Tracy West updates you
Another year, another raft of legislation affecting the tobacco category. First, we had the introduction of child-resistant lighters. These are now filtering into shops and retailers have until March 11, 2008 to sell through any non-compliant stock.
Then there's the ban on smoking in public places rolling out across Britain and that's followed, in October, by the increase in the legal age at which teenagers can buy tobacco in England and Wales. And for c-store retailers, it is the age change that is concerning them the most.
The reasoning is simple. On September 30, 16- and 17-year-olds can walk into their local c-store and purchase a packet of cigarettes, but the very next day, October 1, it will be illegal to sell it to them. Most people in the industry accept the change - after all, there's nothing they can do about it - but the one thing retailers can't accept is the government's tortoise-like pace at communicating it to the public. This could mean retailers up and down the land will have to face disgruntled teenagers who think the shopkeeper has made up this new rule.
ACS public affairs manager Shane Brennan says: "We're very concerned about this and we're pushing really hard for a clearer and better planned approach. It's a major change in what consumers are entitled to do, but there is a lack of awareness among those consumers. It's entirely wrong that communication is being left to retailers. What we'd like to see is the government focusing on communicating to young people through print media, radio and TV. We'd also like to hear government ministers talking about this."
To this end, Brennan says ACS is continuing to pressurise government and attend meetings to get the message across.
Brennan recognises that the long-term implications of the age change could be positive - having the same age for cigarettes and alcohol will make it easier for retailers. But he says: "Feedback we're getting from retailers at the moment is that they're very concerned because there's not enough awareness.
"Retailers need to talk to their customers," he advises, "and they need to put up posters in stores. We've already put posters out and we'll have more available."
Brandon Cook, lead officer for age-restricted sales at the Trading Standards Institute (TSI), agrees: "I'd advise retailers to start communicating now with their younger customers - build a relationship and say 'you're 16 or 17 now and I can sell you cigarettes, but come October I can't'."
From October 1 there's also the question of enforcement of this change in the law, and the prospect of armies of trading standards officers swooping on c-stores. Says Brennan: "Will Trading Standards be out on October 2 doing test purchases? We don't know. They're saying they're not expecting to from day one, but the law is law from October 1. Retailers must not be complacent. A report of irresponsible retailers selling to under 18s would be a big national news story and if that happens you can bet there'll be a crackdown."
Obviously, there will be pressure on authorities to ensure the new law is being enforced, but Cook says local authorities have not been given any extra cash for more tests. "There are test purchases going on all the time in one place or another. They used to be concentrated in school holidays when we could get more volunteers, but now they happen all the time."
However, he does concede that an authority could feasibly save up its entire test-purchasing budget and carry out a blitz in early October.
He says: "I'd advise retailers to adopt the Challenge 21 or No ID No Sale policy in their stores.
"The TSI was one of the bodies that pressed for the age change for two reasons - to benefit young people's health and also to help retailers by having 18 as the standard for age-restricted purchases. We're striving to advise retailers about the change before the legislation comes into force."
Jeremy Blackburn, group communications manager at Gallaher, says: "Education is the key - getting the consumers to understand the legalities - and that's where our salesforce comes in. They have a consistent message that's constantly updated."
Iain Watkins, trade communications manager at Imperial Tobacco, says his company is involved with Citizencard's No ID No Sale and he encourages retailers to go to their forums to learn how to refuse sales.
If the age change was not enough for retailers to cope with, there's also a suggestion by the British Medical Association of a licensing system for cigarettes similar to alcohol. The Department of Health says that the government favours a negative licensing system, but a spokesman says this would require separate legislation.
Penalties under the proposed negative licensing are harsh - retailers could be banned from selling tobacco for up to a year. Three instances of selling tobacco to minors would need to be proved within a three-year period before such a prohibition order could be sought. But the government wants such orders to apply to the shop where the offence occurred and to the manager of the premises.
ACS chief executive James Lowman is against the proposals because he believes existing penalties are not being used effectively. He says the maximum fine for retailers who are caught selling cigarettes to the under-aged is £2,500, but the average fine awarded is only a few hundred pounds.
Brennan adds: "The real issue regarding negative licensing is the technicalities - a ban of up to one year is a massive penalty. Then there are the three offences in three years - three years is a very long time in retailing. And what happens with enforcement post-ban? The ban covers the premises and the person, but what happens if the premises are sold and who is going to keep tabs on the person if they leave? These are all big concerns."
One of the worries from both retailers and manufacturers is that some of the new legislation could increase tobacco smuggling and counterfeiting: Imperial's Watkins says: "It's rather a naïve view if you think a 17-year-old is going to stop smoking on October 1. The worry then is where they will get their cigarettes from?"
This is something that also concerns Ken Patel, national spokesman for Retailers Against Smuggling: "When the law changes many of those smokers, rather than give up, may well turn to getting their tobacco illegally from street sellers and car boot sales. This will further boost the smuggling trade, which already thrives thanks to the government's high tobacco tax."
There's no doubt that smuggling of tobacco is big business, but so too is counterfeiting - and it's dangerous. Tests by HM Revenue & Customs (HMRC) have found that counterfeit cigarettes can contain higher concentrations of harmful substances including three times more arsenic, nearly six times more lead and 113% more carbon monoxide.
And the sheer scale of the counterfeiting is amazing. Imperial's Watkins tells of underground factories in China: "The authorities found an electric cable in a park that disappeared underground - underneath was a factory the size of a football pitch. That's the size of this illegal industry, and much of it is bound for the UK.
"And the problem is that the packs are so sophisticated it's difficult to tell the difference between them and the genuine article. We've done tests in our offices and some are so good that they've caught people out. But what's inside is another story - it could be anything.
"All we says to retailers is that if someone comes into your store with a deal that seems too good to be true then it probably is."
The Tobacco Manufacturers Association estimates that in 2006, two billion counterfeit cigarettes were smuggled into the UK.
In a bid to reduce this, the government has agreed that anti-counterfeit technology can be used on UK cigarette packs. At this stage, it is not sure what form this technology will take, but it will allow HMRC to use small hand-held readers to authenticate cigarettes.
HMRC's major successes in the war on smuggling in the past year include 53 million counterfeit cigarettes seized at Felixstowe over a three-week period; the dismantling of an illegal cigarette factory in Stevenage, Hertfordshire; and the jailing of seven people for a total of 25 years for smuggling cigarettes and alcohol worth £7m.
Retailers with any information about illegal tobacco sales should call the Customs Confidential Hotline on 0800 59 5000.
Gallaher's Blackburn encourages retailers to call in if they hear of any smuggling or counterfeiting. "There's a common misconception that it's not worth calling in because nothing gets done. But Customs uses all the evidence it receives to help cut off the main source of supply - it's like getting the artery rather than the vein. All communication to it is logged, and reporting any illegal goings on will ultimately protect a retailer's business."
If all this isn't enough to contend with, there's the prospect of more packaging changes. Grisly pictures warning of the harm of smoking will appear on the backs of packs. Gallaher's Blackburn says these won't come in for some time because manufacturers and retailers would need time to sell through older stock. The Department of Health could not confirm a time frame for their introduction.
Finally, doctors are calling on a ban of 10-packs of cigarettes "to protect children from tobacco".
With all that's going on in the tobacco category, surely you've got to question whether it's still worth stocking? Both Gallaher's Blackburn and Imperial's Watkins laugh at such a suggestion. They both point out that it's a £13.1bn category that puts a lot of money through retailers' tills. And it's not just the tobacco, it's a catalyst for impulse sales of soft drinks, confectionery and other items.
Don't forget, either, that adult smokers are very valuable customers as they visit c-stores more often than non-smokers and spend more.
So if you were thinking about giving up on tobacco sales, I'd think again if I were you.
Little black number
Benson & Hedges Black in a slide pack was launched recently at ProRetail, joining B&H Gold and B&H Silver.
B&H Black is a full flavour, 10mg cigarette, which retails at £4.89, putting it in the value-for-money sector of the market.
As with B&H Silver, the idea is to give smokers access to the B&H brand at a more affordable price. Silver also retails at £4.89, while Gold has a rrp of £5.44.
B&H Gold is the fourth best-selling cigarette brand in convenience outlets, while Silver is the 14th best-seller.
Coinciding with the launch of B&H Black, Gallaher has announced that B&H Silver 20s will be available in the slide pack on a permanent basis. Says Blackburn: "B&H Silver has captured the imaginations of young adult smokers and has widely been regarded as the brand that is doing something different. The limited-edition slide packs that were launched last year have proven so popular that we have decided to make the format permanent."
However, he adds that despite the launch of Silver and now Black, retailers need to maintain stock levels of B&H Gold for profit purposes, as it's a best-selling premium line.
Around the world
US - the Motion Picture Association of America has said that smoking will be more of a consideration when it comes to film ratings. The Ratings Board already considers under-age smoking when assigning film certificates, but will now also take into account smoking by adults.
UK - smokers looking for an alternative way of getting their nicotine fix could consider a switch to Swedish Snus. It's a smokeless tobacco that puts them at a significantly lower risk of cancer than cigarettes, according to doctors in an article posted online in The Lancet. However, all EU nations prohibit Snus, except for Sweden, which was granted an exemption because of the widespread use of the powdered tobacco. In the US smokeless tobacco is legal and Swedish Snus is being test-marketed in at least two cities there.
Hong Kong - A Chinese company has come up with the world's first 'electronic' cigarette. Golden Dragon Group's Ruyan cigarettes are battery-powered, cigarette-shaped devices that deliver nicotine to inhalers in a bid to emulate smoking. The cigarettes sell for about £100 each, and are already available in China, Israel and Turkey. China is said to be home to 400 million smokers, 10% of whom are keen to give up.
Scotland - Doctors have been issued with guidance about prescribing nicotine replacement therapy (NRT) to children as young as 12. GPs and chemists have been sent a 'good practice' update, which covers giving patches and gum to teenagers. NRT was passed for use by teenagers and pregnant women at the end of 2005.
US - There is controversy surrounding RJ Reynolds' latest launch. Camel No. 9 is presented in a little black box with a coloured border. It has been criticised for its name - close to a certain perfume - and its advertising which describes the cigarettes as 'light and luscious'. Although the tobacco company says the target audience is women, there are concerns that magazine advertising and 'marketing evenings' offering makeovers and free cigarettes are more likely to appeal to impressionable teens.
Denmark - thousands of smokers and restaurateurs have demonstrated against new anti-smoking laws. Smokers from across Denmark puffed away outside the houses of parliament and handed politicians a petition signed by 61,000 people. The ban is set to take effect in the country on August 25.
Portugal - the government has approved a law banning smoking in public places. It should come into effect within a year.
Roll your own profits
Gallaher group communications manager Jeremy Blackburn reckons there's profit to be had from stocking larger packs of RYO tobacco.
"Distribution of 12.5g packs is very good, but there is an opportunity for c-stores to extend their RYO range to include the larger 25g and 50g packs," he says.
"There's a common misconception among independents that these packs are just for the multiples but they're not."
The 12.5g packs account for 52% of sales; the 25g and 50g combined account for 48%.
A 12.5g pack of Amber Leaf has a rrp of £2.55; the 25g pack is £3.05 and the 50g, £9.99.
Going for gold
According to Pete Manzi, Imperial Tobacco UK marketing manager, the roll your own (RYO) market is worth £683m and growing by 14%. "Duty-paid RYO volumes have grown by double digits in each of the past two years," he points out.
He says that the successes in the battle against smuggling are helping: "Traditionally, the RYO market has been the most vulnerable to smuggling, but Customs has made great progress in recent years - the seizures of smuggled Imperial products have fallen by 98% in six years."
The company's newest launch in the category is Players Gold Leaf, a RYO tobacco in the buoyant lower-price RYO sector.
While Imperial Tobacco already has Drum and Drum Gold in the lower-priced sector, Players Gold Leaf is aimed at cigarette smokers wishing to move into the RYO sector. Says Manzi: "More than half the growth in the RYO market is coming from people moving from cigarettes."
New formats available from June 4 include 11.5g and 23g pack sizes in plain and pricemarked packs (£2.35 and £4.65). Says Manzi: "Our research with focus groups shows that there is room for another brand in the lower-priced RYO sector."
Spar Y Maes, Pwllheli
"Tobacco accounts for just 6% of our sales, which is very low, but that's because we major on fresh food. However, tobacco is still important as it's a proven footfall driver.
"We've never discounted cigarettes. In fact, we premium price them. Spar's pricing is divided into four bands - our store is within its 'supermarket' band, but we price cigarettes two bands higher at 'express' levels. The margins are ridiculously low so we've got to make some money on them. We do sell flashed packs, though, and Lambert & Butler pricemarked packs are our biggest seller.
"The ban on smoking in public places came into force here in Wales on April 2 and we had no hassle from it at all. Our tobacco sales have gone down slightly, but our booze sales are up. It seems people aren't going to the pub because they can't smoke there, so they're drinking at home and not smoking quite as much.
"My biggest concern about tobacco is the change in buying age. There was a lot of publicity surrounding the smoking ban so the public was aware of it, but there's been nothing said about the age change.
"We've been using Challenge 21 for some time. There was a bit of aggro at first, but people are used to it now. However, it'll be different in October when staff have to tell people that they can't buy cigarettes any more - even though they may have sold them a pack just the day before.
"We are very thorough when it comes to selling age-restricted items. We're a tourist town, but in the winter it's just the locals who come in. Some of the kids try it on - they take their school ties off and come in, but we know who they are.
"In the summer we have to be more cautious because of all the tourists. Staff have a checklist and they are tested every three months to make sure they know what they're doing.
"The good thing about the tourists is that they buy a lot of premium brands - our sales of Camel and Marlboro rocket."