How the market looks as shoppers begin to count
the pennies

UK cigarette market

With UK tobacco taxes being among the highest in the world, the downtrading dynamic among adult smokers remains a significant trend in the cigarettes market. The market contains five price sectors - premium, mid, standard, value and economy - and it's the cigarette brands from the lower-price sectors that are performing consistently well, as adult smokers maintain a preference for quality cigarettes that offer value for money.
According to figures from Imperial Tobacco's 2008 Category Overview, the value-priced sector - led by brands such as Imperial's Richmond and Gallaher's Mayfair - constitutes 33.7% of the total cigarette market. This is forecast to grow to more than 35% by 2010.
Meanwhile, economy brands make up 9.7% of the market and this, too, is forecast to grow to 10.5% in the next two years.
As a result, all of the major tobacco companies have been placing heavyweight marketing behind their lower-priced brands, and launching new products of late.
The top-selling value cigarette brand in independent retailers is Mayfair with a 20.8% share of sales, closely followed by Richmond Superkings at 17.7%.
Gallaher launched its 'Make A Mint with Mayfair' campaign in April, in which retailers were given the chance to win delivery vans and a share of £10,000. At the tail end of last year Imperial expanded its Richmond range to include King Size Menthol 10s, and BAT launched Pall Mall - the UK's
first international brand in this segment.
The best-selling standard-priced cigarette brand in independent retailers remains Lambert & Butler King Size, followed by Benson & Hedges Silver King Size.
Lambert & Butler King Size is also the UK's best-selling cigarette across all channels, with a 13.1% share of the market, and growing at 2.3% year on year.
To capitalise on the brand's success, Imperial has just launched special-edition holographic packs, the first time a registered hologram has been used on tobacco packaging.
While the premium sector remains the cigarette market's second biggest segment at 26.7%, sales are falling as consumers trade down into the mid-priced and standard sections. Sales of Benson & Hedges Gold King Size, the brand leader in premium, are down by 5.2% year on year.
When it comes to size, it seems that bigger really is better. Kingsize variants account for 70.7% of the market; the above-kingsize segment makes up 27.8%; while standard and plain are less popular choices at 1.3% and 0.2% respectively. However, the same is not true in terms of pack sizes, where 10s still remain a hugely popular choice for thrifty smokers, especially in independents.

The RYO tobacco market

The UK RYO tobacco market continues to be a star performer, with 2007 volumes up 7.4% year on year to more than 3,600 tonnes as consumers continue to downtrade in the wake of higher taxes, growing household bills and fears over the credit crunch.
The dualist trend remains an important factor with regard to RYO, and more than four million adult smokers currently swap between the cigarette and RYO segment. East Anglia has the highest percentage of RYO smokers, followed by Wales and then the South West.
With an 82.3% share of the market, light tobacco continues to be the most popular colour by far, and it is forecast to extend its lead to just under 85% by 2010.
The sector is dominated by Imperial Tobacco's Golden Virginia, which has a 46% share of the market's sales and a value of £369.1m. Gallaher's Amber Leaf is in second place with a 22.2% share.
Increased choice in the category has also helped to boost its popularity. "RYO used to be the preserve of older males, but it now crosses all categories including younger females, thanks to the fact that there is a much broader range of products," says Gallaher head of communications Jeremy Blackburn.
In February Gallaher introduced a limited-edition 50g pricemarked pack of Amber Leaf exclusive to the independent and wholesale sectors, following Imperial's launch of Player's Gold Leaf handrolling tobacco in June. The 11.5g and 23g packs (each with a free pack of papers) offered margins of about 13% when bought at best terms.
Meanwhile, Henri Wintermans launched a 25g pouch to its Natural American Spirit range of additive-free natural tobacco, expanding on the existing 35g variant. The product also includes a pack of regular size OCB rolling papers.
James Higgs, head of commercial marketing at Henri Wintermans, says he expects to see a greater demand for natural tobacco products in the coming months and years. "We are living in an age where people are rediscovering the value of natural, untainted, organic products. As a result, pure natural tobacco is finding an ever wider and appreciative audience."
Retailers are being advised to stock a wider range of RYO products and respond to the trend towards larger pack formats. Latest figures from Imperial's tobacco category overview show that 50g and 25g pack sizes now account for 49.2% of the market, great news for retailers as larger formats drive loyalty and mean more profit.
RYO accessories such as machines and tips are also performing well as a result of the category's success. Like paper, RYO accessories offer high profit margins and UK adult smokers spent nearly £37m on such products in 2007. Volume sales of filter tips increased by 7.8%, generating £36.5m in annual retail sales - up 9% on 2006.

UK Cigar market

Being a product that sells strongly in pubs and clubs, cigars were hit hard by the ban on smoking in public places. However, latest figures suggest that the market is finally showing signs of stabilising.
Hamlet continues to be the UK's best-selling cigar brand worth £143.2m with a 25.1% share of sales - although this is down 2.7% year on year. Number two on the best- sellers' list is Café Creme Blue.
The miniature sector continued to grow last year, but at a slower rate than in previous years. It is still forecast to account for more than 50% of sales by 2010, taking over the small sector which is currently in decline.
Café Crème Blue is the number one brand in the miniature sector, with almost 32% of total sales. Just behind it is Hamlet Miniatures, followed by Café Crème.
James Higgs, head of commercial marketing at Henri Wintermans UK, attributes a number of factors to the growth in miniatures: "In a market where consumers can't legally smoke in public places, consumers are by default venue and occasion restricted. They are also time poor, again for a variety of reasons, and let's not forget the weather.
"What all this means is that consumers are now less likely to stand out in the wind and rain smoking large cigars and pipes. They are, however, more likely to smoke miniature cigars," he says.
Consumers' busy lives have had an impact, too, and with employers looking unfavourably on smoking breaks, many smokers are turning away from having lots of small 'fag breaks' and opting instead for one slightly longer cigar break.
Pricing is also pushing more people towards the miniature cigars sector. With the excise duty on large cigars continuously rising, a move
to miniatures is seen by many as a less expensive alternative.

Category management

With the threat of a dark market hanging over the industry, it's more important than ever before for convenience store retailers to get to grips with category management. This doesn't have to be a scary piece of industry jargon used only by large retailers. By looking at your tobacco sales generally over a period of a few weeks, you will clearly be able to see trends emerging as to which sizes and brands are hot, and which are not. Examine these trends and adapt your category around them.
A recent report by food and grocery expert IGD found that the international food and grocery industry was haemorrhaging millions of pounds by failing to implement defined category management processes.
"Companies are losing sales, hampering trading relationships and potentially failing to manage risk by not practising category management strategically or with defined processes," says Karen Bevan, head of consumer and category management at IGD.
Effective management of your tobacco category could also help you to gauge what sort of consumer is visiting your store, a fact which could help you boost sales in other areas.

UK rolling paper market

Rolling paper sales showed a slight decline in 2007, yet the market remains considerable, worth just under £110m.
Rizla continues to lead the bunch and its share grew by 2% in the 12 months to December 2007. Rizla Regular Green is also the UK's best-selling papers brand, accounting for 49% of total sales, up 1% on 2006.
And the major manufacturers have been working on innovation to drive further interest in the category.
September 2007 saw the launch of Rizla Smooth, its innovative paper with thousands of tiny perforations to provide a smoother taste. Meanwhile, Swedish Match launched new and improved Swan Green papers which are chlorine free and have improved stickability thanks to a natural gum.

Top 6 best-selling RYO tobacco

1. Golden Virginia
2. Amber Leaf
3. Drum
4. Cutters Choice
5. Old Holborn
6. Drum Gold
Source: RAL

Top 10 best-selling cigarette brands

1. Lambert & Butler King Size
2. Mayfair King Size
3. Benson & Hedges Gold King Size
4. Marlboro Gold King Size
5. Richmond Superkings
6. Richmond King Size
7. Royals King Size Red
8. Silk Cut Purple King Size
9. Mayfair King Size Smooth
10. Benson & Hedges Silver King Size
Source: RAL