Thanks to price-conscious smokers and efforts to counteract the illicit tobacco trade, roll-your-own (RYO) tobacco has become a real profit-making opportunity for wholesalers. But with the revised EU Tobacco Products Directive (EUTPD II) coming fully into force this spring, wholesalers and their customers need to make sure that they adopt the right strategies to maintain sales.
The RYO market has grown significantly during the past 10 years as consumers have become more savvy about the amount they spend on what they smoke. But some fear that profits could disappear when the new legislation kicks in on May 20: pricemarked packs (PMPs) and anything below 30g will be banned from sale by UK wholesalers and independent stores, and current RYO tobacco branding will no longer feature on packs.
Jeremy Blackburn, JTI’s head of communications, says that despite the changes, the future remains positive for the category if wholesalers are prepared. “Worth £15bn, tobacco continues to be the biggest FMCG category. Those wholesalers that plan for EUTPD II will minimise the effect of the changes on their tobacco sales,” he notes.
Aside from ensuring that they are compliant with the new rules, wholesalers and their customers also have an important role to play in advocating the continuing value of their RYO tobacco offerings to adult smokers. According to Him! research, 34% of convenience store shoppers are smokers and, on average, 25% of smokers purchase RYO, so there is a significant market to be served.
Chris Street, head of key accounts at Imperial Tobacco UK, says: “We are already seeing evidence of customer confusion around price perception in the market, as the implementation of higher minimum weight sizes across the RYO sector means adult smokers will potentially have to pay more for their tobacco from May – at least in terms of initial outlay, if not in terms of ‘price per stick’ value.
“We are continuing to support our retail partners in educating adult smokers about the impending changes, to ensure any misunderstandings are minimal.”
JTI’s Blackburn says that training will become increasingly important, as staff who are familiar with the tobacco room, know about the changes in legislation. Those who have a good understanding of the category and brands will be able to guide retailers through the changes – helping to avoid confusion and secure repeat custom.
The introduction of minimum pack sizes means that smokers may have to reassess their purchasing habits. It is expected that the ‘little and often’ smoking trend will reduce significantly as people are put off spending more on a bigger pack.
Pros and cons
However, Imperial Tobacco UK anticipates that certain other trends, including the growth in popularity of sub-economy products, such as Gold Leaf, are likely to continue in a fully standardised packaging environment: “Small packs are gradually becoming unavailable as we transition through to May’s deadline, so retailers might wish to consider using price reductions to ensure they are adequately prepared for any likely increase in demand from consumers for larger RYO formats,“ Imperial’s Chris Street says.
Tony Lyles, field development manager at Ritmeester Cigars (UK), says that wholesalers and their customers should focus on the positive aspects of standardised packaging. “The advantage of the standardised packs – or at least minimum 30g packs – is that retailers buying them will know what the cheapest will be without having to work out whether this offers good value due to all the different weight pouches. The same will be said for the consumer. They will know that £10 for 30g is cheaper than £11 for 30g, for example,” he notes.
However, some have raised concerns that the banning of smaller packs, PMPs and traditional branding could increase the attraction of the illicit market to smokers. Lyles says: “I think illicit tobacco will become a huge issue as pack size increases will raise prices considerably. When I am in stores, I hear so many times from consumers, ‘What is your cheapest?’”
Imperial’s Street says that the Australian market has witnessed a 20% increase in illicit trade since the introduction of standardised packaging, suggesting an urgent need to increase the intensity and focus of anti-illicit trade messaging. Wholesalers are
encouraged to motivate retailers to engage with this campaign to help avoid a reduction in their income and customer footfall, as well as with their wider local community.
“Our message to all retailers is this: opting proactively to become part of the solution will be a huge help to authorities in tackling the real problem of illegal tobacco, while protecting local businesses and communities,” he says.
The power of price
As the tobacco category heads towards the May deadline, pricing will begin to play an even more critical role in the independent trade. Street says: “While convenience stores will need to manage their own pricing strategies particularly carefully during this period of legislative change, Imperial Tobacco has reiterated the importance of competitive pricing during this time of consumer uncertainty, a view which is shared by our wholesale partners, including Bestway and Booker.
“Wholesalers pricing RYO tobacco at recommended retail price or below and retailers making customers aware that they also sell their products at these competitive price points, for instance, are using a great way to foster loyalty and minimise any potential channel shifts.”
JTI’s Blackburn agrees. He says wholesalers must cater for price-conscious shoppers. “In a post-PMP market, smokers will become more price-aware as the tobacco market starts to adapt to the loss of price-marking and smaller pack sizes. At this early stage, evidence suggests that adult smokers and small store retailers are already shopping around and looking at switching channels and suppliers for better value, making it essential that retailers remain competitive.”
Ritmeester’s Lyles says: “To maximise sales, a retailer will need to stock the premium range and something that the majority can afford. If a wholesaler cannot supply it all, then a retailer will simply move on to the next cash & carry to shop.”
To support retailers through this period, Ritmeester has held presentations about the company and what goes into its products.
Lyles notes: “It is all about education. It gives retailers the knowledge and confidence in our products to make it work for them, which in turn increases their sales.
“Whilst this is aimed at retailers, I see no reason why the regular tobacco staff in depots cannot also partake. After all, any extra knowledge can only benefit everyone.”
To help keep up with the changes, wholesalers can access Imperial Tobacco’s Partnering for Success platform. JTI also offers online training modules, educational videos and easy-to-read information packs to boost staff’s knowledge of the legislation.