tobacco trend 2017

With just six months to go before the full force of tobacco legislation on plain packaging and small packs comes into effect, there is one group of people who have hardly noticed: smokers.

The dull, olive packs mandated by law have started to appear in shops, but around half of smokers in the UK have no idea about the full extent of the changes that are about to be introduced.

According to a survey carried out for JTI, roughly 50% of smokers are unaware that the new regulations introduced by the EU and the UK government mean that all tobacco will come in standardised packaging, that packets of 10 and pouches of 25g or smaller will be banned, and that menthol will be banned by 2020.

“Awareness is still not as good as we may think it is: there are still a lot of questions out there about the changes,” says Jeremy Blackburn, head of communications at JTI.

JTI’s approach is to move onto the next stage of its campaign for handling the transition. Stage one was ‘don’t panic’, with an emphasis on business as usual. JTI calls this the ‘be prepared’ phase.

Stage two will be a final push for across-the-board compliance, to ensure that no banned stock is still on sale. To help the preparations, JTI has stepped up its communications: as well as leafleting and visiting retailers, it has booked full-page ads in national newspapers and set up a website called packchanges.co.uk to inform smokers of the changes.

In one sense, customers’ lack of awareness is no surprise: according to Chris Street, head of key accounts at Imperial Tobacco UK, not much has actually changed in terms of sales yet, which so far appear to have held steady.

“Although it is difficult to accurately forecast, the tobacco market in the UK remains largely unaffected and still represents a major category for stores as a cash generator,” he says. Total tobacco sales are still worth £15bn, making it the largest category in FMCG.

One question for the whole supply chain is how long that will last – will the future merely be about managing decline,  or will the tobacco market continue to grow? Next year stands to be the first true test of this.

The price debate

With margins of only around 3% on many tobacco products, retailers have been tempted to raise prices above the RRP. David Worsfold, of Farrants store in Surrey, is one of those ignoring the warnings about price-sensitive customers.

“We are finding the most important thing is convenience,” he says. Worsfold acknowledges that he is in this position because he operates in a wealthier part of the country, where convenience is the most important factor. But he warns of the risks for those operating in parts of the UK where competition is fierce: “As soon as your cigarettes are 5p more expensive than Sainsbury’s, your customers will be off,” he says.

smokersConfusion over price with no pricemarked packs available and pack sizes changing is likely to be seen by some retailers as a chance to return some margin to a product that has had it stripped away: the idea being that it will be harder for shoppers to compare prices from week to week.

But suppliers warn that confusion may simply put customers off: “We are already beginning to see evidence of customer confusion around price perception in the market,” says Street.

JTI’s Blackburn warns that once customers have been lost, it will be hard to recover the extra business they bring with them: “We always talk about footfall drive because smokers buy more than cigarettes. When you have lost that, it is very difficult to get those customers back,” he says.

Looking abroad

One pattern in the Republic of Ireland and Australia has been to encourage the growth of bigger boxes of cigarettes, with around 24 sticks, for better value. But manufacturers say it is too early to tell if this trend will gain traction in the UK.

With many customers facing a higher outlay for a pack of cigarettes, manufacturers say the market will be increasingly vulnerable to the illicit trade next year.

Imperial’s Street says the experience of Australia, which introduced plain packs in 2012, is a warning: “The market has witnessed a 20% increase in illicit trade since the introduction of standardised packaging, losing both the government and Australian retailers huge amounts of money,” he says.

Blackburn agrees: “The EU’s decision to ban tens, menthols and pouches of tobacco under 30g is a gift for criminal gangs, as smokers who find their preferred pack is no longer available could be tempted to buy illegal tobacco.”

Tobacco companies say that wholesalers have helped to crack down on illegal sales by keeping their eyes open and sharing information. In Manchester, Parfetts Cash & Carry noticed a sharp decline in sales of Golden Virginia rolling tobacco. They contacted Imperial Tobacco, which began investigating.

“By using information about a drop in cash & carry sales when established retailers either markedly reduce or actually stop purchasing their tobacco products through the legitimate supply chain, tobacco manufacturers like Imperial can commence investigations,” says Peter Nelson, Imperial’s anti-illicit trade manager.

Managing stock

The goal of the next six months is to make sure that no retailer or wholesaler ends up with unsellable stock after May 20 next year.

For Blackburn, the role of wholesalers is vital: “The better wholesalers get their stock management and rotation, the less of an issue that will be in retail,” he says.

He gives the example of a non-compliant case of cigarettes appearing late on in a wholesaler and then being split up between several retailers, making it almost impossible for the supplier to track down the unsellable stock.

“If wholesalers are able to get this right, everything else will fall into place – the importance of the wholesaler and its role during this time cannot be underestimated,” he says.

Blackburn also suggests that wholesalers will have a decision to make next year about what to do with the extra space left in the tobacco room after the banned products are removed. Whatever they decide to do with this space, the changes in the market do not have to lead to wholesalers’ tobacco sales going up in smoke in 2017.

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