Despite the debate over smoking in pubs, it remains a valuable profit stream for licensees. Phil Mellows reports.There's no smoke without fiery debate. The rising and falling threats to ban smoking in pubs is an issue that seems to rouse passions like no other. But while the pro-smokers and anti-smokers each take the moral high ground, on top of completely different hills, the poor publican has got a business to run.Although people are becoming increasingly health conscious, social pressures against smoking are steadily mounting and restrictions on marketing constrain manufacturers, nearly one in three adults continue to smoke and the tobacco market is proving to be remarkably resilient. Volume and value were both up in 2002 over 2001.Gallaher's Category Review 2003, released as a flashy CD-ROM last month, estimates total UK sales to be worth £12.6bn a year, more than the National Lottery and confectionery combined. At least six million packets of cigarettes are sold each day. Sales in pubs account for only 2.6 per cent of the cigarette market but as far as licensees are concerned it is another valuable profit stream - one that has to be defended.Despite the restrictions on marketing, the availability of cigarettes has grown in recent years thanks to the supermarkets and convenience stores. The key to the on-trade maintaining its share is understanding the market and the tobacco consumer. Pubs have only a limited space, so you need to tailor your cigarette offering to suit your customers. If you only have a limited range it is important you have the correct brands to maximise profit opportunities, Gallaher advises.So while style bars should stock premium brands, traditional pubs would be better off focusing on value-for-money cigarettes.You should also keep an eye on overall trends in the marketplace. "The vending sector tends to lag behind over-the-counter sales so it's a good idea to check what's happening there," said Ian Horton, national account manager for vending and pubs at Imperial Tobacco.The most striking trend is towards cheaper cigarettes. While smokers tend to be strongly brand loyal, soaring duty - which now amounts to 82 per cent of the value of UK tobacco sales - has taken its toll.Ian points to the example of Imperial's Richmond value-for-money brand which, despite only being launched in 1999, has already taken an 11 per cent share of the market.Brands such as Imperial's Lambert & Butler are also growing share while premium cigarettes like Gallaher's Benson & Hedges, still the pub best-seller, have taken a hit.Smokers' hunt for better value is also benefiting hand-rolling tobacco, up six per cent, and miniature cigars.Cigars, according to Gallaher's trade communications manager Jeremy Blackburn, "play a pivotal role in the leisure channel", fitting well with people's mood to indulge themselves while in the pub."Seven out of 10 smokers will try a cigar while they are out eating and drinking and 25 per cent of our cigar sales come through that channel," he said.Cigars are worth £435m and growing, fuelled by miniatures sales of which in the past year have jumped by 1.6 per cent to claim a 10 per cent share of the cigar market.The obvious way of increasing your cigar sales is to give them some display. Installation of the Hamlet cigar bar, for instance, can bring an increase in business of up to 20 per cent, says Gallaher.Regional variationsThe cigarette market in the UK is characterised by wide regional variations. Broadly speaking, the further north you go the more likely you are to find smokers, according to Imperial Tobacco's 2003 Tobacco Category Overview. The percentage of adults who smoke hits more than 33 per cent in Scotland and falls to below 25 per cent in South East England.Favourite brands also vary as you travel up and down the country. Lambert & Butler dominates much of Scotland, Wales, the North, the West Country and the East Midlands, while the Benson & Hedges heartland is in London and the South East and West Midlands.Mayfair has its bastions in the northern half of Northern Ireland, the West of Scotland and parts of East Anglia while Club is the brand in the Scottish isles and Belfast. There is scattered support for Marlboro, especially in Sussex, Regal occupies a large chunk of Northern Ireland and Royals have a few enclaves in the West Country.Smoke signals
- Cigarette volume was up by 3.6 per cent in 2002, and value up 5.7 per cent
- There are 13 million smokers, 55 per cent of them women
- There are one million cigar smokers, 96.5 per cent of them men.
Cigarette papers are on the riseAlong with hand-rolling tobacco (HRT), sales of cigarette papers are on the rise. Gallaher is attempting to increase convenience for growing numbers of HRT smokers by offering free papers with roll-your-own tobacco packs, an offer that has met with some success.But the move has been attacked by arch-rival Imperial.Imperial has Golden Virginia the best-selling HRT, in its stable and also owns Rizla, the brand leading paper with 77 per cent of the market."While it seems convenient to the smoker, it is detrimental to retailers' sales and profits," said Imperial marketing manager Terry Rogers.As a concession to convenience, however, Imperial has incorporated a papers holder in the newly designed packs of Drum HRT.Keep up-to-date with smoke law changesAs you will have noticed from the health warnings now screaming from cigarette packets, the industry is under increasingly stringent constraints. The pack warnings are the result of a European directive. As a result of the UK government's initiative, advertising on billboards, in the consumer press and free product promotions ended on February 14 and direct mail and in-pack promotions were outlawed from May 14.Most sponsorships will end by next month and other marketing tools, such as point-of-sale material, are still under discussion.As a retailer it is important for you to understand what you can and cannot do under the new laws as you could be liable for prosecution.For instance, from October 1 this year it will be illegal to sell cigarettes carrying the old health warnings. Decent stock rotation should take care of it but check your shelves and stock room. You can still use point-of-sale material such as cigar display units and it is likely that, unable to spend so much money on ads, the tobacco companies will increase investment in this area.Other changes, including to the names of top-selling brands such as Benson & Hedges, Silk Cut and Marlboro as a result of the outlawing of words such as "lights" and "mild" will need to be communicated to your own customers."Licensees will need to respond to customer queries," said Gallaher's Jeremy Blackburn. "Make sure your staff are trained to explain the changes."If you haven't done so already, discuss your options with your tobacco supplier.Changes to the law
- September 30, 2003The last day you can sell cigarettes with the old health warnings
- October 1, 2003Descriptors such as "mild", "light" and "ultra" will be illegal
- January 1, 2004Ceilings set on tar, nicotine and carbon monoxide levels
- September 30, 2004The last day you can sell cigars and hand-rolling and pipe tobaccos with the old health warnings.
The categories of smoker