Convenience stores have always relied on Tobacco, with the category representing over 20% of total sales on average. The introduction of the EU Tobacco Products Directive in May 2017, brought significant changes to the way in which retailers display and sell Tobacco.
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Tobacco trends since EU TPD 2
Convenience stores have always relied on Tobacco, with the category representing over 20% of total sales on average. The introduction of the EU Tobacco Products Directive in May 2017 brought significant changes to the way in which retailers display and sell Tobacco.
The aim of this change was to reduce the number of smokers and encourage a smoke-free population.
It has been estimated that on an annual basis, smoking rates declined more than twice as fast between 2012 and 2016 than between 1993 and 2011 but have recent Tobacco changes further accelerated this decline and what impact has that had on retailers?
We conducted research into the Tobacco sales trends of over 2,500 convenience stores to assess changing consumption trends and impact on turnover.
Is Tobacco Consumption Falling?
Using volume sales as an indicator of consumption, we found that in November of this year, each store sold on average 23% less Tobacco than in May 2017. This drop has been fuelled by significant falls of 28% and 21% in Northern Ireland and the North East respectively while volume sales also are down in almost every other region. Interestingly however, retailers on the Channel Islands have bucked the trend, increasing their sales by 12% over the same period.
There are a variety of reasons for these falls including:
Social attitudes to smoking
Declines in underage smoking
Greater support to quit smoking
Lack of 10 packs
Lack of smaller RYO pouches
No gantry/branding, less accessible to non-smokers
Reduced affordability, thanks to ever increasing prices
Are retailers feeling the squeeze?
Considering volume sales reductions of 23%, it is fair to assume that retailers are making less money than ever from their Tobacco gantry.
This is not the case however, with value sales remaining roughly static, falling by just 0.07% across the same period. The question is: “How are retailers weathering the storm?”
Plain packaged Tobacco is a great opportunity to ignore the incentive points from the Tobacco companies and instead charge an extra ten to twenty pence above RRP. I’ve increased my margin on Tobacco to ten percent with this strategy”.
Paul Butler – Tamerton Village Stores, Plymouth
Who is affected?
Without price mark restrictions, retailers are increasing margins to offset the falls in volume sales. The losers in this situation are wholesalers and manufacturers, many of whom are urging retailers to honour RRP’s in the face of falling volume sales.
As Paul Butler explains above, the advice of these companies may be falling on deaf ears, as retailers seek to protect their profits.
Is this sustainable?
The short answer, in our opinion, is no. While convenience is an important factor in Tobacco sales, ever increasing costs coupled with tighter wallets caused by inflation and Brexit, means that there’s only so far you can go with price increases before demand dries up.
We believe that retailers should be focusing on tobacco substitutes, such as e-cigarettes and other high margin categories such as Snacks, Confectionery and Soft Drinks.
In time you could minimise the pressure of maintaining Tobacco volume sales and supply your business with long term trusted profit.
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