There are a number of reasons why tobacco sales in convenience stores increased by 5.3% in the past year (Nielsen Scantrack 52 week ending March 20, 2010).

A number of large-scale seizures of counterfeit stock is one. Heightened stress levels as a result of what is now regarded as the most damaging economic crisis since World War II is another. The fact that the recession also led to a 12% fall for outbound tourism from the UK, resulting in significantly reduced levels of tobacco purchased abroad, also had a hefty impact, as did the fact that high fuel prices prompted many people to frequent their local stores more regularly. Whatever the reasons, though, it's good news for the 43,000-plus independent convenience retailers who rely on the sale of tobacco products to drive footfall and associated purchases in their stores.

And it's not just the cash that retailers can gain from tobacco sales that makes it a valuable category. Research regularly shows that adult smokers visit stores more regularly than non-smokers, and 79% purchase additional products while there.

In fact, latest data from HIM shows that just under a quarter of adult smokers will also pick up a pint of milk, 20% get a paper, 16% buy bread, 11% grab some booze, and 13% snap up a soft drink and confectionery. These tobacco- fuelled impulse purchases provide vital additional sales for convenience store retailers, meaning that stocking the right tobacco products in the right quantities is key particularly since evidence also shows that 58% of adult smokers will leave a store if their chosen brand is not available.

And with government plans to ban the display of tobacco still on the cards, ensuring good availability will become an even greater challenge for retailers.


Store owners won't be surprised to learn that the strong downtrading dynamic which has been so prevalent in the cigarette market these past few years was further exacerbated by price-conscious smokers in 2009. Last year more smokers than ever before chose to buy from the economy and value priced sectors, with the economy priced sector (ie products with an rrp of £4.50-£4.85 per 20) showing the strongest growth by far up a massive 42% to account for 16.3% of the cigarette category (Nielsen Market Track 12 months to December 2009). In fact, price is now the number one consideration for smokers when choosing their preferred brand, closely followed by taste, research conducted by Imperial Tobacco has found.

It's little wonder, therefore, that these segments have been the key focus for packaging refreshes, price marking and repositioning.

"Smokers are definitely more price savvy than they were a year ago," says independent retailer Ina Patel from Gems News and Food in Burgess Hill, West Sussex. "A few weeks ago we introduced some new 10 and 20 pricemarked packs of a top-selling economy cigarette line. It actually worked out a couple of pence cheaper for customers to buy two packs of 10 rather than one pack of 20 and it was only a matter of hours before they worked that out and started to do so. Evidently, every penny really does count at the moment."

And, according to retailers, the strong downtrading dynamic also seems to have had a rather corrosive effect on brand loyalty, with a growing number of hard-up smokers choosing to ditch their normal brands in favour of others that offer them more puff for their pounds during the week, before trading up again to "treat themselves" on the weekends.

It's a trend which is making stock control much more difficult for retailers to manage, and certainly keeping the manufacturers' sales reps on their toes.

"This has definitely had an impact," agrees BAT head of corporate and regulatory affairs Ronan Barry. "Consumers are shopping around much more for the best price, and also seek out pricemarked packs (PMPs) to ensure they are getting the best value for money," he says.

And if predictions are to be believed, this trend will continue at a pace over the next couple of years, with economy priced brands expected to account for almost a quarter of all cigarette sales by 2012.

One brand certainly making waves in the economy sector is JTI's Sterling. Sterling Superkings grew by a staggering 55.6% in the 12 months to 2009 while Sterling King Size grew by 81.8%. The brand is in growth in all UK regions, an impressive achievement when you consider the strong regional variations within the cigarette market.

Value price brands (£5.15-£5.40 for 20) also continued to grow in 2009, although at a slower pace, to account for 33.2% of the market.

Unsurprisingly, the sector taking the biggest beating in the current economic climate is mid-priced. Sales of mid-priced brands dropped off by a further 10% in the 12 months to December 2009 and it now accounts for under 6% of the market, a figure which is predicted to fall to below 4% by 2012.

The drop in sales of premium price brands wasn't nearly as drastic, though. The sector declined by 2.6%, but at just under £3bn it's still the second most valuable price sector to retailers.

"Brands such as Embassy, Regal and Marlboro offer significant retail margins and remain vital elements of the retail mix," Imperial Tobacco UK public relations officer Iain Watkins says.

Testing times for the cigarette category have also led to new product launches becoming more sporadic, as manufacturers chose not to jeopardise their position on retailers' gantries.

Alastair Williams, Scandinavian Tobacco Group UK trade marketing and communications manager, explains: "There are a lot of brands competing for a finite amount of space on the gantry, so tobacco manufacturers are sometimes reluctant to risk sacrificing the space taken up by an established brand for a new product. This cautious attitude has resulted in a lack of innovation and stimulus into the category."

It does, however, mean that manufacturers have invested heavily in refreshing the packaging of existing brands in the past few months.

JTI's premium cigarette brand Silk Cut was given a modern new pack design with an innovative textured feel in February, while packs of Benson & Hedges Gold and Silver flip-top 20s (including King Size, Super Kings and Multipacks) were relaunched in new bevel-edged packs at the beginning of May. Marlboro also made over its best-selling premium priced Gold range in May. Re-named Marlboro Gold Original, the new packs have been designed to "exude quality and style".

BAT also gave a wardrobe change to its Vogue Signature packs at the beginning of May. The premium-quality super-slim cigarettes have been repackaged in a more distinctive design which combines a white background embossed with a metallic purple logo and a new inner foil.

When it comes to size, packs of 20 are still by far the most popular choice for adult smokers with 66.6% of sales made on packs of this size no change at all from 2008. Sales of 10-packs slowed slightly between 2008 and 2009, but the biggest change was in the 40s market which saw its value rise by 15.6% last year.

Roll your own

You'd have to have been living under a rock for the past five years if you'd failed to notice the rocketing success of the roll your own (RYO) sector, and the past 12 months have been no exception. Total volumes increased by a further 16.5% in 2009, generating more than £920m in turnover for retailers.

"This latest rise has been due to a number of factors, such as a reduction in the number of adult smokers travelling abroad and the continued fight against the counterfeiting and smuggling of tobacco products," says Imperial Tobacco's Watkins.

However, ask any RYO smoker the key reason for his or her choice and the answer is invariably the same: price.

The economic downturn has prompted many smokers to switch from tailor-made cigarettes altogether, while encouraging a growing number to 'dual', adds Watkins. "About four million smokers now 'dual' between cigarettes and RYO and a common theme here is for a smoker to smoke RYO tobacco during the week and switch to cigarettes at the weekend."

The rise in the number of dualists has also prompted a dramatic shift in the profile of the adult RYO smoker. Formerly a category dominated by older males, it is now much more acceptable to adult female smokers aged 18 to 34, while still remaining popular with adult males from all social classes.

And it is this hotchpotch of smokers from different age, gender and class backgrounds that is fuelling some equally dramatic changes to the face of the RYO category. In the past year alone, higher priced RYO brands have lost significant ground to their lower price counterparts. According to Imperial Tobacco, which launched the Golden Virginia Yellow brand in March 2009, lower priced brands have grown to account for more than half the segment in the past year. And in the coming few months retailers can expect to see further changes to the category's constitution, and their gantry planograms.

The market is predicted to keep on growing, and will also develop far more defined price segments and associated new brands. In short, it will become increasingly similar to the cigarette market in its constitution, with economy, mid- priced, standard and premium segments all set to open up.

JTI and the Scandinavian Tobacco Group made concerted efforts to extend these new price sectors last summer with their premium Benson & Hedges Rolling Tobacco and even pricier Crossroad brand, which offers smokers a "more natural proposition".

Benson & Hedges Rolling Tobacco has already generated sales of £5m and JTI confidently predicts this figure will balloon in the next couple of years as the premium RYO segment evolves.

Ronan Barry, head of corporate and regulatory affairs at BAT UK, agrees: "We'll see more innovations such as limited-edition tins, filters, papers and rolling machines."

Retailers will also be encouraged to give over more of their gantries to larger pack sizes. 50g packs currently account for 18.9% of the market and this is expected to rise to just under 20% by 2012.

And with all these developments on the cards it's likely that smokers first attracted to the category by its low prices will continue to buy into it even if wallets get a little weightier.

"The fact that RYO products allow adult smokers far greater flexibility and the chance to personalise their experience will help make it an increasingly attractive alternative to cigarettes," Barry concludes.
Papers and filters
Roll with it
Retailers now have less than four months to sell through all cigars, RYO and pipe tobacco that does not carry the new pictorial health warnings. These warnings appear on the back of packs and replace the current rotational text warnings. Retailers who fail to remove old stock from their gantries before October 1 will be breaking the law and could be subject to large fines and or prosecution. For more information, visit JTI's website
Adult smokers currently spend more than £100m annually on rolling papers in retail outlets, with more than 50% of these sales made in convenience stores. However, with sales of lower priced RYO tobacco pouches booming (the majority of which contain papers), the volume of separate paper booklets has taken a tumble in the past year. Just under 250 million booklets were sold in 2009 1.6% down on 2008 figures. However, that's not to say that retailers should allow their attention to stray away from the segment which, when properly merchandised, can offer pleasing rewards. The papers segment continues to be dominated by green papers, and Imperial Tobacco's Rizla brand accounts for about three-quarters of total sales, half of these attributable to Rizla Regular Green. Green papers are also a top seller for Republic Technologies, with Swan Green the fourth biggest paper brand. Smoking accessories such as rolling machines and filter tips are also becoming an increasingly important part of the retail mix as more and more adult smokers enter the world of RYO from the cigarette segment. In fact, one in three new entrants to the RYO market look for these accessories, adds Imperial's Watkins. And just as in the cigarettes market, sales of menthol filter tips are also gaining ground as RYO smokers make the most of the fact that they can personalise their experience. "The menthol filter is a truly essential product," asserts Republic Technologies UK marketing manager Mark Alldred. "This well-established favourite now accounts for more than 9% of all filter sales, and has seen a growth of 25% in the past year."
ones to watch...
Marlboro has launched a new variant of its mid-priced Bright Leaf cigarette range to cater for smokers who like a smoother taste. Marlboro Bright Leaf Platinum is a 7mg tar cigarette and available to retailers in 10s and 20s in pricemarked and non-pricemarked packs. The light platinum coloured packaging also has a lighter-style opening which opens at the side of the pack with a click. rrp: 20s £5.70, 10s £2.95 tel: 0208 232 6000 

JTI recently unveiled a contemporary new look for its flagship RYO tobacco offering Amber Leaf. The newly designed 12.5g flip-top pack features an embossed leaf and logo design, as do the pouches. The changes are designed to help reinforce Amber Leaf as the RYO brand that delivers high-quality Virginia tobacco at an affordable price, according to JTI. rrp: 25g pouch, £5.65; 50g pouch, £11.20 tel: 0800 163 503 

Cutters Choice is hoping to supporting the growth in the 50g RYO segment with a new pricemarked pack. The packs come in two blends: Finest Virginia, which offers the classic Virginia RYO taste; and 'Gold', which combines Virginia with a hint of Oriental tobacco for a slightly smoother taste.Cutters Choice is available in three pack sizes: 12.5g, 25g and 50g. The Gold variant is available only in a 12.5g pack size. rrp: 50g, £11.48 tel: 0800 444 236 

British American Tobacco (BAT) has introduced a new limited-edition pack design for Royals, which will be available until mid-August 2010. Packs are wrapped in the distinctive red, white and blue Royals flag design and bear a new slogan 'Loud and Proud'. They replace all six SKUs (plain and pricemarked) as well as multipacks. BAT will be supporting the new packs with a trade marketing campaign. rrp: King Size 20s, £5.15 tel: 0800 444 236 

The Scandinavian Tobacco (ST) Group's Crossroad RYO brand has performed admirably since its launch in August 2009. The brand offers adult smokers a full flavour, light-colour tobacco that contains no artificial additives or chemicals and is made from natural tobacco. The ST Group anticipates growth to continue in 2010 as more discerning smokers opt for a premium rolling tobacco at mainstream prices. rrp: 25g pack, £6.29 tel: 020 8731 3400