Jo de Mille reports on the implications for c-store retailers of the backlash against smoking.
Seven US states have done it, Canada has done it, so have Brazil, Indonesia, Italy, Ireland, Australia and Cuba. They have all banned smoking in public places and workplaces. Scotland will follow suit next spring and a final Bill could be put before the Westminster Parliament as early as October. The Government’s proposals, set out in Labour’s General Election manifesto, would end smoking in all workplaces and enclosed public places, except pubs which do not serve prepared food and private membership clubs. The exemptions have been called “absurd” by the health campaigning charity ASH, which is otherwise delighted at the prospect of the new law.
Retailers, however, are not so upbeat, especially when confronted with the evidence from Italy. Within two weeks of the Italian government imposing its ban on smoking in public spaces in January, cigarette sales had slumped 23%. Maurizio Bruni, chairman of an Italian tobacco vendors association Assotabaccai-Confesercenti, says: “The data is very worrying for our members. Although they understand the spirit of the law and the need to teach citizens about their health, they are seeing their profits fall drastically.”
The Irish Medical Association said sales of cigarettes fell almost 16% in the first six months of Ireland’s ban on smoking in pubs, restaurants and enclosed workplaces in March 2004. The ban coincided with a hike in tobacco tax, which was believed to account for more than half of the fall.
Purchases of cigarettes are ‘distress’ impulse buys: something the customer needs now. For this reason, 69% of all UK cigarette sales were, according to RAL data, made through c-stores stores and forecourts in 2004. Interestingly, independent c-stores account for the greatest share, with 40% of the total UK cigarette market in 2004.
If the Italian and Irish experiences are anything to go by, the potential loss of business for UK c-store retailers could be huge. If we take last year’s total UK cigarette sales of almost £11bn (RAL) and calculate a 14% fall in sales (halfway between Ireland’s 5% and Italy’s 23%), we’re talking about a potential £1.5bn loss of cigarette sales in the UK.
Public affairs manager at the Association of Convenience Stores James Lowman says: “The government wants to cut tobacco sales as part of its plans to improve health. We therefore can’t complain about the potential loss of sales.” However, he argues that tobacco is not an illegal substance, so retailers should not be unduly restricted in selling it.
Since the ban and the tax hikes on tobacco in Ireland, there has been an increase in low cost flights and cross-border trade, according to Imperial Tobacco data. The number of smokers has remained stable, at 29% of the population, suggesting people will go to any lengths for a puff. And according to group director of BWG Peter Kealy, which owns the Irish arm of Spar, his c-stores have been unaffected by sales. Kealy believes smokers are buying the same number of cigarettes as before but smoking more at home.
UNSUSTAINABLE
Lowman says the ACS will be keeping a close eye on point of sale restrictions to make sure they don’t become any more stringent. The latest law regarding pos, implemented in December 2004, says you are allowed to display only one A5 branded poster, and 30% of its content must be a health warning. Other than this, no branded pos material is allowed, not even a price list.
To be fully armed for the impending ban, Lowman says retailers need to focus on a range of categories. He says: “Most retailers realise they can’t rely purely rely on tobacco - it’s an unsustainable business, not helped by the continued influx of smuggled products from abroad.
“Retailers need to focus on a range of areas, such as newspapers, magazines and fresh products, which are all profitable categories. By stocking a good range of new products this will also keep the offer fresh and encourage repeat visits to the store.” For retailer Dave Orton, who owns Chapel News, Worthing, West Sussex, the advice rings all too true. Tobacco sales at his store currently account for 55% of the business. While he agrees he may need to start focusing more on other categories, he believes the product mix will begin to change of its own account as the government makes it harder and harder for people to smoke by increasing the price of cigarettes and limiting where people can smoke.
For now, Dave says the price issue is much more of a concern than a ban on smoking: “When cigarettes went over £5, I thought a lot of consumers would be put off. But our tobacco sales haven’t been touched. If the price increases any more though, sales will undoubtedly be hit.”
Dave doesn’t think there will be any sudden loss of business when the ban comes in. He believes it will be more of a gradual decline, which will begin ahead of the ban. Over time, he is confident he will maintain the same profit on cigarettes even if sales drop. “At the moment, I’m looking at a 9% margin on all cigarettes,” he says. “For this reason, we would never sell the value brands which would generate about 3-5%. It wouldn’t be worth our while.” Imperial Tobacco trade communications manager Iain Watkins says the UK smoking trend is toward lower-priced brands such as Lambert & Butler and Richmond cigarettes, as well as roll-your-own tobacco. According to RAL data, 59% of all UK tobacco sales are now lower price and roll-your-own. Watkins adds: “Retailers must remember that tobacco purchases also generate all sorts of other impulse purchases, such as confectionery, snacks and soft drinks.
“Consumers are supposedly becoming more health-conscious but, in reality, the number of smokers has remained constant over the past four years at 30% of the UK population. And this is despite the advertising bans and the increases in taxes.”
So does this suggest smokers are a stubborn species? Chapel News’ Dave thinks there may be an element of truth in this. He muses: “If the government makes it too expensive to smoke, people will go to France for the day, bring a load of cigarettes back and smoke them at home.”
Whatever happens, it is highly likely c-stores will remain a consumer’s first point of call when it comes to cigarettes.
TOBACCO: THE RETAIL RULES
Advertising on billboards and in the consumer press ended on February 14, 2003
Direct mail to smokers and on-pack promotions both ended May 14, 2003
Sponsorship ended in July 2003, unless it was given global recognition
Since December 2004, retailers are able to display tobacco advertising material only at point of sale and only if it is fixed to a tobacco unit that is in turn fixed to a back wall or counter
The total tobacco advertising material within a store cannot be any larger than A5 in size with a health warning that must cover 30% of its surface.
AROUND THE WORLD
Seven US states have passed smoke-free workplace legislation for all employees including office, restaurant, bar, club and casino workers. They are: California, Connecticut, Delaware, Maine, Massachusetts, New York and Rhode Island. Nine other states are likely to join them this year. Last October, the Canadian provinces of New Brunswick and Manitoba went smoke-free, with Saskatchewan following in January. Many Canadian cities in other provinces have also enacted smoke-free workplace laws.
Brazil has banned smoking on public transport and some restrictions in workplaces and public spaces.
In Jakarta, Indonesia, smoking in workplaces will be eliminated in the next year. Smoking will be allowed only in outdoor areas away from building entrances.
In January, Italy implemented smoke-free legislation for all workplaces, including restaurants and bars.
Ireland imposed tough anti-smoking legislation in March 2004, banning smoking in pubs, restaurants and other enclosed workplaces. Anyone caught smoking in a prohibited location now faces a fine of up to 3,000 euros.
In England and Wales, smoking is likely to be banned in all enclosed public places including offices, factories, cafes, restaurants and most pubs by the beginning of 2008.
Scotland plans to have a comprehensive ban on smoking in public places in force by spring 2006. India, Germany, Iran, Finland, the Netherlands, New Zealand, Australia, Norway, Pakistan, Singapore, South Africa, Sweden, Tanzania and Uganda have all banned smoking in most public and workplaces.
Seven US states have done it, Canada has done it, so have Brazil, Indonesia, Italy, Ireland, Australia and Cuba. They have all banned smoking in public places and workplaces. Scotland will follow suit next spring and a final Bill could be put before the Westminster Parliament as early as October. The Government’s proposals, set out in Labour’s General Election manifesto, would end smoking in all workplaces and enclosed public places, except pubs which do not serve prepared food and private membership clubs. The exemptions have been called “absurd” by the health campaigning charity ASH, which is otherwise delighted at the prospect of the new law.
Retailers, however, are not so upbeat, especially when confronted with the evidence from Italy. Within two weeks of the Italian government imposing its ban on smoking in public spaces in January, cigarette sales had slumped 23%. Maurizio Bruni, chairman of an Italian tobacco vendors association Assotabaccai-Confesercenti, says: “The data is very worrying for our members. Although they understand the spirit of the law and the need to teach citizens about their health, they are seeing their profits fall drastically.”
The Irish Medical Association said sales of cigarettes fell almost 16% in the first six months of Ireland’s ban on smoking in pubs, restaurants and enclosed workplaces in March 2004. The ban coincided with a hike in tobacco tax, which was believed to account for more than half of the fall.
Purchases of cigarettes are ‘distress’ impulse buys: something the customer needs now. For this reason, 69% of all UK cigarette sales were, according to RAL data, made through c-stores stores and forecourts in 2004. Interestingly, independent c-stores account for the greatest share, with 40% of the total UK cigarette market in 2004.
If the Italian and Irish experiences are anything to go by, the potential loss of business for UK c-store retailers could be huge. If we take last year’s total UK cigarette sales of almost £11bn (RAL) and calculate a 14% fall in sales (halfway between Ireland’s 5% and Italy’s 23%), we’re talking about a potential £1.5bn loss of cigarette sales in the UK.
Public affairs manager at the Association of Convenience Stores James Lowman says: “The government wants to cut tobacco sales as part of its plans to improve health. We therefore can’t complain about the potential loss of sales.” However, he argues that tobacco is not an illegal substance, so retailers should not be unduly restricted in selling it.
Since the ban and the tax hikes on tobacco in Ireland, there has been an increase in low cost flights and cross-border trade, according to Imperial Tobacco data. The number of smokers has remained stable, at 29% of the population, suggesting people will go to any lengths for a puff. And according to group director of BWG Peter Kealy, which owns the Irish arm of Spar, his c-stores have been unaffected by sales. Kealy believes smokers are buying the same number of cigarettes as before but smoking more at home.
UNSUSTAINABLE
Lowman says the ACS will be keeping a close eye on point of sale restrictions to make sure they don’t become any more stringent. The latest law regarding pos, implemented in December 2004, says you are allowed to display only one A5 branded poster, and 30% of its content must be a health warning. Other than this, no branded pos material is allowed, not even a price list.
To be fully armed for the impending ban, Lowman says retailers need to focus on a range of categories. He says: “Most retailers realise they can’t rely purely rely on tobacco - it’s an unsustainable business, not helped by the continued influx of smuggled products from abroad.
“Retailers need to focus on a range of areas, such as newspapers, magazines and fresh products, which are all profitable categories. By stocking a good range of new products this will also keep the offer fresh and encourage repeat visits to the store.” For retailer Dave Orton, who owns Chapel News, Worthing, West Sussex, the advice rings all too true. Tobacco sales at his store currently account for 55% of the business. While he agrees he may need to start focusing more on other categories, he believes the product mix will begin to change of its own account as the government makes it harder and harder for people to smoke by increasing the price of cigarettes and limiting where people can smoke.
For now, Dave says the price issue is much more of a concern than a ban on smoking: “When cigarettes went over £5, I thought a lot of consumers would be put off. But our tobacco sales haven’t been touched. If the price increases any more though, sales will undoubtedly be hit.”
Dave doesn’t think there will be any sudden loss of business when the ban comes in. He believes it will be more of a gradual decline, which will begin ahead of the ban. Over time, he is confident he will maintain the same profit on cigarettes even if sales drop. “At the moment, I’m looking at a 9% margin on all cigarettes,” he says. “For this reason, we would never sell the value brands which would generate about 3-5%. It wouldn’t be worth our while.” Imperial Tobacco trade communications manager Iain Watkins says the UK smoking trend is toward lower-priced brands such as Lambert & Butler and Richmond cigarettes, as well as roll-your-own tobacco. According to RAL data, 59% of all UK tobacco sales are now lower price and roll-your-own. Watkins adds: “Retailers must remember that tobacco purchases also generate all sorts of other impulse purchases, such as confectionery, snacks and soft drinks.
“Consumers are supposedly becoming more health-conscious but, in reality, the number of smokers has remained constant over the past four years at 30% of the UK population. And this is despite the advertising bans and the increases in taxes.”
So does this suggest smokers are a stubborn species? Chapel News’ Dave thinks there may be an element of truth in this. He muses: “If the government makes it too expensive to smoke, people will go to France for the day, bring a load of cigarettes back and smoke them at home.”
Whatever happens, it is highly likely c-stores will remain a consumer’s first point of call when it comes to cigarettes.
TOBACCO: THE RETAIL RULES
Advertising on billboards and in the consumer press ended on February 14, 2003
Direct mail to smokers and on-pack promotions both ended May 14, 2003
Sponsorship ended in July 2003, unless it was given global recognition
Since December 2004, retailers are able to display tobacco advertising material only at point of sale and only if it is fixed to a tobacco unit that is in turn fixed to a back wall or counter
The total tobacco advertising material within a store cannot be any larger than A5 in size with a health warning that must cover 30% of its surface.
AROUND THE WORLD
Seven US states have passed smoke-free workplace legislation for all employees including office, restaurant, bar, club and casino workers. They are: California, Connecticut, Delaware, Maine, Massachusetts, New York and Rhode Island. Nine other states are likely to join them this year. Last October, the Canadian provinces of New Brunswick and Manitoba went smoke-free, with Saskatchewan following in January. Many Canadian cities in other provinces have also enacted smoke-free workplace laws.
Brazil has banned smoking on public transport and some restrictions in workplaces and public spaces.
In Jakarta, Indonesia, smoking in workplaces will be eliminated in the next year. Smoking will be allowed only in outdoor areas away from building entrances.
In January, Italy implemented smoke-free legislation for all workplaces, including restaurants and bars.
Ireland imposed tough anti-smoking legislation in March 2004, banning smoking in pubs, restaurants and other enclosed workplaces. Anyone caught smoking in a prohibited location now faces a fine of up to 3,000 euros.
In England and Wales, smoking is likely to be banned in all enclosed public places including offices, factories, cafes, restaurants and most pubs by the beginning of 2008.
Scotland plans to have a comprehensive ban on smoking in public places in force by spring 2006. India, Germany, Iran, Finland, the Netherlands, New Zealand, Australia, Norway, Pakistan, Singapore, South Africa, Sweden, Tanzania and Uganda have all banned smoking in most public and workplaces.
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