Tobacco and vaping: a smokin’ hot sector
While consumers are curbing their spending, and the UK Government is working on new legislation on vaping and disposables, the sector is still hugely important for independent retailers, making up over a third of basket spend.
Worth £14bn each year (before tax), the tobacco category continues to hold a significant amount of value for retailers[i].
There is nearly a 50/50 market share split between Factory Made Cigarettes (FMC) and Roll Your Own (RYO) categories, at 54% and 46%[ii] respectively. With more consumers looking for ways to reduce spending amid soaring household costs, there is a shift towards value products across the entire category.
The vape market has exploded in the last few years, with the number of vapers in the UK increasing from 3.7 million in 2021 to 4.3 million in 2022[iii]. In the UK alone, the category is now worth around £1.2bn and is expected to reach £1.4bn in the next three years[iv].
With around 35% of current vape volume sales already taking place in the traditional retail channel[v], it is clear there will be continued demand from consumers for vaping products throughout the remainder of this year and beyond.
GOVERNMENT CONSULTATION
However, this rapid growth has not been without controversy, as the government attempts to address the trend in disposable vapes and the appeal to people under 18 years of age.
An eight-week UK-wide consultation was launched in October, with proposals covering the clamp down on the sale and use of vapes by children and young people.
The consultation covers proposals to make it illegal for anyone born on or after 1st January 2009 to ever be sold tobacco products at any point in their lives. The consultation will also include a series of proposals to clamp down on the sale and use of vapes by children and young people including restrictions on flavours, display, packaging and disposable vapes.
While the Federation of Independent Retailers (the Fed) says it backs the government’s proposals to tighten up on vape sales to young people, it is warning against an outright ban on disposal vapes.
‘Vapes help many people give up smoking and are part of life now’
The Fed’s National President Muntazir Dipoti said: “While we agree with plans to prevent children and young people being attracted to vapes, this must not be at the expense of adults who have switched to these products in a bid to give up smoking.
“We also want more clarity on what any ‘restrictions’ on disposable vapes would entail. An outright ban on these products would simply create a black market and fuel illicit sales by criminals and unscrupulous traders.
“Vapes help many people give up smoking and are part of life now,” he added.
MARKET GROWTH
Now worth 83% of all vape sales[vi], the disposables market saw a remarkable increase from £141m in 2021 to £973m in 2022[vii]. In order to cater for this growing demand, tobacco companies expanded their range of disposable vapes.
To help retailers take advantage of the sales opportunities in the category, Imperial Tobacco launched three new flavours to their popular blu bar range.
Available to buy now at the same RRP of £5.99*, the new additions joining the blu bar line up include Tropical Mix, Apple Ice and Mint Ice, taking the total flavour range up to 13 variants. Collectively, these flavour characteristics, including apple, pineapple, mint and mango, accounted for 10.75% of all vaping sales over the last six months, with their share contribution almost doubling vs. the same period a year ago[viii]. This really demonstrates the significant consumer demand for these particular flavour profiles.
“The vape category is continually evolving. Retailers therefore 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,” said Tom Gully, Head of Consumer Marketing UK & Ireland at Imperial Tobacco.
“Making room for a small selection of new products, like our blu bar disposable vapes, will also allow retailers to trial them first before they invest in adding these as a permanent part of their range,” added Tom.
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 to make an informed purchasing decision.
“There are various ways to train staff, but 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,” said Tom.
“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 onto 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.”
FOCUS ON VALUE
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.
Imperial Tobacco has also announced a new rolling tobacco variant for its Embassy Signature range, to enable retailers to further capitalise on the rising demand for value tobacco.
Looking at the FMC category, as the need for value-focused products continues to increase, many tobacco shoppers are seeking a familiar brand that they know and trust but at a low price point. With this in mind, Imperial Tobacco recently announced the launch of their new Compact range for two of their leading cigarette brands, Richmond and Players.
“The Richmond and Players Compact variants, which are available at an RRP of £10.99* and £11.60* respectively, feature a modern rounded-corner pack that can easily fit into any bag or pocket for the ultimate on-the-go convenience,” said Tom Gully.
“The new cigarette sticks are 13% slimmer in size, allowing for a quicker and more pleasurable smoke, ideal for existing adult smokers looking to socialise. The Richmond and Players Compact are the perfect must-stock product for adult smokers looking to save money thanks to its compact cigarette format at a compact price,” he added.
‘The need for value products is going to continue to be a dominant trend in the category for some time’
The Northern Ireland market is quite different from the rest of the UK, with two thirds of tobacco sales here in the FMC category, according to Tom Gully. While typically in the UK it is a 50-50 split between FMC and RYO, Northern Ireland bucks this trend, with a two-thirds to one-third split between FMC and rolling tobacco.
And despite the rise of vaping, Tom said there is no direct correlation between this and the decline in tobacco products.
“There is nothing that we see in the data that shows the rise in vape products is causing a decline in traditional tobacco products. There has been a decline for many years with the exception of those covid years interestingly, but tobacco still has an extremely important role to play,” said Tom.
“We now have consumers diversifying and using multiple nicotine products as opposed to being very singular, ‘I am a smoker’ or ‘I am a vaper’ or’ I am a rolling tobacco user’. Quite often now consumers move between those categories, which wasn’t the case a few years back.
“I think the vaping industry will continue to grow, based on what we’ve seen. You may not have this astronomical rise, but it’s a continued trajectory and it’s continuing to grow, especially as consumers and smokers who maybe are only smokers start to move between the nicotine categories,” he added.
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[i] ITUK EPOS to w/e 29/08/21, P1 Retail & Wholesale
[ii] ITUK Report on Trade, September 2022
[iii] Sep-22 ECigIntelligence Market Database Estimates
[iv] Sep-22 ECigIntelligence Market Database Estimates
[v] May-22 ECigIntelligence Market Database Estimates
[vi] ITUK EVP Report on Trade, ‘Jan 23
[vii] ITUK Report on Trade November 2022
[viii] Retail EPOS P1 KAs & Indies 6 months to June 2023
* Based on ITUK RRP as at October 2023. For the avoidance of doubt, customers are free at all times to determine the selling price of their products.
