Toby Hill explains how to thrive in the ever-changing tobacco & vaping category
With sales under pressure and many customers downtrading to economy brands, the tobacco category is in a state of rapid flux. At the same time, the vaping market continues to evolve at a pace. Many retailers voice ambivalence about these changes: on the one hand, margins are far superior on vaping products compared to cigarettes; on the other, the breadth and complexity of the vaping market can make it a challenging category to get into.
Still, with 40% of smokers yet to try vaping, there’s significant scope for growth. Wholesalers can therefore do a number of things in order to make the most of the cigarette segment, while also harnessing the ever-expanding opportunities offered by vaping.
Continuing the trend
One clear ongoing trend within the tobacco market is downtrading, with plain packaging channelling customers towards mid-range and economy brands.
It’s something retailers have noted at the counter. “People in the cigarette market are very conscious of price,” says London store owner Nainesh Shah.
Sales data backs up these intuitions, with sub-economy cigarette market share increasing from 50% to 55%.
“In RYO, the economy sector share increased from 35% to 41%,” adds Imperial Tobacco’s head of corporate and legal affairs, Duncan Cunningham.
The same trends hold for cigars, according to Alastair Williams, UK director at Scandinavian Tobacco Group. “Our Let’s Talk research highlights how demand for value continues unabated,” he says. “Results show that price in terms of out-of-pocket spend was shown to have the greatest influence on consumer tobacco purchasing decisions.”
Moving with these trends means wholesalers should ensure they are well-stocked with economy and sub-economy lines, while keeping up to date with supplier adaptations to this shifting marketplace. For example, in 2018, Imperial shifted its L&B Blue brand from the economy to the sub-economy sector.
While customers continue to seek cheaper options in the context of cigarettes, retailers report a newfound flexibility in their previously rigid buying habits.
“I’m noticing that people are much more adaptable now than in the past,” says Shah. “They’re more receptive to us approaching them, and if we offer alternatives people are open to trying them.”
From a retailer’s point of view, the challenges in the tobacco market have created a host of promising opportunities elsewhere.
“As a retailer, this is an opportunity, as on vaping products we can make 30% margins, whereas on cigarettes we only make 5%,” Shah adds. “It’s great to have products in the tobacco field that are making a good return and not just the bare minimum.”
A similar flexibility is also creating opportunities in the cigar market, according to Scandinavian Tobacco’s research. “Our research showed 79% of smokers who regularly visit a convenience store would try an alternative tobacco product, such as cigars, if it was recommended by store staff,” explains Williams.
As all this suggests, in order to make the most of these new opportunities, wholesalers must work on developing their knowledge and understanding of what – in
the case of vaping – is a chaotic marketplace.
“Traditional wholesalers and retailers need to dramatically upskill their knowledge and expertise if they are to compete and win,” says Chris Street, head of sales and marketing operations at Blu.
“Read up on the category to understand the product types, how they work and the terminology. This way, you can best advise customers on what vaping products are right for them and their store.”
To help with this, JTI’s head of wholesale, Jan Louw, suggests that wholesalers should visit the JTI Advance website and maintain regular contact with their local JTI Rep, so that they
are updated on vaping ranges, NPD and legislation.
Retailer Kamal Thaker, who installed a Vape Guru counter in his Middlesex newsagents in December, has noted the need for a more informed, proactive approach to selling vaping products.
“I’ve learned that you have to sell vaping products differently than you do cigarettes or chocolate bars,” he says.
“It’s much more assisted selling: you can’t just leave it on the shelf, you have to explain to customers what it’s about.
“It might be that they go to a different vape store, and you need to get into a conversation to nudge them towards shopping in yours instead.”
By improving their knowledge and communicating with their customers, wholesalers can play a key role in helping retailers harness the opportunities offered by vaping.
As the vaping market becomes more mature, distinct sub-sectors are emerging within it. This means stocking just one or two vaping products is no longer sufficient.
“Retailers need to be able to offer a full range to consumers so they can offer each purchaser different strengths and flavours to suit their preferences,” says Chris Carr, director of UK sales at Edge.
“The vaping category needs to offer specific price points, premium, mid and low, to help capture all consumers.”
Similarly, vapers are developing increasingly sophisticated tastes. “Many vapers now have a variety of vaping kits for use on different occasions,” says Brett Horth, chief executive at Vapouriz Group.
“Versatility is the key to success, as consumers look for quality e-liquids that can be used across a range of different devices.”
“Currently only a minority of vape sales stem from traditional retail outlets, suggesting a growth opportunity for convenience store owners prepared to upskill. In terms of ranging and availability, wholesalers should advise retailers to stock at least one open system and one closed system, and consider stocking new product offerings to help customers tap into the latest trends. Wholesalers can also get and remain ahead of the curve by tapping into supplier relationships, as well as generating a buzz by increasing the visibility of e-vapour in depot. They could also consider running competitions, taster events and promotions in order to generate word of mouth among local retailers.”
“We recently introduced a product called Juul, which has really taken off in the States and is just entering the UK market. It’s screaming through our shop at a rapid pace. We only started stocking it in October and have already placed 21 orders. It’s simple to use and can be charged via USB.”
“Own label does better in our area because of the lower price-mark. From my point of view, wholesalers need to get newer flavours out to convenience stores quicker. The supermarkets always seem to get everything first and they also offer crazy deals that we cannot match.”
“There are few trends in tobacco as any NPD is so difficult to get over now. Obviously there’s the capsules but that’s more supplier- than customer-led, as they have the technology and are prepping for the deletion of menthol cigarettes. In vaping, we’re seeing a clear trend towards capsules.”
“Our tobacco sales remain confident: there hasn’t been a noticeable dip in sales over the past year. There is still a trend of people switching brands as they seek out cheaper alternatives, but even that’s stabilised, as most people have settled on their preferred economy brand after the packaging changes and know what price range to expect.”
1. Surf the downtrading wave – Focus on the economy and sub-economy end of the factory-made cigarette sector, as customers continue to prioritise value.
2. Communicate with customers – Consumers are increasingly flexible and open to advice in this category, and wholesalers can work with retailers to provide this guidance.
3. Upskill and inform yourself – As the vaping market matures, vapers are increasingly finding their niche. Wholesalers need to know what products are popular in their area.
4. Supplier relationships are crucial – Navigating the vaping market can be confusing. Establishing a solid relationship with a specific supplier can help greatly with orientation.
5. Stay ahead of change – Even amid all this change, the black market continues to thrive. Wholesalers need to inform themselves of the latest track and trace changes coming into effect in May.