Talking Retail Grocery and product news for independent retailers
The latest in a growing number of restrictions kicked off by the display ban several years ago, there were fears the ban on menthol cigarettes last May would disrupt the category once again after too many legal upheavals in recent years.
At this early stage some 15 months on, it appears that those fears were misplaced as the category has remained buoyant and many former menthol smokers appear to have switched to alternative formats.
Tobacco companies have also been busy with new products to plug the gap left by the absence of menthol brands and many of these have proved popular with shoppers.
Vaping suppliers also spotted the opportunity with the launch of menthol alternatives since May 2020 to cater for smokers who prefer the taste. The result of this burst of activity from suppliers is that the menthol ban has not proved as significant as was feared at one stage.
The outcome is a relief for retailers who have faced a series of changes in recent years and are still coming to terms with the track-and-trace system that was introduced in 2019 with the aim of cutting illegal sales of tobacco.
It means all businesses involved in the supply of cigarettes and roll-your-own tobacco now must have an economic operator identifier code (EOID). There could be further changes to come as the new system is developed in the years ahead.
Steady growth
Ian Howell, JTI’s fiscal and regulatory affairs manager, says: “With everything that has happened over the last year, the tobacco market continues to be one of the biggest and most resilient categories in the UK, driving footfall and revenue for stores.
“In the UK, the cigarillo category saw significant growth during May and June 2020, as a result of the menthol ban, with smokers looking for alternatives in the cigarette category. This trend has continued to grow steadily since.”
Despite several years of increased restrictions on the way tobacco can be displayed, sold and marketed, it remains a valuable category for convenience outlets, being worth £6.3bnin the 12-month period to March 2021.
That was 8.3% up on the same period the previous year. While tobacco remains a sizeable category for retailers, the emergence of vaping is adding welcome new sales momentum, although in value terms it remains relatively small.
The positive aspect for convenience operators is that they have become a key route for vaping shoppers, accounting for more than a third of total take-home business.
Gaining momentum
Vaping sales through impulse outlets were worth some £126m in the 12-month periodto March – 30% up on the previous year, which was also up 21% and shows how buoyant this category is for convenience retailers.
This sales bonanza is even more remarkable given the rise of high-street vaping outlets and growing online sales of equipment. Specialist vape stores were forced to close for face-to-face sales during the recent national lockdowns, as they were classified non-essential by the government, which was a welcome boost for convenience outlets. The menthol ban also provided some new momentum for sales.
Vapouriz spokesperson Mike Godwin says: “Following the menthol cigarette ban in May last year, we did see a significant increase in people choosing our menthol products, and we continue to do so.
“As smokers regularly look to vaping to help them give up cigarettes, menthol remains one of the most popular and accessible flavours for many smokers making the switch to vaping for the first time, so vaping was always very well placed to cater to former menthol smokers following the ban.
“All of our brands, including Double Drip, Pocket Fuel and Vapouriz have a strong menthol offering that continues to be very popular with consumers.”
John Patterson, sales director at Juul Labs UK, says: “Both e-cigarette and menthol flavoured e-cigarette sales have increased over the past year, so it would seem that more smokers have transitioned away from both cigarettes and menthol cigarettes over the past year.”
Juul Labs UK launched menthol pods in April last year “to offer adult smokers, particularly those who preferred the taste of menthol, a wider choice of alternatives”.
John Taylor, chief marketing officer at Vape Dinner Lady, says: “Menthol has always been a popular choice for those making the switch from cigarettes, due to the familiar flavour profile it offers.
“There was certainly some increase in our menthol sales, around the time of the ban, and Dinner Lady’s blue menthol and fresh menthol e-liquids and vape pens remain very popular.”
Shopper demand
Imperial’s Cunningham detects a significant change in the way consumers are shopping the tobacco fixture that convenience retailers need to be aware of.
“A trend that we have seen developing in recent years is a move towards more of a nicotine portfolio, with smokers buying different roll-your-own and factory-made cigarettes to suit different occasions. In fact, figures show a quarter of consumers are now dual-smokers.
“While many smokers may be experimenting with the nicotine products available across segments, shopper demand for value continues to dominate buying habits in tobacco overall.
“This is a trend we expect to continue and grow in 2021 and beyond. With this in mind, retailers must be well-equipped with a strong product range across all categories in order to cater for this trend and keep one eye on their sales so they can adapt their range to meet the needs of their customers.”
As the nation emerges from the Covid-19 outbreak, one impact may be that it speeds up the shopper shift to brands at the value end of the market.
“We may see shoppers down-trade from premium brands to more value-focused offerings. To help retailers cater for these shoppers, we have been busy developing a range of products across both the roll-your-own and factory-made cigarettes segments that offer the exceptional value shoppers are looking for, but with the premium features they have become accustomed to.
“As a result of this continuing shift into roll-your-own, the segment has expanded its market share and now accounts for 45% of tobacco sales, with recent data showing volume sales are growing by an impressive 30% as consumers seek out greater value for money.
“In line with this growing demand for value, sales in the economy RYO segment are also rising and Imperial is well positioned to help retailers tap into this trend, with more brands in the economy segment than any other manufacturer.”
Illicit trade
JTI’s Howell says the pandemic has had “an interesting effect on the tobacco market, with legal, duty-paid sales holding up well, particularly in the case of RYO”.
He adds: “That’s not to say the illicit trade has gone away. It remains a serious problem and takes revenue away from legitimate retailers, facilitates the supply of tobacco to under-age people, and supports organised criminal networks.”
“The illicit tobacco trade remains a serious problem for law-enforcement agencies, retailers and communities across the UK. In fact, research conducted for JTI last year found that, despite lockdown and travel restrictions, 32% of smokers were still able to purchase tobacco that was not subject to UK taxes.
“Our analysis of media coverage on illicit trade suggests that November 2020 saw the highest monthly volume of cigarettes seized in the UK in the past five years.
“This included one of the largest seizures of its kind taking place just outside of Dudley, with HMRC finding more than 30 million cigarettes worth a staggering £11.6m in unpaid duty.”
Howell believes the track-and-trace system may change further and this will present new challenges for retailers. “Further proposals would now involve giving trading standards officers the power to issue ‘on the spot’ fines to retailers selling tobacco without an EOID.
“This would, effectively, remove the need for cases to go to court, as retailers would have their right to sell tobacco instantly suspended or revoked, which could have a big impact.”
JTI, like other suppliers, has been busy with product innovation over the past 12 months. The company launched Sterling Rolling Tobacco Essential 30g in the spring.
The company claims “it offers the lowest price-point in the Sterling Rolling family as a less-for-less alternative, creating a great value tobacco option for shoppers”.
More recently, it has repositioned its Kensitas Club Rolling Tobacco with lower recommended selling prices, “giving the range the lowest RRP for a three-in-one rolling tobacco product”.
The company says it offers the same quality and convenient tobacco product in easy-to-use formats as previously sold. but with a better-value price.
By Martin Geary
