Smokers are a resilient bunch. Despite the constant price hikes on tobacco and the absence of any advertising to reel them in, they still spent £9.3bn a year on tobacco over the past year, just 0.1% less than in the previous year. For some retailers this equates to roughly 25% of their total turnover. However, the next wave of legislation - and there is a lot forthcoming - is likely to threaten value growth.
Heading the list is the ban on smoking in enclosed public places due to come into effect in Wales on April 2 and England on July 1. This follows bans that have already been imposed in Scotland, Ireland, and also France earlier this month.
Other changes to the law set to challenge the market include an increase in the age limit for purchasing tobacco from 16 to 18, to be introduced in October; and the potential implementation of pictorial warnings on tobacco packets next year.
Tobacco manufacturers and retailers have been getting prepared for the smoking ban for some time, and are closely assessing what happened in Ireland and Scotland to help with this.
Although in Ireland sales dropped across all trade channels in the first year after the ban was enforced in March 2004, in the run-up to September 2006 sales started to bounce back to previous levels, according to manufacturers. What has changed long-term is not how much people bought but where they bought from. "Sales of tobacco in hospitals and the licensed trade dropped, but the convenience store and forecourt share of the market grew, as did their sales of alcohol as people started socialising in the home more," says Iain Watkins, Imperial Tobacco's trade communications manager.
Manufacturers say it is extremely important that retailers, and c-stores in particular, are prepared for these changes in purchase
patterns when the ban comes into effect.
"Retailers must reflect the social changes," says Watkins. "It will be important to prominently display things products such as DVDs, chocolates and alcohol, which all appeal to those wanting a night in."
Another major trend identified in Ireland is the growth in popularity of pubs that offer smokers outdoor spaces, which has led to an increase in sales for retailers situated nearby, even if the pub continues to sell cigarettes from vending machines. "I think there is a perception that vending machines will be banned in pubs but this is not true," says Watkins.
When the ban hits the UK, smokers are also expected to move from pub to pub more frequently when they go out, so instead of having four drinks in one pub they would visit four pubs, having a drink in each, and smoking cigarettes en route.
This sort of behaviour has been noticed in Scotland, which introduced the ban only a year ago.
Manufacturers eventually expect sales patterns to mimic Ireland's, but current figures show the Scottish market is down in value by 2 to 3% compared to the rest of the UK, according to Watkins.
Retailers are aware, in general, that the ban may encourage different smoking habits, which could affect trade.
Paul Batchelor, tobacco buyer at Nisaway, says making sure availability is good is crucial. The retailer has been communicating this message to its members. "If you haven't got a can of beans then 90% of consumers would buy something else, but with tobacco, people will just go elsewhere if their brand is not available, so it's very important to keep stocked up," he says.
Legislation that pushes the age limit up for purchase to 18 is something some retailers have raised concerns about. Retailers fear there will be repercussions when they demand ID from under-18s who were previously allowed to purchase, but on the whole the message from retailers is positive.
"The change from 16 to 18 will make it easier for independent stores as it will be in line with alcohol," says Batchelor. "It is very difficult dealing with two sets of legislation for both tobacco and alcohol."
Producers Gallaher and Imperial Tobacco say they have never recognised smokers under the age of 18 and have never marketed products to this age group.
"We have been supporting the No ID No Sale campaign for quite a few years anyway, as has Imperial," says Jeremy Blackburn, trade communications manager at Gallaher. "We are hoping for a consumer campaign to advertise the introduction of the legislation in October this year, which would support retailers."
Along with age restrictions, the UK is also likely to follow the lead of many other nations by introducing pictorial warnings on packets of tobacco.
In the UK the ruling was originally proposed for September 2007, with packs that didn't display these warning allowed to retail only until September 2008. It is now believed the actual introduction of this ruling may be delayed until 2008, but producers say they will continue to prepare for this anyway.
"We are gearing ourselves up for the inevitable but we think it does nothing to help warn about the risks about smoking," says Watkins. "We don't think it's necessary but we will comply. It's very expensive, with all the printing equipment and colours and designs, so it's not as easy as it sounds."
Accessories are not exempt from the government's clampdown on this category either. The European Commission has approved a resolution, which will dictate that all disposable lighters sold in the EU are equipped with a safety device to help prevent children using them.
From March 2008 it will be illegal to sell non child-resistant lighters to consumers. This ruling follows similar legislation on lighters in Canada, the US, New Zealand and Australia.
"There are a large number of inferior-quality lighters on the market," says Andrew Hardie, marketing manager of Swedish Match UK. "This legislation should make it more difficult to sell lighters that aren't child-resistant."n