Constant price hikes on tobacco are creating a vibrant market for value brands. At least 10p has been added to a packet of cigarettes over the past year and another 20p increase is expected after the next Budget, which puts a lot of brands well into the £5-per- packet price range.

"We have definitely noticed a continued pattern of consumers trading down in Nisa stores," says Paul Batchelor, Nisaway trading manager, tobacco.

Calum Kirk, tobacco category trading manager for The Co-operative Group, confirms this. "Downtrading is ongoing in the market. We have seen good sales from Lambert & Butler, Windsor Blue, Mayfair and the hand-rolling tobacco sector."

It was a bold move to introduce Imperial Tobacco's Windsor Blue, which is now a year old, into a market where advertising had been banned.

Yet, the initial figures have been strong. "A growth of 1.5% was forecast but it actually recorded 2%," says Kirk. Batchelor confirms that sales through the Co-op's stores have been good.

In a similar move, Gallaher launched its Stirling budget brand nationwide last year. It says it has recorded a 54% increase in volume in the year to November 2006, according to ACNielsen.

Gallaher's Mayfair

budget brand is also doing well, but Blackburn says it is important not to lose sight of premium brands, despite the trend towards trading down.

"I think we will see some of the leading premium brands continue to evolve," he says. "Premium is one third of the UK market and it is profitable for retailers."

One area in which retailers say they have been able to grow their sales of premium brands has been Gallaher's 14-cigarette packs for its Benson & Hedges and Camel brands.

The average smoker smokes 14 cigarettes a day and, says Batchelor, the innovation has gone down well for other reasons, too. "One pack a day of 14 cigarettes appeals to smokers. Also, although the price per cigarette is unlikely to be at the budget end, the price per pack sits under the £5 mark, which also appeals.

"I was also impressed with the B&H Silver slide pack, which offered another alternative format to consumers."

Gallaher also launched Camel Natural Flavour this month into the premium sector. "Many consumers are brand-loyal, and several brands continue to demonstrate a strong performance away from those classified as 'value'," says Kirk.

Not all budget brands have succeeded. Philip Morris scrapped Basic in the UK last July, less than two years after its launch. n