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Not only for the revenue it brings, but also as a driver of footfall and repeat business from regular customers and the associated basket spend.
According to the 2023 Local Shop Report from the Association of Convenience Stores, tobacco and e-cigs represent a huge 33.8% of total sales at indie retailers.
Creative solutions
But this landscape is constantly evolving and brand owners have become used to adapting quickly to new legislation over the years. Not just adapting but finding creative ways to survive and while traditional tobacco sales have been in decline for some time, many consumers have been transitioning over to ‘next-generation’ products such as vapes or nicotine pouches, which have become an important part of the mix.
The vape market is continually expanding, in the UK alone, the category is now worth about £1.2bn and is expected to reach £1.4bn in the next three years. E-cigarettes have added £71.7m to their category value, while heated tobacco and nicotine pouches have risen by £1.8m and £2.4m respectively in the year to July 2023.
Growing pressure
Significant growth has been seen in the disposable vaping category. Now worth 83% of all vape sales, the disposables market saw a remarkable increase from £141m in 2021 to £973m in 2022.
Recent data also shows that both closed-pod systems and basic open systems remain popular choices for vapers, accounting for 17% of the UK vaping market. However, this success has not been without its challenges and vape brands have been swift in their response. Concerns over youth-oriented flavours, for example, prompted Elfbar to bring some of its flavours to an end.
Concern is also mounting about the health and environmental harm caused by disposable vapes. A study by Material Focus shows that 260 million disposable vapes were thrown away in the UK in 2022, making them a leading cause of the rise in plastic pollution in recent years. In response to this, Elfbar launched a campaign to support retailers and its consumers to use their recycling bins.
Vape licensing
Imperial Brands is calling for an outright ban on vapes being deliberately marketed at young people. The owner of the Blu vape brand has called for a reform of vape flavour names and a ban on packaging that deliberately appeals to under 18s.
Oliver Kutz, general manager UK and Ireland at Imperial Brands, says: “Instead of an outright ban on disposable devices, we believe that there should be more robust enforcement of existing legislation, and greater penalties for breaches of age of sale legislation.”
In particular, Imperial wants to see the introduction of fixed penalty notices for those selling to under-18s, and a vape retailer licensing scheme to improve compliance across the retail environment. “With the threat of their licence being removed if found to be selling to under-18s, this would provide a strong deterrent for irresponsible retailers,” adds Kutz.
Over the last two years, the Office for National Statistics reports that the average price of a pack of cigarettes in the UK has increased by 26.6%. Smoking is a very expensive habit and recent Juul Labs research shows that the average smoker – based on nine cigarettes per day – could save more than £1,400 annually by switching to Juul devices.
Value tobacco
The increased cost of smoking has also seen ‘ultra value’ roll-your-own (RYO) become the fastest-growing tobacco segment in share terms, currently standing at 8.7% of the combined tobacco market. With 6.4 million kilogrammes of rolling tobacco sold in the UK each year, this category offers significant opportunity for retailers to maximise sales by stocking up on value RYO products.
The category’s robust performance has resulted in year-on-year growth of 6.8%, with annual sales of accessories now valued at a massive £352m. The category’s fastest-growing segment is rolling papers, which is also the highest value, growing at 13.3% and worth more than £72m in convenience alone.
Accessories boom
The cost-of-living-crisis-fuelled shift to roll-ups is a big part of that sales bump. Gavin Anderson, sales and marketing director at Republic Technologies UK – whose brands include OCB rolling papers – says the right display solutions can fire up sales even further. “As demand for factory-made cigarettes continues to decrease, tobacco accessories are very well placed to offer consumers a quality and value alternative, but they must be effectively displayed,” he says.
The tobacco accessories category provides a substantial sales opportunity for retailers. Recent figures show that filter tips are worth a sizeable £114m in sales, while regular papers account for £44m and king-size papers £29m. Combi papers are also proving popular at £33m.
Dominant trend
Tom Gully, head of consumer marketing for the UK & Ireland at Imperial Tobacco, says: “With household bills and inflation soaring, we expect value to remain the dominant trend shaping sales across the tobacco category. But retailers need to remember that value means different things to different people.
For some, convenience will remain a priority, with shoppers seeking out tobacco solutions that offer added value, while others will be looking for a leading brand that offers the reassurance of a brand name they know they can trust, that also delivers on price.”
In line with value trends, looking at the ready-made-cigarette market many tobacco shoppers are seeking a familiar brand but at a low price-point. Imperial’s Gully adds: “With this in mind, we recently announced the extension of our popular Players range with the launch of Players Max to enable retailers to cater to the ongoing demand for value tobacco.
“We have also just announced the extension of our popular Embassy Signature range with the launch of a new rolling tobacco variant, which offers a range of premium features at a low price-point.”
Offering choice
“It’s no surprise that value brands are so sought-after in the current climate, so we have made sure we’ve continued to innovate to offer choice to customers,” says Gemma Bateson, sales director at manufacturer JTI UK. “In response to this, we’ve recently repositioned Sovereign Blue to a competitive RRP in line with our other ultra-value options, such as Mayfair Silver.
As existing adult smokers continue to look for more-affordable options in the market, retailers should focus on stocking ultra-value tobacco brands now more than ever. From B&H Blue RYO to Mayfair Silver, we are dedicated to innovating in this sector to help retailers answer the current demand.”
Heated tobacco
Also emerging as a modern and convenient nicotine alternative product is heated tobacco. This is because it’s smoke-free, smell-free and comes in a variety of flavours not available with traditional cigarettes. It is expected to be worth a quarter of a billion pounds by 2025, with two-thirds of customers buying through traditional retail.
Ploom device sales have doubled compared with last year, while Evo tobacco stick sales have tripled year on year. Mark McGuinness, marketing director at JTI UK, says: “The heated tobacco category continues to grow at a rapid rate and offers huge potential, which is why we are continuing to invest and improve our offer. In light of this, we recently launched Ploom X Advanced, an updated version of the Ploom X device released in October 2022.
Higher margins
“With demand for lower-priced tobacco alternatives showing no signs of slowing, the competitively priced Ploom X Advanced bundle offers value for money within the heated tobacco category. As well as being more cost-effective for consumers, heated tobacco sticks also offer higher margins to retailers when sold at RRP.”
Increasing numbers of smokers are recognising heated tobacco as a viable option and as a result, the category has grown by 400% in the last three years. Manufacturer Philip Morris believes it is important to ensure smokers are aware of all the credible, scientifically substantiated options available to them beyond vaping – including next-generation products such as heated tobacco.
Slowing momentum
Duncan Cunningham, external affairs director at Philip Morris, says: “In recent years, the decline of combustible cigarettes in the UK has been accompanied by significant areas of growth in smoking alternatives, such as vaping and heated tobacco.
“While use of smoke-free products has increased, the progress of some products in helping smokers transition away from cigarettes for good has stalled.
“Though vaping has made some headway into helping legal age smokers to move away from cigarettes, the data shows that it isn’t completely effective; between a third and half of all vapers in the UK are still dual-using with combustible tobacco products.
“Further to this, according to Ash research carried out in August 2023, while 83% of current adult smokers in the UK have tried vaping, more than four in 10 (43%) have returned to smoking cigarettes.”
Cigar smokers
Although a smaller market, the total value of cigars in the UK is approximately £283m and to maximise sales, it’s important to stock the right range rather than a big range, as the top 10 brands account for well over 90% of total sales.
Nataly Scarpetta, marketing manager at Scandinavian Tobacco Group UK, says: “It’s also always worth reminding retailers that as cigars are exempt from the plain packaging legislation, we recommend they stock them on the middle shelf of the gantry where they are visible, and more likely to be purchased by adult smokers who can see them.
“My advice to retailers would always be talk to your customers about what tobacco products they are looking for and what you have on offer.
Pricing guidance
“We always recommend retailers follow manufacturers’ guidance on pricing, as our recommendations afford value for the consumer, whilst giving exceptional margins for retailers. For example, our Moments Blue brand offers up to 18% margin when sold at its RRP and there’s not many brands in the tobacco category that can offer that,” says Gully.
“Most importantly, what retailers need to think about now – and this is certainly something our reps are talking about on their visits – is the upcoming legislation changes involving Track &Trace, which means from the 20 May, all retailers selling cigars and/or pipe tobacco must be registered with the Track & Trace programme.”
Listen to Talking Retail Podcast ‘The future of vaping’
Illicit sales on the increase
James Hall, anti-illicit trade manager, Imperial Tobacco UK & Ireland
Illicit trade remains a huge challenge within the category. The cost-of-living crisis and rising tobacco taxes are driving this in the UK, say manufacturers, with many consumers seeking cheaper products – which can mean purchasing from illegal sources. In fact, figures show that 73% of smokers bought illicit tobacco within the last year (compared with 71% in 2021) and nearly four in 10 consumers claimed that increased living costs had impacted their purchasing habits and where they now choose to buy “cheaper” (illicit) tobacco.
The sale of illicit tobacco is a global industry that harms honest traders and damages communities. Between 2021 and 2022, estimates are that 11% of cigarettes and 33.5% of rolling tobacco were non-UK duty paid, meaning the government lost £2.8bn in tobacco tax revenues.
James Hall, anti-illicit trade manager at Imperial Tobacco UK & Ireland, says: “The sale of illicit tobacco has a direct impact on retailers, especially where there is illicit trade taking place nearby. Unfortunately, the reporting of illicit tobacco by those who are aware of it has decreased from 32% in 2021 to just 29% in 2022. It’s crucial that any suspected illicit activity is flagged to the relevant authorities so that action can be taken. Therefore, we strongly encourage retailers to report any potential illicit trade activity in their area.”
How to maximise vape sales
- Retailers need to ensure they are staying on top of the current trends in vaping products so that they can revise their range to offer any products proving popular with customers.
- Retailers should also regularly review their main range to ensure it caters for their customers’ needs. For example, are there any particular vape flavours or devices that customers are buying frequently that would be worth investing in more stock or making them more visible in-store?
- Not every customer that walks into a store is an experienced vaper, so it’s important that retailers and their staff can offer a breadth of information and advice tailored to each customer that will help them make an informed purchasing decision.
- One particularly effective way of improving staff knowledge on vaping products is through running product demonstrations using samples of the devices being sold in-store. Allowing staff to handle the products themselves so they get to know the different components using demonstration models, or sample liquids, will really help them understand more about how they work, meaning they can pass this information on to customers.
- Using similar demonstration models can also be a great way to educate customers on the devices before they buy, so they leave the store fully informed on how to use a product.
- Reading up on the latest category developments and news in the trade press is also a really great way to increase understanding of the key trends, different terminology, and new products.
Top tips for heated tobacco
- Have devices readily available for in-store demonstrations. These demonstration devices also allow consumers to observe the simplicity of the device and feel fully informed before buying the product.
- It’s important that retailers and their staff are aware of what sets heated tobacco products apart from vapes, namely that they heat tobacco rather than e-liquid for a more-authentic tobacco taste.
- Knowledge is key: having up-to-date knowledge on the latest products is key to offering a good level of customer service. To talk confidently about new products, retailers and their staff should use all the platforms available.
- Give the category a clear home: make sure stock is available to consumers and use ‘Heated Tobacco Sold Here’ signage at the point of purchase, so the customer has a visible choice of nicotine products.
Vape recycling scheme launched
In response to environmental concerns, Elfbar has created an initiative called GreenAwareness that is working directly with retailers and retailer organisations to provide thousands of free in-store vape bins to further drive the recycling of used vapes in the UK.
What is the programme?
Elf Bar’s GreenAwareness recycling programme supports the provision of free recycling bins and working with other retail organisations to increase in-store recycling in the future.
Is there an incentive for the retailers to have the bins in-store?
The enforcement of existing Waste Electrical and Electronic Equipment (WEEE) regulations mandates e-cigarette retailers to provide customers with a free take-back for these items.
Is there advertising to make shoppers aware of their presence in-store?
The bin locations can be found via the Material Focus locator at www.recycleyourelectricals.org.uk
How many bins have been installed so far?
As of December 2023, GreenAwareness has installed dedicated recycling bins across 140 vape stores in England and 20 stores in Scotland. Nearly 80,000 single-use vapes have been collected to date as part of the pilot project. The trial phase saw bins provided to 140 independent UK stores, while subsequent partnerships were formed with the Scottish Grocers’ Federation (SGF) and a nationwide retail chain.
Do the bins recycle all disposable vapes?
At present, the bins for the trial phase at 160 stores are for single-use Elfbars. The remaining 980 bins for SGF and 900 bins for the nationwide retail chain are for all single-use vapes.
In numbers
81% of tobacco customers are open to a conversation with a retailer about brands
79% would be prepared to try an alternative tobacco product recommended to them
73% of smokers say they have bought illicit tobacco products within the last year
27% increase in the average price of a pack of cigarettes in the UK over two years
WHAT THEY SAY
The trend for value has been prevalent in the tobacco and cigar category for some time now.”
Nataly Scarpetta, marketing manager, Scandinavian Tobacco Group UK
As the cost-of-living crisis continues, it’s likely that the need for value products is going to continue to be a dominant trend in the category for some time, so retailers need to make sure they can cater for this demand by stocking the right product offering.”
Tom Gully, head of consumer marketing, Imperial Tobacco UK & Ireland
Customers are exploring roll-your-own products more than ever before as another way to get value for money. Placement and products are equally as important. In our stores in particular, if the products have good visibility and there’s a high-quality, well-stocked range that’s easy to shop, our customers are happy.”
Ricky Sharma, director, Thrifty’s convenience stores
As demand for factory-made cigarettes continues to decrease, tobacco accessories are very well placed to offer consumers a quality and value alternative, but they must be effectively displayed. Retailers who create an eye-catching display off-gantry stand to benefit most.”
Gavin Anderson, sales and marketing director, Republic Technologies
