tobacco display ban

Anti-tobacco group Action on Smoking and Health this week suggested small, independent retailers should reduce their reliance on cigarettes. They would say that, wouldn’t they?

Nevertheless, what ASH is saying does raise interesting questions around whether indies have become too dependent on this category, the support provided by the major tobacco suppliers, and what the future holds for the category.

Ostensibly, ASH’s argument is that retailers need to think more in terms of profit than turnover - something retailers tell us they are already keenly aware of.

ASH wants them to act on this now. It says indies should look at the profitability of tobacco sales in their shops and consider whether this category still merits such a high profile position behind the counter, particularly given the display ban and the advent of plain packs.

The health campaigners released a report this week entitled ’Counter Arguments: how important is tobacco to small retailers?” It was compiled with the National Centre for Addiction at King’s College London using EPoS data from over 1,400 non-affiliated independents and symbol retailers and via a separate telephone poll of 591 retailers.

The report concludes that “corner shops” make on average a profit of £242 a week on tobacco compared with £2,611 from everything else they sell, while average profit margins are only 6.6% compared with 24.1% for all other products. Overall, more than two-thirds (69%) of the retailers who responded confirmed they only made small profits from their tobacco sales.

On top of that, another key message from ASH is that tobacco manufacturers are overplaying the importance of cigarettes as a footfall driver. Its research found 79% of all transactions do not include tobacco products, with 13% involving both tobacco and other products, and just 8% involve only tobacco.

With this in mind, ASH suggests retailers could be tying up too much of their cash in stock that delivers a relatively low profit. Three quarters of retailers say they aim to stock a wide range of tobacco brands, although 72% report this means too much money is tied up in stock. A quarter (24%) of retailers suggest they regularly have problems with the cost of stocking up.

“Nearly half (45%) of smokers buy cigarettes from corner shops, so for the tobacco industry it is essential that it puts a lot of effort into persuading retailers to maintain the profile of tobacco sales,” says ASH chief executive Deborah Arnott. “Tobacco is a high-cost, low-profit product and money spent on tobacco is money not available for other more profitable purchases. Our report invites retailers to see the long-term decline in smoking as an opportunity, not a threat.”

tobacco sales

A good time to rationalise?

Instead, retailers could look to release some of this cash by slimming down ranges and freeing up space for more profitable products (such as e-cigs) by relocating their gantry.

Clearly, the trend in terms of the number of people who smoke is a declining one. According to ASH, 20% of adult men and 17% of women in Great Britain smoke compared with 51%/41% in 1974.

However, there remains a question over whether now is a good time for small retailers in particular to be rationalising their ranges, given the seismic changes in the category.

The plain packaging regs come fully into force in May. Many lines have already sold out of non-plain packs, and just this week Bestway warned indies against hiking up prices in the wake of the ban on price-marked packs, another element of the plain pack rules.

Against this backdrop, the ASH report has gone down like a lead balloon with the Tobacco Retailers Alliance. “ASH’s report represents an outright attack on the small and independent retail sector. As this report acknowledges, the majority of tobacco products are sold in large stores, such as supermarkets,” argues TRA national spokesman Suleman Khonat.

“Why this lobby group has chosen to discriminate against small shopkeepers, who do not have the time or resources to debunk its ASH-tray economics, is obvious to me. We are seen as an easy target. But ASH’s dodgy dossier is seriously flawed. ASH fails to mention that, all told, smokers’ purchases contribute 22% of small shops’ weekly profits. ASH also fails to mention that achieving higher margins is difficult when 75% to 80% of the price of tobacco products is tax, a proportion that it wants to increase. ASH’s attack on small and independent retailers using such flawed research shows just how low they will go.”

Not all organisations have been quite so dismissive of ASH. Indeed, the National Federation of Retail Newsagents found some common ground over the issue of gantries, which it calls “outdated”. “We have been encouraging retailers to take on display solutions that suit their businesses, such as putting tobacco products under the counter or overhead and using the space freed up for new products,” says NFRN chief executive Paul Baxter.

With fewer facings likely to become the norm as 10s, 16s and 17s go by the wayside next year, it could be easier for retailers to stock a fairly comprehensive range that still takes up less room that the category currently does. However, the fact remains that many retailers’ gantries are paid for by tobacco manufacturers, which will have a say in what goes into them. The economic case for retailer to refit stores at their own expense is likely to be a very hard sell, says one wholesaler.

All in all, it is therefore unlikely that, given everything that is happening right now in terms of legislative changes in the sector, ASH will convince many retailers to make drastic changes.

As one industry source says: “If retailers only looked at products that were very profitable, then none of them would have PayPoint or a Post Office.”