Life, they say, is all about taking the rough with the smooth, and when it comes to the UK’s £1.9bn roll-your-own tobacco (RYO) market, smooth is definitely where it’s at.
That’s the value of the UK’s RYO market, which is growing at 15.2% year on year, according to JTI
The vast swell of adult smokers seeking to save money by migrating into the RYO category, but who are used to the smoother taste profile of factory-made cigarettes, has led to increased demand for smoother RYO products. And it’s a need which the UK’s major tobacco players have been quick to fulfil.
As a result, the smooth market has grown by a staggering 16% in volume terms within the past year alone, according to Imperial Tobacco estimates.
Demand for smoother products has also been fuelled by women, who in a complete reversal from 10 years ago now account for the lion’s share of existing adult RYO smokers, at 55%, says Imperial.
Responding to the trend, Imperial decided to relaunch its Golden Virginia Smooth range in mid-March as GV Smooth. The “new generation brand for a new generation of adult RYO smokers” would have “significant appeal to females and adult smokers aged 18 to 35”, Imperial says.
Imperial is not alone in heading in this direction. JTI, for example, recently extended its Old Holborn brand with new Holborn Smooth Taste, available in 10g and 20g pack formats with respective rrps of £2.90 and £5.70.
“Unlike its parent brand, the blend of which is darker in colour, Holborn Smooth Taste uses a unique mix of tobacco to provide a smoother taste, created for the growing number of adult ready-made cigarette smokers looking for a RYO product,” says JTI head of communications Jeremy Blackburn.
“Tobacco sales at my large Budgens store in Chorleywood are actually up year on year. It’s a pleasant surprise since the display ban meant I had to cover up my gantry, but I guess the service must be better at my store than it is in the supermarkets.
“RYO is now one of the biggest selling tobacco categories and within that value-for-money brands such as Sterling Rolling are the most popular. We might be emerging from the recession, but it seems that smokers’ demand for cheaper products is now deeply entrenched. I make a larger margin on RYO products than I do on cigarettes, even on pricemarked value brands, so I’m quite happy with that situation.
“Pricemarked packs also sell much faster than non-pricemarked, and I ensure I sell a good mix of these in all my stores, even those in more affluent areas such as Thames Ditton in Surrey, where I have a Simply Fresh store.”
Vic Grewal, three stores in south east England
JTI’s Amber Leaf range was also extended with Amber Leaf Blonde in November 2012. The brand uses a “cigarette-like” blend of premium Virginia tobacco to provide a smooth taste, and Blackburn claims that the brand has shown strong performance across the RYO market since its introduction, leading to a 2.5% volume share in the independent channel.
But, of course, the dominant trend shaping the UK’s booming RYO market, which now constitutes the biggest sector of the tobacco category by volume, is price.
JTI segments the UK tobacco market into three distinct sectors: value, mid-price and premium. Based on 12.5g pack sizes, the price segments can be defined as: value - below £3.80; mid-price - £3.80- £4.15; and premium - above £4.15.
Value currently holds a 15.9% share of the RYO market, up 10.8% year on year, while mid-price is the largest sector with a 59% share of the RYO market, up 8.3% year on year. Premium currently holds a 25.1% share of the RYO market, but this is declining at 19.1% year on year, according to JTI.
Adult RYO smokers’ quest for value has also prompted a raft of smaller pack sizes. It’s a trend which is being seen across many other FMCG categories, including crisps and soft drinks. Coca-Cola Enterprises, for example, recently launched a 250ml Coca-Cola can in a bid to appeal to cash-conscious shoppers.
Where just a few years ago RYO smokers only had three or four core pack sizes to choose from, they now have more than eight, with most positioned at the smaller end of the scale. Smokers can now choose from a variety of brands in packs from as small as 8g, to 10g, 11g, 12.5g, 14g and the larger 20g, 25g and 50g sizes.
All about blends
Virginia tobacco (Bright Leaf): The most popular choice of tobacco leaf, accounting for 60% of the world’s tobacco usage. Virginia is a very light golden coloured, flue-cured, mild tobacco leaf, which has a naturally high sugar content
Burley: The second most popular tobacco. It is a light brown, air-cured tobacco with a lower sugar content than Virginia. It gives a drier and fuller aroma and has a slower burn rate, making it a cooler smoke
Cavendish: A blend of tobaccos heated and stored under pressure for many weeks to bring out natural sugars and remove tar content, making it a mild, cool smoking, sweet blend
Kentucky: Produced from fire-curing Burley leaf, which retains a high nicotine content for a full-bodied smoke
Oriental Tobacco: A small sun-cured leaf, with a highly aromatic punch. Predominantly grown in Turkey, but also in Greece, Bulgaria andRussia. It is often used to give a blend a bit of bite and provides a dusty, dry, often sourish aroma.
Alan Graham, head of marketing at Scandinavian Tobacco Group UK (STG), sums up the situation: “Cost-conscious shoppers like smaller packs - it’s that simple. It’s much more convenient for them and it’s positive for retailers, too, as it drives repeat purchases during the week.”
In fact, this very message forms the heart of JTI’s latest trade communications campaign, ‘big profits come in small packages’.
It’s not only size that consumers are focusing on, though. Packs which provide added value are also growing in popularity. Recent research from Imperial Tobacco revealed that 62% of RYO tobacco shoppers preferred their tobacco to come with papers. The revelation prompted the birth, in mid-June, of Golden Virginia Classic and GV Smooth 25g packs with cut-corner papers to cater for this growing demand.
And just this month JTI announced the introduction of new three-in-one packs of Amber Leaf, which contain 10g of rolling tobacco plus medium-weight papers and filters. The new ‘complete kits’ are available in non-pricemarked and pricemarked packs with an rrp of £3.35.
The price is right
As most retailers will now attest, pricemarking now constitutes one of the key sales drivers across most FMCG categories, but particularly tobacco.
According to data supplied by BAT, PMPs accounted for 30.8% of total RYO volume to date in 2013, compared with 27% over the same period in 2012. In independents and symbols the importance of PMPs is even more pronounced, moving to 52.4% of volume to date this year versus 47.4% over the same period in 2012.
Age of the machine
The continued success of RYO has done wonders for the UK’s rolling machines market as more former cigarette smokers turn to these micro machines for help in rolling the perfect smoke.
“The RYO market grows year on year and attracts new consumers monthly. These new ‘rollers’ require direction and support with the new concept of rolling cigarettes. For example, they are embarrassed to roll in public and thus prepare roll-ups the night before using machines,” says Mascotte sales and marketing manager Sean Glynn.
Portion control is also playing its part in adding to the popularity of machines as smokers use them to help them roll slimmer and tighter to save money.
As such, Mascotte currently manufactures five different types of rolling machine to cater for all taste, size, ease and design demands.
One of its most popular machines is the Mascotte Slim Roller, which comes with free Mascotte Green papers. This ‘duo roller’ has an adjustable lever for rolling either thinner or thicker cigarettes and is particularly popular with smokers who like to tailor the size of their roll-ups to the size of their budget; bigger cigarettes on pay day, and smaller towards the end of the month.
The company also produces the £6.99 Mascotte Rollbox - a rolling device and storage solution for papers, filters and tobacco all in one.
“Delivering value to customers is essential in the current economic climate,” STG’s Graham adds. “Consumers are now taking more time to consider their purchases, often comparing prices of brands or weighing up promotional offers before making a decision. As a result, PMPs are becoming a more trusted way of delivering visible value for money as consumers feel reassured that the pricing is clearly labelled on pack for all to see and backed by the manufacturer. Our lead SKU is 12.5g of pricemarked Salsa at £3.15.”
Today’s cash-conscious smoker is also much more fickle, adds Graham. “Smokers are now much less brand loyal than they were, say, five years ago. They will have no qualms about switching if the price is right. We recently reduced the cost of Salsa to £3.15 and the uptake was exponential. Of course, there are some who will stick to their preferred brands, although these tend to be smokers who buy into the premium end of the market.”
On the subject of value, the Make Your Own (MYO) segment of the category is expected to become an increasingly prominent feature in 2013/14 and beyond as consumer awareness and understanding of how the kits work, and the value that they offer, grows.
Imperial’s JPS ‘Cigarette Making Kits’, for example, enable smokers to make up to 20 JPS cigarettes for £3.76 using the Cigarette Making Kit, almost half the price of a standard 20-pack. Smokers will need to make a one-off purchase of the £3.09 cigarette maker, and 99p tubes. Imperial Tobacco hopes that the proposition could give cash-strapped adult smokers a viable alternative to cheap illicit tobacco.
In addition to tar and nicotine, many tobacco products, and particularly RYO, also contain a variety of additives to change the tobacco’s flavour profile, burn rate and moisture levels. Sugars, for example, can be added during the blending or fermentation process to add sweetness. Due to its nature, RYO tends to dry out much quicker than factory- made cigarettes, meaning that additives called humectants tend to be thrown into the mix to help keep the tobacco moist once packs are opened. However, as the number of smokers entering the RYO category grows, so too is demand for products which deliver a purer, more natural flavoured smoke and contain less additives.
Constituting about 1% of the total UK tobacco market, additive-free, or natural tobacco brands’ share is still miniscule when compared with the success of their European counterparts.
However, as recent developments show, it’s a market which is starting to burn increasingly brightly. According to Imperial Tobacco’s UK communications manager Gayatri Barau Howe, “retail sales of additive-free RYO tobacco have more than trebled” with strong sales of its Drum Additive-Free brand since its launch last summer.
The other major player in the UK’s additive-free segment is STG’s Natural American Spirit, which according to Graham accounts for 0.5% of the UK RYO market, but is growing at 30%.
“The market for additive-free tobacco is huge in Europe and so we feel has great potential here,” Graham adds. “It’s just a question of getting the word out there.”
And while communication will undoubtedly play a role, finding ways to overcome the lower moisture levels traditionally found in additive-free brands will also be important. As they don’t contain humectants, additive-free RYO products can dry out even faster than traditional RYO brands, an occurrence which smokers claim can make them more difficult to roll, and lead to a quicker burn and harsher smoke.
“Smokers tend to overcome this issue by buying smaller packs, or by adding a piece of potato or orange peel to the packs once opened,” explains Graham. “We also produce a special stone which smokers can moisten and add to packs.”
One company which thinks it might have the answer to solving the dilemma is BAT and its latest offering: Cutters Choice - A True Blend.
While Natural American Spirit and Drum Additive Free are 100% additive free, Cutters Choice - A True Blend is free of taste additives only, meaning that humectants are still added to the tobacco to keep it at a moist 21.5% (Drum Additive Free is 15%.).
Spot the signs
Advice from HM Revenue & Customs on how to spot illicit products and traders
Look out for:
● Tobacco products without health warnings, or not in English
● Tobacco products without the ‘UK duty paid’ fiscal mark
● Unusual or foreign brands
● Tobacco products offered for sale at unusually cheap prices
● Poor-quality packaging
● Complaints from customers that the tobacco products don’t taste right
● Unusual, out-of-hours deliveries
● UK brands of tobacco with foreign tax labels.
Action to take
● Note where possible the description of people and vehicles, notably registration numbers, date, time, place, names
● Record details of the products, including selling prices and brands
● For your own safety, do not seek further information about the crime you are reporting or any other criminal activity
● Ensure that no one else knows you are passing on information.
With a significant marketing push, including a full trade media advertising plan and retail education through the BAT UK field force, BAT is confident that the brand will “make a splash among existing 100% additive-free smokers, as well as traditional Virginia blend brands such as Amber Leaf and Golden Virginia”.
News of BAT’s launch and marketing plans have been welcomed by STG, which sees it as positive for the whole industry. “When big brands launch into new markets they tend to raise awareness and so stimulate growth, not just of their own brands but also of others, so we hope that will happen,” Graham adds.
At the moment, demand for natural tobacco products is concentrated in London and the south and west of Wales. “In London, for example, Natural American Spirit has a 1.3% share of RYO sales compared with 0.5% nationally,” he adds.
And the category certainly won’t be closed to cost-conscious smokers. Contrary to what you might expect, products do not cost more than their traditional counterparts. Cutters Choice - A True Blend, for example, is priced at £3.99 for a 12.5g pouch and is available in pricemarked and non-pricemarked pouches.
While RYO sales don’t tend to be too heavily influenced by seasonality and warmer weather, one tobacco category most definitely is: cigars. In fact, almost one-third of all cigar sales are made in the summer months, which tend to play host to the lion’s share of national, local and personal celebrations and events - think weddings, bank holidays, fêtes and sporting fixtures.
“Last summer, for example, cigar sales jumped in the months of June July and August as British smokers spent more time outside and joined in with Jubilee and Olympic celebrations,” STG’s Graham adds. While it’s still too early to assess the impact of the recent July heatwave and birth of the royal baby, which prompted a host of impulse celebrations across the country, early indications from retailers suggest that a similar spike occurred again. And the summer is not yet at an end, meaning that convenience store retailers who missed out still have a chance to profit.
Retailer Martin Finch of BA Finch in Kent recommends ensuring that gantries are well stocked over the summer with a mix of best-sellers and cigar sizes, particularly miniatures which continue to grow in popularity. “I also keep a keen eye on the trade press, make sure I’m in close contact with my sales rep and, most importantly, monitor sales closely. Increased stock-holding, plus reserves out the back, ensures 100% availability,” he says.
JTI’s Hamlet range includes Hamlet Fine 5s, 10s and 50s, Hamlet Miniature 10s, and Hamlet Smooth 10s, and runs across the Panatella, small cigar and miniature segments, and last year generated more than £110m in retail sales.
RYO may well be the talk of the town, but it’s important to note that cigarettes still make up the vast majority of tobacco sales, accounting for £13.6bn of the total £15.8bn UK tobacco category, according to JTI.
While value brands continue to lead the sales charge, one of 2012’s leading trends was the growth of capsule technology, and their popularity has certainly not fallen off in 2013.
“In 2012, capsule technology accounted for some 500 million packs of cigarettes sold globally and generated more than £55m in retail sales value in the UK,” comments JTI communications manager Melanie Mills.
The company became one of the first to launch a 10-pack capsule cigarette format back in November. Sterling Fresh Taste on Demand, together with B&H Dual which launched last summer, have generated more than £29m in retail sales value, according to JTI.
Also generating sizzling sales is Imperial Tobacco’s Lambert & Butler Fresh Burst, which made its debut last April.
The range, which allows smokers to take control over the taste and aroma of their cigarettes, was given an additional boost in early May when Imperial redesigned the full Lambert & Butler portfolio.
The bold modern logo and ‘new pack’ communication has been designed to improve shelf standout, and aid retailer navigation.
The illicit trade in RYO tobacco is a significant problem in the UK. Latest data shows that non-UK duty paid consumption has reached 47.6%, heralding serious losses for both the government and legitimate retailers, while at the same time funding serious organised crime and fuelling antisocial behaviour within communities.
The news, announced earlier this month, that the Home Affairs Committee was to look into tobacco smuggling and the UK’s trade in illicit tobacco could not have come soon enough for the UK’s independent retailers, who are each missing out on an estimated 5,500 tobacco purchases a year, or more than 100 sales a week.
The inquiry will examine a broad range of topics, including whether the current sanctions and penalties for tobacco smuggling are appropriate; the relationship between tobacco smuggling and organised crime; and what should be done to disrupt the UK’s illegal tobacco trade going forward.
Manufacturers are also playing their part, as BAT’s acting head of corporate and regulatory affairs Ronald Ridderbeekx explains. “We’ve invested heavily in innovative track and trace solutions, which monitor and secure products across the supply chain. This year we will see the evolution of these types of technological solutions.”
As these state-of-the-art tools become more user-friendly for customs officials, they’ll be able to handle increasingly sophisticated data, and enable governments to exchange information quickly and easily across borders.
Retailers, adds JTI’s Jeremy Blackburn, can also play their part, providing the authorities with insights into problems within their own communities.
“Retailers’ reports are invaluable - independent retailers are the eyes and ears of their community, and the more information they can provide to the authorities, the more effectively we can eradicate the illicit tobacco trade.
“By mobilising against the illicit traders, retailers can play a major part in protecting their businesses from criminals that steal customers and profit from them on a daily basis.
“If retailers believe they know someone selling illegal cigarettes, they should contact HMRC on 0800 59 5000,” he adds.
Ones to watch
Republic Technologies UK is celebrating the 130th anniversary of its Swan brand with a limited-edition pop art design. Products bearing the bright new look include Slim Loose filter tips, Extra Slim POP filter tips and Slim POP filter tips. The move follows the earlier launch of an Ultra Slim Swan filter.
tel: 0800 085 7836
Imperial Tobacco recently added Player’s Smooth Kingsize and Super King Size 19s. The modern packs with 19 sticks and an rrp of £6.24 aim to appeal to value-driven smokers. Imperial expects the sub-economy price sector to account for 7.67% of the cigarette market by 2014.
tel: 0117 9636 636
A cut above
JTI has unveiled a new look for Silk Cut. Available in all trade channels now, the new pack has been designed to help boost premium cigarette sales. As part of the change the Silk Cut logo has been repositioned to the right side of the pack - the first time it had been moved since 1964.
tel: 0800 163 503
BAT is the first UK tobacco manufacturer to launch an electronic cigarette product. Vype contains a pharmaceutical- grade nicotine liquid that is made in the UK to current Good Manufacturing Practice standards. It will initially be available in a disposable format with an rrp of £6.99.
tel: 0800 444 236
It’s a blast
Philip Morris recently entered the capsule cigarette market with Marlboro Ice Blast. It offers smokers the choice between a cooling to high cooling smoking experience by pressing the ‘Iceball’ capsule inside the filter, and is available in packs of 20 king-size sticks only.
tel: 020 7076 6000