Volume sales continue to decline but profitability remains
With the exception of RYO tobacco, tobacco volume sales continued to decline in the UK in 2013. Sales continued to be hit by rising costs, duties, health and wellbeing considerations and a general development towards considering smoking as a less socially acceptable habit. The indoor smoking ban in public places implemented in 2007 has been a major contributor to this cultural change, with people increasingly seeing smoking as unacceptable during certain occasions whereas it was perfectly normal in the past. Nevertheless, tobacco companies are still far from making losses due to rising prices.
Consumers continue to favour budget options despite economic recovery
2013 saw the first sight of light at the end of the tunnel with regard to the economic recession, which, from its outbreak in 2008 following the financial crisis, dramatically impacted consumer confidence and spending behaviour. However, consumer spending behaviour always lags behind the economic indicators which show signs of recovery, and so will require some time before returning to pre-recession levels. As a result, consumers remained cautious with their spending in 2013, with budget cigarette brands and RYO tobacco continuing to outperform the market as a whole. More time and a more robust economic recovery will be needed before consumers return to regular cigarette brands, although the possibility remains that the shift is irreversible and they will not return to regular products even after significant improvements to their budgets.
Supermarkets continue to lead distribution despite the display ban
The display ban introduced in 2012 and which is set to be extended in 2015 with a complete rollout to all retail outlets did not affect the lead of supermarkets in 2013, which remained the main distribution channel for tobacco products. Consumers value the convenience offered by this channel as they can buy tobacco products as part of their regular grocery shopping, without the need to visit a dedicated store. Moreover, the big grocery multiples were also able to benefit from the growth of convenience stores as a channel for tobacco products as these retailers underwent a shift in strategy from out-of-town hypermarkets to town centre convenience store formats. These stores are still excluded from the display ban but the legislation will be extended to these outlets in 2015, as it will also be applicable to stores smaller than 280 sq m.
Gallaher Ltd and Imperial Tobacco Group battle for leadership
Imperial Tobacco ranked second in cigarettes, first in smoking tobacco and third in cigars in 2013. The company experienced a mixed performance, with its regular brands declining but its budget cigarettes and RYO brands growing their volume sales. Gallaher led cigarettes and ranked second in smoking tobacco and cigars in 2013. Gallaher’s position can be attributed to its focus on budget cigarette brands and brand extensions in RYO tobacco. Brands including Sterling grew in both cigarettes and RYO tobacco, being able to attract budget- conscious consumers trading down.
Increasingly restrictive legislation will continue to impact the market
Tobacco is expected to continue to decline in volume terms over the forecast period. Not only will consumer trends contribute to this decline, with more smokers trying to kick the habit, but EU directives and legislation will also be applied over the forecast period, making the trading environment increasingly tough. For instance, in 2015, the display ban will be implemented across the board to also include stores smaller than 280 sq m. Meanwhile, in 2016, cigarette packs smaller than 20 units and bags of RYO or pipe tobacco smaller than 30g will be banned in a bid to discourage purchases from price-sensitive consumers. Moreover, menthol cigarettes will be banned by 2020.
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The Tobacco in United Kingdom market research report includes:
- Analysis of key supply-side and demand trends
- Detailed segmentation of international and local products
- Historic volumes and values, company and brand market shares
- Five year forecasts of market trends and market growth
- Production, imports by origin, exports by destination
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Tobacco in United Kingdom?
- What are the major brands in United Kingdom?
- Which sector of the tobacco products market is the largest by value sales in United Kingdom?
- Which sector of the tobacco products market has been growing the fastest, by volume and value, in United Kingdom?
- Which sector is the most heavily taxed in United Kingdom?
- Which companies dominate in the total tobacco market in United Kingdom in terms of market share?
- What is the distribution channel split for the tobacco products market in United Kingdom?
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This industry report originates from Passport, our Tobacco market research database.