The tobacco industry, under fire from all sides, is far from fizzling out.

According to AC Nielsen, around one in three packets of cigarettes in the UK are sold through the convenience sector and around 30% of UK adults smoke, spending a total of £12.6bn a year on their habit. And smokers make good customers: they shop at c-stores on average 4.5 times a week compared to 3.7 times for non-smokers (HIM CTP 2004).

Tobacco shoppers are proven to spend significantly more than non-tobacco shoppers - £7.29 per visit compared to £4.96, says AC Nielsen. Gallaher trade communications manager Jeremy Blackburn says: “Tobacco also drives significant footfall into stores and boosts associated or secondary purchases such as the lottery, newspapers, confectionery products and drinks.” According to Imperial Tobacco’s UK Tobacco Category Overview March 2005, independent c-stores accounted for almost 40% of UK duty-paid cigarette sales in 2004, and multiple c-stores claimed a share of more than 16%.

Imperial’s trade communications manager Iain Watkins says: “Independent retailers have demonstrated they can successfully compete with the multiples and have claimed a strong share of sales by stocking an appropriate range, implementing trusted merchandising policies and offering a first-class, personalised service.”

AF Blakemore & Son trading director David White says tobacco sales through c-stores could be further bolstered by the proposed legislation on smoking in pubs. “If vending becomes unprofitable, then this element (2.5%) could be largely taken up by c-stores,” he believes.

Watkins also says smokers are increasingly switching to lower-priced cigarettes which have seen high growth in the past few years.

Blackburn agrees saying that high taxation of cigarettes has prompted consumers to shop on price. The popularity of this sector is further enhanced by new products such as this month’s launch of Basic Superkings into northern England. Available in Virginia flavour 20s and Fine Virginia 20s the packs will be price-marked at £3.85. The launch will be strongly supported by a retailer trade programme which will include trade press and cash & carry advertising.

In the premium sector innovation has included the launch in April of Marlboro 28s from Philip Morris and British American Tobacco’s relaunching of Dunhill last month after two years of development. The rebranding includes a new look and taste aimed at 20-35-year-old smokers and retailing at £4.99. The packaging is designed to give a modern and aspirational image while the blend is “smoother and more flavoursome”, says the company.

Supporting the launch will be pack inserts and onserts, a customer care helpline, a trade marketing campaign and a dedicated field team to advise on stock rotation. According to Dunhill head of brand Claire Doyle: “Smokers at the premium end of the market want a high quality product with a modern and desirable image. And, of course, margins and therefore profits in the premium-priced sector are greater.” The new range will include Dunhill Red, which will replace King Size; Dunhill Blue, replacing Filters; and re-formulated Dunhill Menthol. The only one of the Dunhill range not to be affected by the rebranding will be Dunhill International.

A category which is benefitting from a radical change of image is roll your own (RYO), with customers spending over £500m on tobacco (+9.2% on 2003), £101m on rolling papers (-0.2%) and £23.8m on filter tips (+5.8%) in 2004 (source: RAL/Imperial). RYO Swedish Match head of marketing Gareth Newton says that while the category is small within the overall tobacco sector, “it’s the only category showing decent growth”.

For retailers, the category offers good margins - around 50% for a booklet of rolling papers. Imperial brand Rizla continues to dominate the papers market with value sales of £86.2m in 2004 up 3.5% on 2003 (RAL/Imperial). However, other brands such as Zig Zag and Swedish Match’s recently launched Styx are beginning to make inroads. Zig Zag commercial director Andrew Armstrong says that retailers don’t often recognise the opportunity in front of them with papers: “It’s probably one of the highest margins in the shop. When you work out how much profit is available on a box of 100 compared to the initial outlay and space on shelf, it’s such an opportunity.” He says that the shift in smoking culture has helped boost the market: “Roll your own has changed from being something that you do when you have financial constraints to a statement of ‘I’m an individual’. People will smoke cigarettes and roll thier own as well - something that never used to happen.”

Newton agrees: “Roll your own has changed from the cloth cap and whippet image with no filter to something that is now very trendy.”

This change has been reflected in the launch this year of Swedish Match’s Styx brand aimed at 18-30-year-olds looking for something different. The launch was backed with a stylish campaign aimed at students and first jobbers. The recently introduced Styx Combi pack combines 50 papers and 50 slimline filters in a flip-top pack retailing at 59p. Newton says the introduction of filters has helped strengthen the RYO market: “It’s been phenomenal. When filters were first introduced around eight years ago for the first few years consumers were saying, ‘What is this? What do we do with it? Why do I need filters - I’m 45 years old?’ Then young people got into RYO and the market took off.” MERCHANDISING
Of course as well as offering high margins, non-tobacco items such as filters and rolling papers have an added advantage in that they’re not covered by the strict legislation which dogs tobacco. Newton says retailers can take advantage of this to highlight their tobacco offering.

According to Blackburn, because convenience is showing strong sales across the four main categories of cigarettes, cigars, hand rolling tobacco and pipe tobacco, retailers should make sure all are stocked.
Watkins advises retailers to think carefully about their stock: “The tobacco category is probably one of the most regional in the UK, so where merchandising is concerned, it’s essential retailers keep abreast of changes in the market and recognise what local smokers are looking for.” Watkins adds: “The gantry and fixture behind the counter says a lot about the retailer so it needs to be done well and kept full, clean, clutter-free and well lit.”
Newton agrees: “The last thing you want is to buy tobacco from a cluttered convenience store.”
As for the future, even with legislation, smugglers and grey importers chipping away at the category, the outlook still looks good. As Newton says: “Whatever happens, I really don’t think smoking will ever die out.”

Prior to working with Imperial Tobacco in 2003, the north west chain of c-stores G&E Murgatroyd left planning the tobacco gantry in the hands of store managers. Sales and marketing manager Julie McAulay says: “We probably had 80 category experts out there - all with the best of intentions but not necessarily the best information.” Using the customer and sales data, planograms were drawn up and Imperial reps helped store managers implement them. Says McAulay: “The key to the project working was persuading store managers it was worth doing. It was a balance of explaining things and getting them to understand the reasoning behind it, and to understand the legality.”

Imperial account manager Ian Miller says: “We had to make sure the core range of distributed product was what consumers wanted and the product was available 365 days a year; then match that up with visibility.” Changes included delisting certain products, including Imperial’s own brands, which didn’t suit the needs of shoppers for a particular store, and adding products in some areas which were missing potential sales. Brands have been grouped by price, with higher margin products at eye line and brand facings representing the sku sales. Miller says pack sizes on offer also needed monitoring as 10s account for around 40% of cigarette sales in c-stores.

Regular store data means the planograms for individual stores can be refined to respond to launches or significant customer changes, and updates are carried out on a general basis twice a year. Since impelementing the plan McAulay says the results have included a sustained growth in sales outperforming the local market. In the first quarter of this year total transactions were up by 6.3% compared to -4.1% in the local convenience sector. There has also been a significant improvement in out of stock and a reduction in the value of holding stock. IN-STORE VENDING
Star Vendors has targeted the c-store market with a cigarette vending machine designed to be used in store and which is linked into the store’s epos system.
The unit, available in the UK since early 2005, is intended as a replacement for shop gantries and is designed to combat pilfering and fraud. Holding 1180 packs through 51 sales channels, the unit has an electronic programming system with individual product pricing, self- diagnostic, and full sales data capture and retrieval.

The unit can be attached to an epos till, and counter staff simply press a button to select the cigarettes with the sale automatically added to the customer’s shopping bill. The unit can also be used as a traditional vending machine, or staff can use an access card which needs to be inserted before dispensing, for added security.