Convenience & Impulse Retailing Article
Issue: Nov/Dec 2010
RYO & Cigar Sales Continue to Defy the Odds
RYO – Top 10 = 84.2% of total sales of RYO
|Champion Tobacco Ruby 30g||ITA||Champion|
|Champion Tobacco Ruby 50g||ITA||Champion|
|Port Royal Tobacco Rum&Wine 50g||BATA||Port Royal|
|Winfield Reg Tobacco Blue 30g||BATA||Winfield Reg|
|Winfield Reg Tobacco Gold 30g||BATA||Winfield Reg|
|Winfield Reg Tobacco Blue 50g||BATA||Winfield Reg|
|White Ox Tobacco 30g||ITA||White Ox|
|Winfield Reg Tobacco Gold 50g||BATA||Winfield Reg|
|White Ox Tobacco 50g||ITA||White Ox|
|Drum Tobacco Blue 30g||ITA||Drum|
Cigars – Top = 76.0% of total Cigar sales
|Willem II Wee Willem Blue 10s||Swedish Match||Willem II Wee Willem|
|Captain Black Dark Crema 20s||BATA||Captain Black|
|Cafe Creme Blue 10s||Henri Wintermans P/L||Cafe Creme|
|Henri Wintermans Short Panatella 5s||Henri Wintermans P/L||Henri Wintermans|
|Willem II Wee Willem Regular 10s||Swedish Match||Willem II Wee Willem|
|Cafe Creme Regular 10s||Henri Wintermans P/L||Cafe Creme|
|Captain Black Sweet Cherry 20s||BATA||Captain Black|
|Captain Black Classic Filter 20s||BATA||Captain Black|
|Henri Wintermans Long Panatella 5s||Henri Wintermans P/L||Henri Wintermans|
|Henri Wintermans Half Corona 5s||Henri Wintermans P/L||Henri Wintermans|
These are certainly interesting times in cigars and RYO
The tobacco category has remained remarkably resilient in the face of both the economic downturn and the display restrictions imposed upon it by government. Indeed, if the Convenience and Impulse operator is prepared to adapt to changing consumer needs, then there is no reason why the category cannot continue to underpin outlet profitability for a long time to come.
For the sales-hungry operator looking for opportunity in the changing tobacco environment the Roll Your Own (RYO) segment is a perfect place to start.
RYO has been in continuous growth over the last decade. This trend has accelerated in the last three years as consumers seek better value. More recently the high increase in tobacco excise (25%) has further fuelled RYO’s growth, with consumers looking for more cost effective ways of smoking.
There are three types of RYO consumers. There are the RYO ‘Loyalists’ who have been smoking RYO for a long time, enjoy the natural RYO taste and purchase predominantly big pouches such as 50g. There are the RYO ‘Dualists’ a growing segment of consumers who smoke both TMC and RYO. Finally, there are the TMC ‘Switchers’ who move to RYO for either value reasons or for the unique flavours that RYO can offer. These consumers generally purchase smaller pouches such as 30g.
According to the latest Aztec data, the RYO category as a whole achieved an impressive volume growth of 5.8% in the past 12 months whilst Tailor Made Cigarettes have declined by -5.8% versus a year ago.
The RYO volume growth rate in Convenience is 1.3% which is an impressive result considering that ranging of RYO in this channel has traditionally been very low.
RYO is particularly important to C&I outlets as the dollar value of RYO purchases is high, at over $35 retail for a 50g pouch. When you combine this with cross category purchases of papers, (usually on multiples) and filters (68% of all RYO smokers use them), it means a very high basket value for retailers. And what’s more, due to the high dollar value of RYO (50g) versus TMC (20s, 25s) the profit generated from RYO sales can be approximately double that of a TMC sale.
Stock management is absolutely critical in ensuring that the considerable profit potential available from RYO is fully realised. The Convenience channel has traditionally skewed towards Premium and Mainstream brands due to the profile of the Convenience shopper, and it is therefore critical to range the key RYO brands in these segments as well as the correct variant.
However with Value RYO growing at 15.6% per annum, twice the rate as any other segment, widespread ranging of Value RYO is also becoming critical within the Convenience channel to capture this growth.
Doing so will ensure that majority of consumers will be able to find and purchase their preferred brand. Stock availability is key, as research indicates that one third of all consumers who don’t find their brand or pack size will walk away and purchase at another outlet.
Opportunity also exists for store operators to obtain sales from associated products such as papers and filters.
The ever-tightening regulatory environment makes traditional sales techniques more challenging with tobacco. Every state and territory now has regulations in place for Convenience outlets, restricting the display of all tobacco products ranging from full retail display ban in NSW, ACT and WA to reduced visibility displays in all other states.
But even with these display restrictions in place, most Convenience retailers are still able to utilise price boards and can therefore include RYO within the list to communicate the availability and price in store.
Research would also seem to suggest that the RYO category is becoming more socially acceptable, and therefore the RYO category is increasingly attracting a younger adult consumer base.
Imperial Tobacco Australia (ITA) is the market leader in both RYO and Papers, and spokesperson Jenny Duong is confident about the prospects for positive growth in the RYO category within the Convenience channel.
‘We see a huge opportunity. The reason Convenience has under-performed in the past is because ranging has been so limited,” she said. “Now we’re seeing big Convenience chains identify RYO as a growing segment, increase their ranging up to fivefold and reaping the benefits in terms of high basket value and absolute sales.”
ITA’s extensive portfolio includes best-seller Champion. Ever popular and in continual growth, Champion’s taste profile appeals to both TMC and RYO smokers as does its ‘Legendary’ and very Australian brand associations. It is now the number one RYO brand in the Convenience channel.
Drum is another classic in the ITA stable. As Australia’s original and arguably best know RYO brand, Drum is the only brand to offer a unique range of blends.
To modernise and rejuvenate Drum clearer descriptor variants and an exciting and informative in-pack campaign have recently been introduced, along with a refresh of the pouch design.
While Premium and Mainstream segments equate to 90% of the RYO market, the changing tobacco environment, including the one-off excise increase in May, has seen shoppers searching for a better value offer.
ITA caters for this segment with Horizon Blue RYO (available in 30g and 50g). These SKUs have grown rapidly and now represent more than 3.4% share of RYO, according to Aztec data. Due to this success, ITA has extended the brand family with the introduction of Horizon Menthol 30g in October 2010.
“Value RYO is growing at 15.6% per annum - twice the rate of any other segment,” said Ms Duong. “To capture this growth, ranging of trusted Value RYO brands like Horizon is an obvious choice.”
As a segment leader, ITA continuously investigates new category innovations in order to meet the growing consumer needs in RYO and accessories and, according to Ms Duong, encourages an innovative approach from retailers.
“We will support retailers taking advantage of the current shopper trend moving to the RYO segment,” she said. “Convenience retailers need to be aware of the increasing importance of the RYO category to the channel to maximise their profits. Our Category Management Team have long been the experts in RYO and can provide sound category advice to C&I operators to ensure effective ranging for the changing customer.”
For its part, British American Tobacco Australia (BATA), which boasts top RYO brands such as Port Royal and Winfield, says its primary trading partners regularly receive a variety of merchandising support including assistance with Planograms, merchandising units and price boards.
“Our Trade Marketing Representatives also provide on the ground support to retailers, particularly during times of regulatory change such as the recent retail display bans,” said BATA spokesperson, Louise Warburton. “As restrictions increase, retailers should make reasonable efforts to ensure that some RYO is displayed in the visible area or via price communications to demonstrate to shoppers they still sell RYO and/or cigars.”
BATA says it is also important to note that the introduction of retail display bans does not mean retailers should stop selling any brand or segment of products. Retailers should still ensure they have the right range for their tobacco shoppers.
“The best way for retailers to maximise their sales and profits is to know their customer and to range and purchase products accordingly,” said Ms Warburton. “The easiest way to reduce profit is by having too much capital tied up in product that your customer doesn’t want and so retailers should be careful not to over invest in the segment.”
She says that BATA’s RYO products are amongst the fastest selling RYO products in the market, and its leading SKUs include; Port Royal 50g, Winfield 30g (Red, Blue, Gold). and Winfield 50g (Blue and Gold). She said the segment is also evolving with brand relaunches such as Capstan and with changing pack sizes.
“Port Royal is a unique offering in the market, providing shoppers a premium offer in a premium channel,” said Ms Warburton. “While the success of Winfield RYO is due to the overall success of Winfield; Australia’s Number 1 Tobacco brand.”
She says new shoppers to the RYO segment see Winfield as a trusted and recognisable brand in an unfamiliar segment/territory.
“The RYO segment will continue to grow in relevance and in size across the market and in the convenience channel,” said Ms Warburton. “Recent market data indicating an increase in consumers choosing to purchase RYO would suggest the growth of Winfield RYO is likely to continue in the future – moving from strength to strength as more shoppers try the segment with a familiar brand.”
Richland Express Pty Ltd is a tobacco wholesaler that supplies international quality imported cigarette, tobacco and cigar products.
In speaking with a company spokesperson, we were advised that their roll your own focus is on products that provide a clear point of difference within the market. As such, they have launched the “Manitou” (pictured) range of RYO tobacco. This range has Gold, Pink and Blue variants that contain natural tobacco. A recent extension to the range has been with the Australian first, Organic Tobacco. The Roll Your Own consumers are becoming more discerning and are asking for innovative products.
“Our aim is to build the Manitou brand by delivering on the consumers need for innovation within the segment,” said Richland Express Director, Kim Jessop We are currently working on other innovative products that deliver the point of difference at a convenient price.”
The growth in RYO has seen a number of new products move into the marketplace. Swedish Match this year launched its Bali Shag RYO tobacco which has seen positive growth over recent months. The Bali Shag range is made from 100% pure tobacco leaf and is packaged in laminated pouches with tribal designs.
“Bali Nature, one of the three new variants launched, has performed particularly well due to its unique selling position,” said Swedish Match Marketing Manager, Katrina Barker. “It is 100% naturally preserved to maintain the moisture.”
The strong growth of RYO accessories is another indication that the segment is set to enjoy continued strength.
ITA’s portfolio includes innovative pack designs with an extensive range of paper types, filters and other smoking accessories.
The ITA papers portfolio accounts for over 89.0% share of market with Tally-Ho leading the way as ‘Australia’s Finest’, and the No.1 papers brand. Rizla leads the market in Western Australia with over 40% share of market and remains the world’s number one papers brand.
Swedish Match says its sales of RYO accessories have grown by more than 20% compared to the previous year, and it sees this trend continuing into the future.
Swedish Match is the exclusive distributor of Ventti and Zig Zag RYO accessories in Australia, and offers a complete range of RYO solutions including papers, filters, rollers, tubes and tube machines. It also supplies Cricket lighters.
Swedish Match says its accessories sales shows there has been a noticeable trend towards slimmer and smaller variants. For example, it says sales of ultra slim and micro slim filters have superseded regular and slim filters in recent times.
“We are always evolving with emerging trends, and our Ventti motto is to ‘Be inventtive’ and, as such, we will continue to provide the necessary tools for our consumers to create their own individual smoking experience,” said Swedish Match’s, Katrina Barker. “Ventti is currently undergoing a major facelift which will feature in the new year of 2011 ... this change is based on consumer and retailer feedback and is our way of providing better education on choosing the right RYO products to suit individual needs.”
She says that, in general, RYO accessories provide retailers with a considerably higher profit margin than cigarettes or cigars.
“Ensuring you have a good mix of papers and filters will assist your end profit margin,” Ms Barker said.
In the cigar category, there has also been a move towards a ‘smaller is better’ mentality amongst consumers, and the sales of smaller cigarillos continues to grow. Pack sizes are also becoming smaller.
Another emerging cigar trend is for flavoured cigars, which are especially popular with the female consumers and those making the transition from cigarettes to cigars.
Indeed, five of the top 10 cigars sold in Australia at the moment are flavoured (PWC exchange, Aug 2010).
Swedish Match owns and distributes a wide range of cigars, including mass market (machine made) and premium hand-rolled long filler cigars. Its best performing brand is Willem II, with Willem Blue the best-selling SKU in Australia.
“La Paz is another brand that has experienced extraordinary growth in recent times, with volume increases of over 80% versus last year,” said Ms Barker. “The relaunch of La Paz in September saw the introduction of two new variants to the range – Medios and Miniaturas – as well as a revamp of packaging.”
La Paz is a classical cigar made from 100% Tobacco filler, binder and wrapper and is something real cigar smokers appreciate.
Other popular machine-made cigars in the Swedish Match range include Ritmeester, Villiger, Salsa, Alternativos and White Owl. Swedish Match also distributes a wide range of Cubans, as well as Dominican Cigars such as Macanudo and Davidoff.
Richland Express has also been enjoying success with its cigar range.
“Our cigar range grows month on month with sales this year up 48% on the previous year and similarly again up on 2008,” said Director, Kim Jessop. “The word is finally reaching retailers and consumers that we offer the highest quality and the best margins.”
Amongst other products, Richland Express sells the Candlelight cigar range which includes Senioritas 5 pack, Mini in 10 pk and Singles, Full Corona and Slim Corona.
“Our Candlelight cigar range is cleverly sealed and packaged in a unique and specially designed aluminium fresh pack to ensure our products are enjoyed in perfect condition,” said Mr Jessop. “The fine aroma is not only ideally preserved by the ‘fresh pack’ packaging but also protects against breakage.”
Richland Express believes there is definitely a move by consumers to smaller cigar pack sizes whether it is through necessity, the need for value, or the fact that they are smoking less.
“The key component is category management and optimising what we have at our disposal as a retailer, supplier, wholesaler or manufacturer,” said Mr Jessop. “Keep in mind that a consumer will often look for that product that fits an occasion.”
He says a broad product range solution is the best fit for a retailer, along with product knowledge.
“Due to regulation on advertising and display most consumers would be unaware of the better value, quality and package options offered by our Candlelight cigar,” he said. “Group trading terms need to allow flexibility for stores to choose ‘other’ products and trading terms available that best suit them and their customer.”
These are then most certainly interesting times in cigars, as well as in RYO, and there are clearly challenges ahead as display restrictions continue to tighten. However, there is no reason why C&I outlets should not adapt to the changing tobacco sales environment ... and still watch their bottom lines thrive.