Cash in: Tobacco - Premium cigarettes

Unsurprisingly, as value and economy-priced brands take a bigger bite out of the market, retailers are reporting that sales of their premium-priced cigarette brands are being cannibalised. It’s an occurrence which is leading some to consider slashing the space dedicated to premium.

However, JTI UK head of communications Jeremy Blackburn strongly advises against this. “Premium cigarettes, which offer retailers a higher margin, are still bought by one in four smokers so retailers shouldn’t lose focus here,” he says.

Blackburn is also adamant that the decline in premium brand sales as seen in the early part of 2010 is now slowing and that the market will soon stabilise. “Those smokers who still choose to purchase premium products are the stalwart supporters,” he says. “These people are very loyal, and so it’s unlikely that the market will decline much further,” he says.

Last year JTI attempted to stem the flow of adult smokers drifting down the price ranges by introducing 14-pack formats to its quality Silk Cut house. The new range, which joined the existing Benson & Hedges Gold and Silver 14s, was designed to offer adult smokers with an alternative to downtrading and, according to Blackburn, early indications are proving promising.

BAT also attempted to solve the problem, but with a different tactic relaunching its two premium brands, Vogue and Lucky Strike, with fresh new packaging designs.

Smaller pack sizes and flash new looks might not be enough to fend off even further price hikes expected later this month, though, when the government reveals its Budget plans on March 23.

“With new Chancellor George Osborne looking increasingly likely to carry on where Alistair Darling left off, there will be yet more tax rises on the horizon,” adds JTI’s Blackburn.

“These will come hot on the heels of the January VAT increase, meaning that in a few short months the price of a pack could have grown by as much as 50p.”

He adds that the ever-increasing cost of a legitimate pack of cigarettes is bad news for smokers and legitimate tobacco retailers, but provides a boost for the illicit trade.

Blackburn, who is “wary” about recent reports of a black market slowdown (latest HMRC estimates suggested that the illicit cigarette market’s share fell by 13% to 11% in 2009), says that further price hikes are likely to undo much of the good progress made by making cheaper unregulated supply routes more attractive to cash-conscious smokers.

“Figures that speak of slowdowns in non-UK duty paid stock are something of a false dawn,” he says. “The situation certainly won’t be helped by the new Budget and further tax hikes, and as the pound continues to strengthen and the country climbs out of recession people will start to travel abroad again, the tobacco gangs will strengthen and we could well see a re-emergence of the problem.”

Another fear which has been front, back and middle of mind for every retailer with a tobacco gantry these past couple of years is the tobacco display ban. Last month, the Scottish government announced that it was to push back the October 1, 2011 implementation date for large stores, but as C-Store went to press, MPs in England and Wales had still not shown their hand. However, the shortening timescales mean it is now highly likely that the ban will be delayed South of the border, too. 

Read more:
Cash in: Tobacco - Sticking around
Cash in: Tobacco - What retailers say