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Let’s talk about the challenge tobacco retailing

Newsagents selling tobacco products face some tough decisions over the next few months with new legislation coming into affect, in some states sooner than others, which will place considerable restrictions on the display and sale of tobacco.  A newsagent emailed me recently with their concerns about this:

Just interested to get your thoughts on what to do in june 2010 when in NSW we are not alowed to have tobacco or related producs visable.

Currently in my newsagency (and im sure alot of others also) we have the cigarette cabinet in the prime position on the wall behind the counter, it is in the most secure area of the store, and the most visable at point of sale.

In June the cabinets will have to be covered, and i am assuming that they might not look great, but will have less sales impact than they do now.

My thoughts at the moment are to invest in a flat screen TV and run a slide show of promos for all things in the store. NDD and NSW lotteries have powerpoint files that can be downloaded from their websites, and with a few more store/town specific images im hoping it will fill the void and promote products throughout the store.

The cigarette stock i will then put in drawers behind the counter.

These concerns and questions reflect those of newsagents who have called to discuss the same issue.

I am not in a position to comment from a personal perspective as I got out of this category years ago because sales were not strong and I did not like the reduction in control over the category.

I am publishing this topic here to provide a place where newsagents can publicly discuss the challenges they face with changes in tobacco retailing.

As I have blogged recently, this is an challenging issue for newsagents in the UK.

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Newsagency challenges

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  1. shaun s

    Not sure on the laws there but can you leave the cabinet there and just have the shutter or door closed on it or does the whole display have to be moved ?and having a slide show ,would that be clasified as advertising ?

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  2. ERIC

    we always have head compartment above the counter

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  3. Tim

    We’re in Vic. where there’s no restrictions (yet), and we decided to take down our unit and replace it with Ink. We didn’t like the image it portrayed, the small margins, the time the category consumed or being dictated to by the companies. We still sell the major brands from under the counter.

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  4. Peter

    the above newsagent that mark has quoted is me.
    I am not intending to advertise tobacco on the TV, but other products throughout the store.
    the covering system that the cigarette/cabinnet supliers are planning to install, sounds crude and unattractive. thats why i am looking and ashing around for suggestions.

    thanks
    peter

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  5. Brad

    Our group of stores started as specialising in Tobacco as well as other core lines. Over the years this has shifted but we still reguard the product line highly. Going dark can also be an advantage to those outlets that have a steady and loyal base. Keep in mind that Woolies etc will also be facing this issue and may very well remove the product from smaller outlets.
    Remeber they are ramping up their offer in mobile phones and pre-paid charge cards.
    The front doors of the cabinet have to be better used that is without question. You could have a situation whereas displaying an ink range over the cig counter could work. Just brainstorming so don’t get too upset.
    Peter I would decide or workout are your customers buying on impulse or are they destination. Without some visible display (yes covered) they impulse consumer will not think to ask and buy. If you have destination customers then having smokes under the bench will work but your sales will decline over time.
    To give you an example I am getting the Cig company to put sliding doors that have enough clearance that when they slide with product it doesn’t come falling off. I will then put pre-paid mobile phones attached along with other pre-paid gear. Small hook or clearance needed and I can use the space to maximum effect.

    Brad

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  6. Peter

    Brad,
    thanks for your input on this subject. I will definatly look closer into the tobacco baskets, and the tobacco buyers behavior.
    i will also see what type of fixtures are available to us come june.
    its great to know what other newsagencies and retailers are planning for this black tobacco market, and this forum is a good place for that discussion.
    keep it comming

    peter

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  7. Mark

    Peter,

    Two key measures are key in looking at tobacco: return on investment and product efficiency.

    ROI is a function of sales from stock investment – plus labour and real estate if you wish.

    Efficiency is a function of baskets containing tobacco products and how often they are sold alone. If tobacco product are sold alone more than 30% of the time then they would be considered to be inefficient based on the slim margin you achieve.

    You’d need a ROI of 7% or more and a sales efficiency of above 50%.

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  8. Chris W

    Mark, I’m curious why you say a sales efficiency of above 50 % is needed. About half the time, I sell cigarettes alone, and the other half is typically with either gum or newspaper (making little difference to total profit). Cigarettes margin is about 15 %, so on a small pack of cigarettes the profit is still over a dollar, and for little more work than selling a newspaper. They are also a doddle to manage and no worrying about returns. Insurance is an issue (hence twice-a-week ordering to keep stock levels down), but am I kidding myself that I’m ahead?

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  9. Mark

    Chris, it depends on your total stock holding, the cost of your particular real-estate and the time spend managing the product.

    My comments were ore based on the cost of being in a centre – $1,100 per square metre or more.

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  10. Brad

    Mark, what you are not considering is how often a cigarette customer will visit your location. Some will visit daily other at least once a week. Yes the impulse customer is different but destination consumers for this product become loyal and can be bigger lotto consumers.
    I know of several shops that do close to 45k per month in sales. They are also big ticket lotto shops. A smoker in our experience will buy a larger ticket. They also buy gum and drinks molre often than any other. For some cig stock ROI would be no worse than mags or cards.

    Brad

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  11. Mark

    Brad, While the frequency of visits by a customer is not considered in what I have written, I doubt that a scientific study has been done on this in newsagencies. We feel customers visit, but seriously how often.

    My key purpose in this thread is to get newsagents looking at their business and assessing the real value.

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  12. Brad

    Mark, not suggesting that you are doing any different merely pointing out that this area of the business has different trends to that of other product. Why no study in basket purchase, I am sure that studies have been carride out on lotto verse other purchase.
    The real value of smokes has to include who and what frequency as well as turn over verse stock holding. Carton size etc will be a huge factor on answering the question do you hold smokes as a sale item.

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  13. Sunny

    I found a new proposed Plain Tobacco Packaging Bill to ban the branded cigarette packaging.

    http://www.comlaw.gov.au/comlaw/legislation/bills1.nsf/0/7C723F80E1D24D6BCA25761800049717/$file/s724b.pdf

    Personally, I think it will effectively reduce the number of young smokers, as every cigarette packaging are the same (25 pack), except a description in small font.

    Retailers will make extra work, to perform tasks such as stock arrival, inventory control, and sale procedure, if all the cigarette packs and cartons are very similiar to each other. (By the new bill, cartons will be cello-packed)

    Can we do something on this Bill, to make retailer easy to identify the stock in the future?

    Cheers,

    Sunny

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  14. peter stewart

    does anyone know where i might be able to find the new (out today) RRP list for tobacco?

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  15. allan wickham

    Peter, i have the BATA list. I could fax it to you if you like.

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  16. SHAUN S

    RING THE SUPPLIERS AND THEY SEND THEM OUT (EMAIL)

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  17. peter stewart

    thanks allan, i got the email from BATA yesterday also. in the past i have gone to the website of a victorian wholesaler and they have the info up usually the day before….. but this time its still not up.

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  18. Peter

    Yesterday (31/1) tried to buy $3,400 of tobacco from my Campbells Wagga Wagga. They refused to sell it to me. Will sell and have sold it today (01/02). Apparently IGA had locked all Campbells Tobacco sales yesterday. One would asume this was because of the price rise at Midnight.

    Not Happy with Campbells. I wonder what Fairtrading would say.

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  19. Shayne

    Peter thats always been the case. I remember when we used to sell smokes the companies would always limit our orders in the last few weeks before a price rise to make sure we weren’t stocking up at the old price and selling at the new price. Directly opposite to other reps (eg Coke, Confectionery) who would always encourage us to stock up before a price rise.

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  20. Derek

    A good discussion.

    Peter – If you are going to put your Tobacco elsewhere, The space you are talking about is prime real estate, I know Mark made a post a while ago regarding this area, Of the top of my head it would be ink, earphones, Lip Balm, QuickEze, Panadol, Nurofen, Lighters, I am sure others who know more could suggest quick sells, Displayed properly it should be a @45% GP area.

    That is bad form regarding Campbells, I was suprised that you get your Tobacco from them. It has become in my area the Norm to obtain Tobacco from a Tobacconist that wants your business. For Eg: I buy my Tobacco Wholesale +0.5% from a local Tobaconnist with free delivery.

    Hope you find the products you think will perform well. I would be interested in what you come up with and what other business have.

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  21. Gerard Munday

    Thanks Peter,
    Our site now has cigs and Tobacco prices…cigars will be up in an hour or so.
    Hope it helps !!

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  22. peter stewart

    thanks G

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