The tobacco market in the UK is far from smoking. And this month’s announcement of a ban on lighting up in the workplace, including pubs, clubs and restaurants in the UK by 2007, will have brought little cheer to cigarette manufacturers already restricted by advertising bans.
However, while the total market dropped 1.3% in value [ACNielsen 52 w/e Oct 1, 2005] thanks to consumers trading down to budget cigarettes, it is still a £9bn category, with the leading brand Lambert & Butler worth £1.2bn.
The super low-priced segment, which includes budget brands such as Imperial Tobacco’s Richmond, is bucking the overall trend and offering tobacco companies a glimmer of hope for future market growth.
Richmond Superkings, for example, grew 3.2% in value, and its King Size 9.2%, while Gallaher’s King Size Mayfair budget brand grew by 7.8%, according to ACNielsen [52 w/e December 31, 2005].
A year ago Marlboro, owned by Philip Morris, was the only premium brand to see any growth over the previous year, and this year’s figures show that the brand has managed to continue to grow, albeit by only a small amount - up just 0.8% on last year.
With duty increases pushing many of the old favourites over the £5 per packet mark, consumers are trading down to budget brands. As Andrew Grant, Somerfield’s head of BWS and tobacco, says: “There is a definite move down from premium to cut-price brands.”
In reaction to this, last year there was a raft of activity from producers looking to take advantage of the rise of the budget sector, with launches such as a Superkings version of the Philip Morris low-price Basic range as well as Windsor Blue by Imperial Tobacco and Sterling by Gallaher.
But producers haven’t limited development plans to the budget sector and last year many also innovated at the premium end. They also upped their interest in the cigar market, following European trends, by launching Continental aromatic-style miniature cigars.
While price hikes on tobacco have made the premium sector a tougher market for producers, it has encouraged more young adults to turn to roll-your-own, says Imperial Tobacco UK’s national account controller Roger Batty, resulting in an image uplift for the category.
“The trend for rolling tobacco has changed with younger smokers and more women opting for this method,” he says. “Tax increases have encouraged more people to try this category and the idea of developing the skill to roll your own cigarette has become fashionable.”
Imperial Tobacco owns the bestselling RYO brand in the UK, Golden Virginia, with its Drum brand holding the number three position.
Gallaher is also responding to the shift towards a more positive image for the RYO category. It has stretched the product range for its Amber Leaf rolling tobacco - the second most popular brand.
But while producers certainly haven’t been idle in new product development, the impending ban on smoking in the workplace - following the 2004 ban in Ireland and the ban in Scotland, which comes into force next month - in addition to the fourth year of a ban on tobacco advertising, will mean future innovation is essential if the industry is to return to growth.