After taking duty levels, and smuggling to sky-high duty levels, the government's rash of regulation began with the introduction of health warning on packs and a ban on advertising tobacco to consumers, and last year saw the most far-reaching legislation yet, banning smoking inside any public spaces. As it only came into place in England in July 2007 it is too early for definitive year-on-year sales figures, but industry estimates suggest the loss in cigarette sales due to the ban was in the order of 3.5%. This followed the pattern from similar earlier bans in Scotland and the Irish Republic, which have since seen a recovery.

Next came legislation to introduce pictorial health warnings, which will start to take effect on October 1, with all manufacturers obliged to introduce the new warnings on packaging, but the wholesale and retail trade will have a year to clear all older stocks of cigarettes, and a further year for all other tobacco products.

All these measures are, or course, intended to discourage people from smoking, but it is probably because they have had such a negligible effect, with overall adult smokers in the UK falling from 31.3% in 2003 to 27.2% (13 million) in 2007, that the government has proposed new restrictions. Its new plans, to ban display of tobacco products in retail outlets and outlaw ten-packs of cigarettes, have set off alarm bells in the trade. The government is currently "consulting on the proposals" and John Murphy, director general of the Federation of Wholesale Distributors, says: "The main arguments that FWD will make is that this will simply play into the hands of the smugglers and counterfeiters, while at the same time damaging legitimate retailers by imposing costs of thousands of pounds to pay for the shop fitting changes required."

Mike Laney, distributive trade sector manager for Imperial Tobacco, says: "The proposals are disproportionate and will not achieve what the Government is aiming to do." Referring to the retail display ban, he says smokers are entitled to make an informed choice based on the availability, price and brand. The Association of Convenience Stores has also protested that converting stores to the new regime will cost an average of £2,500.

Laney warns that "de-normalising" tobacco will make smokers feel it is more acceptable to buy from illegitimate sources. He says that a ban on display in Iceland in 2001 lead to no discernable difference in the level of smoking but the number of outlets fell from 1,100 to 800.

This is a warning echoed by Dave Bryans, president of the Canadian Convenience Stores Association. He recently visited the UK to relate what happened in the Province of Saskatchewan after a retail display ban was introduced. He says: "Tobacco sales volumes have remained consistent in the four years since the ban was introduced and teen smoking rates are reportedly on the rise." He says the only measurable impact of the ban has been the harm inflicted on retailers by the increased costs of dealing with the legislation.

Jeremy Blackburn, Gallaher's head of communications, says banning packs of less than 20 cigarettes will harm smokers who are trying to cut down, and encourage displacement to the illegal trade. He says: "Ten-packs are used by many adult consumers who are looking to regulate their consumption on cost or health grounds." He warns that a ban is likely to encourage low income smokers to seek cheaper smuggled packs of 20. With the Government estimating that 27% of cigarettes and 68% of the hand rolling tobacco consumed is the UK is non-UK duty paid, it would provide a fillip to an already burgeoning trade.

Having seen the consequences of ill-thought out legislation in Canada, Dave Bryans has a clear message for all elements within the trade, and that is to campaign strongly against the latest proposals. Trade associations such as the FWD and the ACS are already engaging with the Government on the issue, but he says it is particularly important that individual retailers and wholesalers make their own representations to get their point of view across.

John Murphy says: "The purpose of a consultation, of course, is for the legislators to listen to the views of all parties concerned before coming to a decision. The indications are that the Department of Health may try to railroad this one through heedless of the voices against.

"The consequences of such a pre-emptive move might well come back to haunt this government as have some others in recent weeks."

Cigarettes

Cigarettes account for 91% of the overall £13bn tobacco market and while the overall value of sales been almost static, there have been big changes within the category caused by consumers downtrading. Premium and mid-priced brands saw declines of 4.1% and 7.7% between 2006 and 2007, while sales of economy priced cigarettes grew by 19.3% in the same period. However, the premium sector was still worth £3.4bn, compared with economy's £972m.

Imperial Tobacco's Lambert & Butler has spent a decade as not only the biggest brand in the tobacco market, but in the overall UK FMCG market, with sales of almost £2bn. Iain Watkins, trade communications manager at Imperial Tobacco, comments: "To stay at the number one spot for ten years is no mean feat and to mark this achievement we have launched special edition holographic packs. It is the first time a registered hologram has been used on a tobacco product, setting a new standard for product packaging going forward. In addition to the holographic packs, two special edition Lambert & Butler tins are also being introduced - to be sold at festivals, music events and selected bars and clubs.

One brand that is bucking the downturn in the premium sector is Gallaher's Camel, which has grown its share in the UK market, with Camel Subtle in particular up 13% year-on-year. The brand has been given a new look with an embossed logo and refreshed imagery to emphasise its premium positioning. Jeremy Blackburn, Gallaher's head of communications, says, "Camel is a world renowned brand. The modern new look pack is a significant landmark in Camel's 95-year history and reflects Camel's iconic status."

In the economy sector Imperial's Windsor Blue and Gallaher's Sterling are driving the growth with Sterling taking the number one position with a 44% market share.

RYO

While volume sales of cigarettes have been in a gradual decline, sales of RYO tobacco have been growing strongly, up 8% last year. Mike Laney says RYO sales do not appear to have been affected by the ban on smoking in public places. He says the increase is partly due to the downtrading trend, with smokers seeking less expensive alternatives, but is also helped by a reduction of imports, both legal and illegal. Imperial Tobacco's Golden Virginia is the market leader with 46% share, but Gallaher's Amber Leaf is accounting for a great deal of the growth of the market increasing its share from 20.5% to 22.2% between 2006 and 2007. Blackburn says there is a trend towards larger packs with one in three sales being 25g or 50g.

Cigars

The cigar market is clearly segmented into three size sectors - miniature, small and large. Small was the largest sector with 48.5% of the market at the end of 2007 but miniature is the fastest growing sector and is forecast to top 50% by 2010.

James Higgs, head of commercial marketing at Henri Wintermans UK, says: "The reason for the popularity of miniatures is that it's easier for time-poor or venue-restricted smokers to smoke miniatures rather than small size cigars, a trend that has been developing in recent years.

"Furthermore, adult smokers are increasingly dualling between cigarettes and cigars and when cigarette smokers do this, they typically choose a miniature cigar. In addition to this duelling trend, many miniature cigars are being bought on impulse and to capitalise on this trend Henri Wintermans has brought out Café Crème Blue in a tin of five to assist consumers who want to try miniatures."

Henri Wintermans' Café Crème range is the leading brand in the miniature cigar sector, with around 60% of total sales and Café Crème Blue is the number one brand in the miniature sector, with 34% of total sales and growth of 3.4%. Higgs comments: "Miniature cigars continue to drive growth in the total UK cigar market, and much of that is due to the continued success of the Café Crème range and other imported cigars. We feel the stylish tins reflect the brand's worldwide status and heritage, and help make the Café Crème range absolutely integral to every retailer's tobacco unit."

Papers and accessories

Imperial Tobacco's Rizla brand dominates the rolling papers market, but unlike tobacco products paper brands can advertise and Zig Zag and Swedish Match's Swan brand both promote their products to their target audience.

Zig-Zag's latest initiative is a major marketing campaign for its JOB rolling paper brand, which started with full-page advertisements on the outside back cover of Big Issue magazine. The adverts feature three original works of art emphasising JOB's double cigarette rolling paper booklet. The magazine advertising will be backed by fly poster campaigns in major cities such as Glasgow, Manchester, Birmingham and London using the same artwork to communicate the double booklet with the strapline 'JOB the original double'.

Zig-Zag managing director Andrew Armstrong says: "We have been working on this project since we won the JOB distribution rights from Imperial Tobacco. Using Big Issue nationally along with the fly posting is a cost effective way for us to differentiate the JOB brand from others in the market, including our-own Zig-Zag brand. While Zig-Zag is, for want of a better expression, the cool brand, aimed at the younger end of the market, JOB is for the slightly more mature, purist, roll-your-own-smoker so this is reflected in the advertising copy."

Armstrong says sales of the Zig Zag brand are growing on the back of a number of new distribution deals with wholesalers such as Makro, and its profile will be high with its target audience due to sponsorship of competitors in car, motorbike and powerboat racing.

Despite the strength of Rizla in papers, when it comes to filter tips Swan dominates with an 83.3% market share in 2007. Andrew Hardie, marketing manager at Swedish Match, says: "To keep up with the ever-changing market we have launched Swan Smooth, the UK's first activated carbon Pop-A-Tip filter for a smoother cooler smoke. We have also updated and improved our biggest selling Swan green papers to meet consumers' needs - they are now chlorine free and offer extra stickability from an improved gumming process."

He says the Swan Combi, offering papers and filters in a single pack, remains a key focus in 2008 and continues to deliver strong sales following its launch last year. It will be the lead brand in Swan's sponsorship of the Bennetts British Superbikes Championship this summer. Hardie says there will also be a '20 for 16' offer on Swan Pop-A-Tip to help build sales in the wholesale channel.

Lighters

This year new legislation means all lighters must be equipped with a child resistant device and all novelty lighters are banned. Lighter manufacturer BIC has joined forces with the Trading Standards Institute and other organisations to encourage compliance with the new legislation and to raise trade and consumer awareness of the issue.

Christine Heemskerk, lead officer for consumer and product safety for the Trading Standards Institute, says: "We fully support this new legislation and will be encouraging our members to actively enforce its contents. Our aim is always to support compliant businesses and penalise non-compliant businesses so we have been working over the past year to encourage retailer awareness and compliance." Andrew Hardie comments: "For Swedish Match the child resistant lighters legislation, which came into affect in March, has been positive. We have been producing child resistant lighters globally since 1993, which has given us a strong insight into manufacturing child resistant lighters that consumers are comfortable with using.

"Combined, Swan, Cricket and Poppell have an increased market share from 21.9% to 25% MAT to March 2008, which tends to indicate that consumers are comfortable with using Swedish Match lighters."

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