Tobacco: Cheaper cigs boom as duty hikes bite

The new number one cigarette brand tells you pretty much all you need to know about the long-term trend among smokers. Value sales of Player’s from Imperial Brands have rocketed by 26.4% to hit £1.418bn. This added almost £300m to the brand’s value and saw it overtake the long-time leader, JTI’s Sterling.

There was one clear reason behind the switch: price. For although Player’s saw an average price rise of 9.3% thanks to increased taxation in the Budget, it’s still cheaper than Sterling. And as the taxman increased his demands on the category, more and more smokers are switching to cheaper cigs.

Indeed, B&H Blue (the year’s fastest grower, up £324.8m), Player’s and the three other top 10 brands in growth (Sovereign Blue, Carlton and Rothmans) all sell for four pence less than the market average of 43p a cig.

“Smokers are becoming even more price-conscious,” explains Nielsen analyst Paul Lecomte. “This explains why more cheaper brands like Player’s and B&H Blue, with a price of 39p per stick, are growing.”

James Convenience Retail owner Jonathan James agrees that downtrading remains the dominant driver for smokers. As it has been for the past number of years, the most regular question shoppers ask in his stores is “what’s your cheapest pack of cigarettes?”.

An Imperial spokesman confirmed that smokers’ purchasing decisions were being determined by taxation and legislation. “Continued tobacco tax hikes have contributed to a rise in demand for products that offer superior value for money,” he said. “The European Union Tobacco Products Directive [EUTPD] has also significantly altered the landscape of the UK’s tobacco category, but opportunities remain for manufacturers to satisfy evolving consumer demands.”

The EUTPD, which came into force in April 2017, banned 10-packs of cigarettes and smaller pouches of rolling tobacco, which drove many smokers to economise by rolling their own. Volumes are up 2.9%, or 183.9 million kg. “Even then, the cheaper brands are winning,” adds Lecomte. “This is why more affordable brands like Gold Leaf are growing.”

Still, the prize is diminishing. Cigarette and RYO volumes are down 5.6% combined.

TOP LAUNCH

Sterling Dual Double Capsule, JTI

Since launching in January, the double capsule extension to the range has already racked up sales of £43m. As the name suggests the cigarettes include two clickable capsules – one spearmint and one peppermint – which JTI says allows smokers to “create a variety of distinct smoking experiences in just one cigarette”. Capsule options currently account for around 13% of the ready-made cigarette market in the UK. However, this is likely to be short-lived – flavoured cigarettes will be banned in 2020.