Value brands price war hits retail profits

A value brands price war on cigarettes is hurting retailers’ margins and could lead to stores being “lumbered” with a heap of unwanted, unsaleable stock come May.

With the EU Tobacco Products Directive 2 (TPD2) coming into force on May 20, tobacco suppliers have been dropping the prices of cigarette packs at the value end of the market.

A tobacco industry source told Retail Express: “There’s a well-established, low-price segment and we’ve seen accelerated downtrading for a while. One brand went from strength to strength last year because of this.”

Another contact said some manufacturers must be selling value cigarettes at a loss to gain market share and added: “[The price war] is going to get so dirty this year.”

Last runs of branded packs are price-marked lowly and Kent retailer Amit Patel told Retail Express that the actions of suppliers will have grave consequences for unsuspecting retailers.

“Situations will arise where retailers are taken in by the low, price-marked RRPs and buy in bulk, thinking that consumers will jump at the chance to catch the last batches of cheap packs,” he said.

“Come May 20, they’ll find themselves lumbered with packs of cigarettes they can no longer sell, as supply will outstrip demand.”

Patel said the price war is hurting independent retailers’ margins most. “It’s a unique situation, but the suppliers have stock they need to get rid of. They’re cutting the prices down and loss-leading on them,” he said.

“Independent retailers certainly can’t afford to loss-lead. The situation is catastrophic.”

Hitesh Pandya, owner of Toni’s News in Ramsgate, Kent, echoed Patel’s thoughts. He said: “I’m in a town centre and, as such, pay higher rates.

“Companies downtrading to push their own agendas does not help us at all. I’ve even heard that certain wholesalers were offered better percentages to buy in these packs, which would obviously be recouped at the other end.”