Everyone thought this last year would be tough. But it hasn't turned out quite as bad as expected. In some areas there have even been slight improvements in trading conditions. The anticipated government Bill banning virtually all advertising including, possibly, instore and window displays, didn't materialise in England and Wales, although similar stiff anti tobacco measures are currently chuntering through the Scottish and the Republic of Ireland's parliaments. This is probably only a stay of execution by the British government. The Queen's Speech last autumn didn't contain anything about a new Bill, but Tony Blair has said this doesn't mean the government won't be doing anything in the current session. The government may be waiting to see what the European Parliament will come up with. It is expected to be re-drafting proposed anti advertising legislation defeated in October 2000. Smuggling, every retailer's bugbear, appears to have fallen, but only very slightly. Imperial Tobacco sales director Geoffrey Couchman says this is evident from a small increase in the legitimate cigarette sales figures which came through last autumn. "Smuggling is down for three reasons ­ foot and mouth, which led to an increase in cross-border checks, the increase in Customs' numbers and vigilance, and the smaller duty rise." No-one believes the duty paid mark which became effective last April has had any impact on smuggling. "It's been purely cosmetic," says Couchman. "Before it was introduced, foreign products could be easily identified through health warnings in other European languages." The abolition of forestalling ­ the practice of bulk ordering at pre-Budget prices for sale at post-Budget duty increases ­ has already started to be felt by retailers. For many cash and carries and wholesalers, forestalling was their main profit earner on cigarettes in the entire year and its disappearance has meant that, in order to regain their margins, some have been raising their prices. Many cash and carries have moved away from Q5, the cheapest rate, and now offer Q4 and Q3 instead. Booker, the country's top C&C group which does £1.2bn in tobacco business a year, has been in talks with manufacturers for a while. MD Gerry Johnson anticipates being in a position to discuss new pricing structures by spring. Specialist tobacco delivered wholesaler DG Wholesale has raised its prices slightly in line with competitors in Wales and the south west, according to md David Gyles. "We would like to move them up more, but the big problem for everyone is the need to stay competitive. Frankly, nobody is making enough from tobacco products. Retailers need to increase their margins by moving away from manufacturers' recommended prices, but many can't because they are tied by what their local market will bear," says Gyles. Margins may be tight, but the market is one of the biggest cash generators in grocery, worth an estimated £11bn in duty paid sales [ACNielsen/Imperial Tobacco]. As a major footfall driver for independent stores, its value is inestimable. Imperial Tobacco is winning the battle for market dominance, having overtaken Gallaher as the UK's biggest cigarette seller this year. Its position has been helped by taking over the distribution of Philip Morris International's top selling Marlboro brand in the UK from Rothmans (UK) this autumn. The main trend is the rapid growth of ultra low priced cigarettes, fuelled by the UK's massive tax regime which prices a premium pack of 20s at close on £4.50. The ultra low priced sector is now the main focus for npd and investment. Imperial's Richmond, launched over two years ago, is now worth £700m, and growing rapidly, according to Couchman. Gallaher updated the pack designs of its bestselling low priced Dorchester and Mayfair brands last year. Trade communications manager Jeremy Blackburn says Dorchester, which it supported with a press and poster campaign last autumn, has seen remarkable growth, with sales volumes up 65% y-o-y. Rothmans relaunched Royals with a new, more modern pack design backed by innovative consumer and trade advertising, and has seen the brand's share increase 1.6% in the last two years. It's also introduced Royals Superkings in full flavour, lights and menthol varieties in response to the trend for longer cigarettes. And, bucking the trend to lower priced products, it launched the premium 555 Smooth last October at an rsp of £4.19, supporting it with national trade and consumer advertising and sampling. Premium brands still account for a third of the market and, as Gallaher's Blackburn points out: "Ultra cheap brands may be where the action is but premium brands deliver higher profit margins. "The cash return on a 20s pack of Benson and Hedges is the same as you would get from selling five leading branded chocolate bars." Other sectors to watch include menthol, steadily increasing its share, and lower tar which now accounts for almost one in five cigarettes sold. Small cigars is another winner, the sector growing 13% in volume in the last 12 months, led by Gallaher's Hamlet. Star performer is Hamlet Miniatures which has seen sales volumes grow 16% in the last year and has just had a makeover on the five-pack's design. Henri Winterman's Café Crème, brand leader in the miniature segment, has also had a fantastic year with sales up 9.5% in value, says sales and marketing manager Tim van Romondt. "More smokers are dualling between cigarettes and cigars as smoking tastes and preferences develop," he says. The miniature sector has seen a number of launches among them, Hunter & Frankau's Cuban Miniature and Panter Dessert. Hunters & Frankau says the premium sector is attracting an increasing number of younger people with Christmas and celebration occasions being the peak selling periods. {{FOCUS SPECIALS }}