5g pouch, yet offer a 79p saving compared with purchasing components separately.
tel: 0117 963 6636
Amber Leaf was first introduced to the UK as a brand extension of Old Holborn in 1991. The brand has a current sales value of £467.1m, according to Nielsen, and 97 million packs are sold each year, making it the UK’s number one tobacco brand by volume. Old Holborn is still sold alongside it, and remains one of the top 10 RYO brands in the UK.
tel: 0800 163503
Rolling back prices
BAT has replaced its 12.5g pouches of Pall Mall RYO with an 11g pouch, and reduced the gram for gram price. Priced at £2.99, the 11g pack format was launched in response to focus groups which revealed that adult smokers wanted a quality RYO product priced under £3. Pall Mall’s 11g RYO pouch is now available nationally in pricemarked packs.
tel: 0800 444 236
Hot to trot
Scandinavian Tobacco Group has introduced a new pricemarked pack for its 12.5g Salsa RYO. The £3.35 pricemarked pack is designed to drive sales for retailers by allowing them to demonstrate visible value for money, BAT says. The Salsa range made its debut on the UK market in June and also includes 25g and 50g tobacco packs.
tel: 020 8731 3400