Page 20 - Retail-World-JanuaryFebruary_NonTob-2021

TOBACCO
P&C AND INDEPENDENTS WINNERS DURING PANDEMIC
According to TabSol Director Pradeep Kumar, tobacco sales overall have been “fairly buoyant” with a lower than expected decline in volume.
He points out that convenience and independent channels have attracted an increase in their tobacco category sales during “Covid-stricken” 2020.
Major supermarkets, which account for about 36 per cent of national tobacco sales, have also reported slight growth during the lockdown period, he says, although the growth spurt seems to have tailed off since the easing of lockdowns, especially in Victoria.
Mr Kumar attributes this to a few factors:
Essential services gain market share.
Supermarkets and fuel stations have remained open during lockdowns as essential services, therefore gaining incremental sales lost by tobacconists.
Safety and security concerns. Larger format stores are less preferred for
a “quick, duck-in” type purchase
as they seem to be more crowded, therefore posing safety and security concerns. This has boosted tobacco sales in convenience outlets as they
are perceived to be “safer”. The phenomenon also applies to standalone stores compared with shopping centre outlets. Mr Kumar anticipates this will “linger” until well after vaccine supplies arrive in this country.
Consumer experience and expectations. Shopping has become a “chore” during Covid-19, as opposed to being an “outing”.
“We’ve seen the evolution in attitudes and behaviour of consumers – from hoarding goods in early 2020 to the [emergence of the] ‘more cautious essential shopper’ as we’re shown
the glimmer of hope with the potential availability of the Covid-19 vaccine in early 2021,” Mr Kumar said.
“Supermarkets need to embrace this change in consumer expectations and behaviour.
“Due to legislation, some territories only allow one transaction point
for tobacco products. Sharing the
checkout staff in the express lane with the tobacco dispensing register leads to delays and is not a comfortable experience – especially in the Covid- cautious era where the consumer seeks to spend as little time as possible to get in and out. This lack of attention to the service element within supermarkets will see erosion of consumers to other specialist and/or convenience outlets.”
Mr Kumar believes overall tobacco products are “fairly insulated” in terms of demand, and therefore not significantly impacted at the “macro level” due to Covid-19.
He also points out that people tend to smoke more when they’re at home, compared with being in an office or other workplace.
“Being in the comfort of your home and surroundings means you don’t need to take a flight of stairs and stand on the roadside to smoke,” he said.
Trends in tobacco products
Mr Kumar says the lowest priced cigarettes are recording the strongest sales as brand equity has eroded over time, particularly after plain packaging for tobacco products was introduced in 2012.
With little brand differentiation, consumers are shifting to the cheapest products, he says. Price is the key pivotal factor in the purchase decision.
He adds that consecutive excise increases have exacerbated this shift to lower priced packs. This has in turn caused other unintended effects,
such as a thriving illicit trade that is potentially out of control, inaccurate accounting of the market size, smokers moving to the “black economy”, loss of revenue to the government as the illicit trade – estimated to be around 20 per cent of the industry – pays no duty nor taxes, and use of alternative nicotine delivery systems such as vaping.
“The vape segment is growing and isn’t being controlled, with nicotine- based vape retail sales booming despite nicotine being a controlled substance and illegal for retail sale,” Mr Kumar said.
He adds that another effect of
Covid-19 has been a significant increase in internet sales in general.
“Online tobacco product sales have also increased as a result,” he said.
TabSol is keeping abreast of this trend, Mr Kumar says, by enhancing its website to cater to the new and changing shopper habits, including click-and- collect options, in a manner that is legally compliant and easy to use.
Product promotions
Mr Kumar says the only authorised method of promotions within the tobacco category is via managed price promotions or discounts. All other modes of promotion to consumers are banned under the Tobacco Advertising Prohibition Act.
Price boards showcasing a limited number of brands are allowed in most parts of Australia.
“The ‘silent salesman’ is arguably the only medium of communication with the consumers,” Mr Kumar said.
“Conditioned to seek the cheapest products, the consumer either asks
the store assistant or looks at the price boards, which have become the most expensive real estate within the stores. Trading terms between suppliers and retailers are therefore focused on securing as many spots [as possible] and locking out other players.”
He adds that launching new brands is often undertaken with aggressive promotions, as “otherwise, awareness will be minimal”.
Illicit trade the main issue
Mr Kumar strongly believes that the main challenge in the “tobacco game” is the uncontrolled illicit tobacco trade.
He cites the following types of illicit tobacco and cigarettes:
• Coloured packs from overseas
that don’t comply with plain
packaging laws.
• Plain packaged tobacco products that
are illegally imported into the country – evading excise or taxes – and which include counterfeit products.
• Locally produced tobacco known as 'chop-chop.'
RETAIL WORLD JAN/FEB, 2021