Louise Banham speaks to four key tobacco suppliers to get their take on price-marking in the market
Price-marking is rampant across the majority of categories in the independent retail and wholesale channel, and tobacco is no exception.
In fact, one in three packs of tobacco sold is now price-marked, thanks to the ongoing trend for downtrading. Out of all adult smokers switching brands, 90% move to a lower price segment, resulting in ‘value tobacco’ becoming the biggest and fastest-growing part of the market.
Tobacco shoppers visit stores more frequently than non-smokers and spend almost twice as much as the average convenience store shopper each year, so providing the products local smokers prefer at the right price is vital. It’s essential that wholesale staff are aware of local market trends to stay one step ahead of the competition.
How valuable are price-marked packs (PMPs) in tobacco?
Richard: In terms of total cigarette volume, PMPs accounted for 32.1% of the market in 2013, compared to 28.2% over the same period in 2012. The value of cigarette PMPs in independents and symbols is even greater, reaching 59.4% of total volume in 2013 versus 54.6% in 2012.
Jeremy: PMPs are performing particularly well and account for 64.3% volume share of the roll-your-own (RYO) market in independents and symbols, with volume growing 4.3% year on year.
Louise: Why should wholesalers support price-marked tobacco in‑depot?
Five top tips to grow tobacco sales
- Availability and visibility: Installing an efficient stock replenishment process and recognising peak periods means customers will have better visibility and availability.
- Staff training: Retailers have a wide choice of cash & carry depots they can visit, so delivering service through well-informed and friendly staff is vital to customer retention.
- Use point-of-sale material: Posters, floor mats, free-standing display units, counter units, shelf strips, shelf wobblers and leaflets can engage customers.
- Range is key: Stock a range of price-marked products that respond to key market trends, such as value for money.
- Talk to customers: Take the time to speak to customers to show them you value their business and help you find ways you can better meet their needs.
Alan: PMPs offer great appeal to shoppers as they provide consumers with visible value while on the shelf. Despite the limited time consumers will be able to see the products after the implementation of the display ban, PMPs will still help flag pricing of products with their clear messaging on pack.
Jeremy: Existing adult smokers are looking for value, so it’s important that manufacturers and retailers demonstrate to consumers they are getting the best possible choice and value when making their tobacco purchases. Price-marking does exactly this while also driving footfall, customer loyalty and associated purchases.
Greg: Due to regular excise duty rates rises on tobacco, retailers are seeking greater value from the tobacco category. As a result of this, PMPs have become a popular option for both the trade and consumers within the market.
PMPs provide a striking on‑shelf presence, offering shoppers an opportunity to achieve a positive perception as well as communicating effectively that everything in a retailer’s store is great value for money. Stocking PMPs can help alleviate downtrading, ensuring stronger margins long-term, as well as helping to retain a loyal customer base.
How do retailers feel about price-marked tobacco?
Richard: Convenience retailers are increasingly looking for PMPs to help encourage shopper loyalty, so cash & carry managers should stock PMPs to help drive sales. With the upcoming retail display ban, now is the time for independents to show adult smokers they are providing the best prices on all their tobacco products. This will put PMP stockists ahead of the crowd.
Greg: Value-seeking continues to be the dominant trend in the tobacco category. Like tobacco shoppers, retailers expect their local wholesalers to have good availability when it comes to popular tobacco products. In an economic climate where increasingly retailers and adult smokers are seeking a lower out-of-pocket spend, it is vital for wholesalers to have a number of PMPs on display to show retailers they are charging a fair price and help them increase their footfall and protect turnover.
What do wholesalers need to consider when stocking tobacco PMPs?
Alan: Offering value for money remains key within the tobacco category and the onus is now on manufacturers to ensure they’re offering the cheapest tobacco products. Once the display ban is in effect in smaller stores, consumers will ask for the cheapest RYO range or cigar, not the second cheapest, so it’s important for wholesalers to stock a range of PMPs to allow retailers to respond accordingly.
Greg: In order to grow sales, wholesalers must first understand which brands and pack sizes will deliver the best sales in their local area, especially before using PMPs. Imperial Tobacco’s distributive representatives can help with this – for example, by helping to produce a space-to-sales evaluation to ensure brands are not over- or under-faced and to modify merchandising in-depot to allow for greater shelf space for popular SKUs available in PMP format.
What work are you doing to make sure wholesalers receive a good shared margin on PMPs?
Richard: Retailers need to be able to count on a great return. A number of BAT products are currently offering a 15% POR (profit on return) or 8% POR for retailers, so they can buy at volume now and realise the benefit of their investment. They include Rothmans Value, Rothmans Menthol, Cutters Choice – A True Blend, and Cutters Choice – Exquisite Blend.
What advice do you have for wholesalers?
Jeremy: The principles of category management have never been more important. Wholesalers must communicate advice on availability, range, training, innovation, sales and technology to retailers who shop at their depot.
Greg: Wholesalers should use the expertise of their Imperial Tobacco representatives. By building excellent relationships with category leaders, wholesalers will be able to stay on top of the latest trends in their areas and ensuring they stay one step ahead of the competition.