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Adapting to changing consumer dynamics The tobacco industry in Australia, according to TabSol, has long been known to be in its mature stage. Suppliers’ strategies at this stage of the industry lifecycle usually tend to be conservative and contractionary, says the company, adding that one would normally not imagine an influx of new brands (let alone new supplier entrants). However, the regulators’ attempts at curbing the incidence of smoking by increasing excise rates, implementing plain packaging laws, changing excise collection method, and imposing restrictions on bonded warehouses, have led to the industry adopting different strategies. “There are more new suppliers in the market,” TabSol said. “This has evolved due to the realisation that the government restrictions and increases in excises have created opportunities. More consumers are seeking better priced products. “This is the single biggest challenge the... industry is now faced with. How are the various players and several new players gearing to meet this challenge? “One can perhaps classify the various suppliers into four broad groups: established suppliers, second tier solution-driven suppliers, opportunistic suppliers, and the illicit trade (which regrettably needs to be mentioned as they seem to be growing).” “Good retailers focus on the consumer demand,” TabSol said. “The industry will continue to change, and consumers’ demands will evolve with the pressures from within the industry and external pressures, whether it be supply issues, further regulation, continued excise increases, etc.” TabSol suggests: • Retailers should support a wider range of brands that focus on long- term growth. • Suppliers that support a category approach should be welcome. • Retailers need to take control of their range over short-term, albeit lucrative rebates. • Opportunistic (one brand) suppliers and illicit trade should be avoided as they pose risk to your business and impact your credibility. TabSol is described as a “solutions driven” tobacco business that offers a range of value-for-money brands in various consumers segments. “We are willing,” the company says, “to discuss our category driven approach and range with retailers.” TOBACCO Type of supplier The challenges Some supplier strategies* Impact on retailers Long time established suppliers – the majors • Loss of brand loyalty has seen erosion of premium segment share. • Traditional big brands are less relevant. • Potential loss of consumers to newer/ cheaper brands. • Turf protection – enforcing commercial arrangements with retailers to restrict range. • Value segment domination – launch of own new brands at discounted prices. • Revenue stream for retailers from trade agreements. • Blocking strategy disallows retailers from selection of their own range. • Consumers will ask for new brands that may be better value offers in other outlets • Tactical promotions on new brands are a short term. • Continuous supply of popular brands. 2nd tier suppliers – category solution drivers • Breaking the status quo and industry practices. • Launching brands in a dark market. • Retailer perceptions. • Exclusive brand/private label offers. • Value-for-money offers based on consumer segments. • EDLP (everyday low price) pricing. • Traffic driver brands. • New brands that consumers embrace at lower prices. New single brand opportunistic suppliers • How to launch brands quickly at lowest prices. • How to maintain continuous supply. • Dump a brand at lowest prices. • Quality and compliance with plain packaging laws are potentially compromised. • Long term sustainability is questionable. Illicit trade suppliers • Evading taxes. • Avoid getting caught. • Greed-driven distribution of products. • Counterfeit brands. • Non-declared goods. • Higher margins. • Fines if caught. *These are only observed supplier strategies and are not exhaustive. JUL/AUG, 2020 CONVENIENCE WORLD