Smoking differently
Cigarettes, and the way we smoke them, are evolving. Nicki Saunders talks to three retailers about the prospect of luxury cigarettes and how anti-smoking legislation is changing their business
As national legislation continues to squeeze the profits of tobacco suppliers in Europe, companies are forced to think of ways to take the category forward. Going premium – something spirits suppliers have been doing for some time – is one way to boost dwindling revenues.
Travel-retail affords suppliers an opportunity to get creative with their products and offer something extra. Cigarette manufacturers that have taken up the challenge to go premium include Altadis with its Montecristo brand, and Imperial Tobacco with Davidoff Black and White. But can cigarettes ever really be a luxury product?
For Dubai Duty Free (DDF), the mix of nationalities that pass through its shops means it has to provide a range of brands and products to cater for different tastes. Although tobacco lost ground slightly in 2007 as a proportion of the retailer’s turnover, sales were still 22.8% up on 2006, with best-selling brands as diverse as Marlboro, Benson & Hedges, Davidoff and Chunghwa.
Sharon Beecham, manager – purchasing and research, has noticed a trend towards premium cigarettes in DDF’s shops. “We have seen a shift in buying patterns to premium, limited editions, and cigars and cigarillos,” she points out.
“Limited editions and one-offs have been very popular with us – I’m not sure they will reach the giddy heights of Louis Vuitton, but I can see a certain customer profile that would be drawn to being seen smoking the most expensive cigarette that money can buy.” According to Beecham, premium tobacco is a strategic category that will occupy a key position in Dubai airport’s Concourse Two.
For retailers that cater for a less diverse mix of nationalities, domestic trends remain the key driver of cigarette sales. In the case of Alpha Retail, which is due to open new shops in Manchester, Newcastle and Nottingham East Midlands airports this April, cigarettes command a significant 23% of its UK sales. Best-selling brands include Lambert & Butler, Benson & Hedges, Silk Cut, Regal and Golden Virginia Ryo tobacco.
“I am sure there will be further launches of more premium brands within the cigarette sector and some of these may prove to be successful in the future, but the majority of sales are still driven by the type of customer profile,” comments Martin Bowley, liquor and tobacco buyer for Alpha Retail. “In the UK, the sales will still follow the pattern of brands which are successful in the UK domestic market.”
“Before it would take one month to smoke 400 cigarettes – and now it takes two.” Henri Colineau, Aelia
For French retailer Aelia, high domestic prices on tobacco have kept cigarettes selling well in its shops. Aelia’s tobacco product manager, Henri Colineau, believes that cigarettes are still very much a price-driven market. “I still think the core of the market will be Marlboro, Camel, Lucky Strike – most of the sales for us will be done on these,” he tells Frontier.
Colineau points out, however, that the premium cigarette segment is growing faster than its value-for-money counterparts. “I would say premium is growing faster for the moment because this segment wasn’t worked correctly in the past – the suppliers are doing what they didn’t do before,” he points out. The retailer’s value-for money propositions in the cigarette category include Pall Mall and Fortuna. “We are selling more and more of those kind of products.”
For Aelia at least, it is not so much the premium credentials of the cigarettes that constitute the key factor, but exclusivity to travel-retail and small innovations that can make the sale.
“Travel-retail exclusives work very well on cigars and even on cigarettes, because people when they fly like to bring back products that you can only find at airports… it’s a social recognition,” says Colineau, pointing to the success of the Gauloises travel pack in 2007 as an example (pictured right). “The way the carton opened was exclusive to travel-retail. You cannot do a special pack of cigarettes [in France] but you can do a special packaging for the cigarettes – and it works.”
A new smoking environment
The evolution of the smoking restrictions in France, which culminated in the second round of legislation coming into effect at the beginning of 2008, has made it illegal to smoke in any public place including bars and restaurants.
“We haven’t had any decrease of our sales from this new law,” reports Aelia’s Colineau.
The reason, he believes, is that the laws have not stopped people buying cigarettes, but have changed the way people smoke. “On cigarettes we don’t have any difficulties… it’s a price-driven market – they buy because of the price and they buy as much as the legislation in the country they are going allows them to buy – if they can buy 400 cigarettes they continue to buy them,” Colineau asserts.
“The thing is that before it would take maybe one month to smoke those 400 cigarettes – and now it takes two, but they still buy the 400.” The loss of sales then, suggests Colineau, is felt more heavily in the domestic markets, since the typical duty-free shopper flies twice a year and would still buy the same allowances at the airport.
“On cigars we are less confident and think it will be more difficult than in the past,” Colineau admits. “For the French passenger they really smoke less cigars, because it’s very difficult if you work; you can’t go downstairs for an hour and smoke a cigar and go back up again – and the same thing if you’re in a restaurant.”
One thing Aelia is doing to drive cigar sales is improving its customer service. In January, the retailer introduced a barcode scanner for all its cigar products in the cigar shop in the new S3 Satellite, to help customers identify the 200 types of cigar on offer, and access tasting notes and product information.
In the coming year, Aelia plans to put another machine in the walk-in humidor in Paris Orly airport’s South Terminal, and extend the information on the database to include suggestions for what types of spirits would go well with the cigar.
Although Colineau does not believe the technology is suitable for the cigarettes, he can see it being applied to other categories in the retailer’s repertoire. “I know that internally there are discussions to continue those types of innovation with wine, for example, because it’s also very technical with the products linked to a special region that affects the taste.”
As for cigars, the retailer is yet to see if its customer service initiatives and impressive new cigar store in S3 will effectively battle any negative side effects from increasing anti-smoking legislation. For cigarettes in travel-retail at least – both premium and value-for-money – the category looks to be withstanding the pressure from above.
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