cigarette pack New budget tobacco brands in the British market. cigarette pack

Some have speculated that the ban on tobacco displays might result in people asking for "the cheapest" cigarette or tobacco available. I tried it at a branch of a well known supermarket and the lass dutifully told me, then showed me which ones they stocked. Both for cigarettes and rolling tobacco the brand they offered was Sterling and no, with this shop, few people ask for "the cheapest". I also discovered that their sales of premium cigarettes have not dropped to any great extent, with Embassy No.1 and Marlboro Red still best sellers.

However I had the opportunity during a cold and blustery autumn evening to meander one of the less desirable streets in Edinburgh. It was about 22.00 hrs and most shops had closed, with just a few fast food places still trading and likely to do so until well after the pubs closed. There was however one tiny little hole-in-the-wall still open with a lovely old couple behind the counter.

As I was their only customer at that time, I ever so politely asked "what's your cheapest rolling tobacco?".

The way these things are supposed to work is I, the customer, request what brand and size of pouch I want. Then he, the shopkeeper, either gets it for me or tells me he doesn't stock it. In some cases they offer a list of products they do stock and I can read through that to see what alternative may be acceptable.

This shop didn't have a list, in fact there was none of the ritual: what he did was open the cover to his entire stock of rolling tobacco that went in descending order by price. First thing I noted was this charming couple had the most brutal markup on everything. Fair enough, if their unique selling point is their long hours and no competition for as far as the eye can see, then yes a 50p markup for a pouch of tobacco, or a pack of cigarettes is worth it.

Second thing that struck me was all the pouches were small, ranging from 10g to 12.5g and all at less than £5, however right at the end of the shelf was what I was after, an unknown brand - and it was 12.5g and less than 4 quid. Sale done and here's a photo of the pouch.

Medal 12.5g tobacco pouch

It says Medal "Medium Strength Hand Tobacco. A Supreme Quality Blend Made From High Grade Tobacco Leaves" and on the other side of the pouch it states the manufacturer, SP (Scotland), then gives a post code that turns out to be a Business Park in the outer suburbs of Glasgow. Google has no details of SP (Scotland) at that post code.

The pouch itself is just a double walled plastic envelope with a paper insert that carries all the branding heat sealed within. There's no seal to keep the contents fresh and the sellotape doesn't have a tab to lift and re-use. It's real cheap and it's just a case of cutting the sellotape and then using an elastic band to wrap the pouch closed.

The contents are thick cut tobacco that's not been compressed. If I didn't have one myself, I'd have said it looked like pipe tobacco, but I have a shredder that produces exactly the same result, and the look, smell and taste told me it's primarily a blend of Virginia tobacco's.

Nor did it reek of a fake tobacco smell; the contents were moist and because it hadn't been compressed it was very easy to pull out a usable amount - and it turned out to be additive-free and a perfectly acceptable smoke. Also because there was very little added moisture there was more bulk, so it went a fair distance.

I am absolutely certain there was no sawdust, no mouse droppings and no nasties whatsoever in the pouch. It was all tobacco and, to my surprise, not one hard part of the leaf. Whoever they are, SP (Scotland) do take time to make sure it's all nice soft tobacco leaf - and it is medium strength.

Would I buy it again? Yes, but not at the price I paid that night!

So what's so big deal about a tiny little operation that sells to independent corner shops in the central belt of Scotland? The way I see it, I bought their last pouch that night - and that indicates that it sells, very probably to people who know its characteristics and want something that doesn't blow their heads off, and can be tubed or machine or hand rolled with ease. £4 is an important price point and being able to produce more rollies than heavily compressed, thin cut tobacco is another plus point.

And does SP (Scotland) report in the same way as British American Tobacco or Imperial Tobacco? Most likely they don't. The pouch doesn't say it's rolling tobacco and the cut could easily pass for pipe tobacco, so it'll attract a lower level of duty.

What's most important is this lot have not spent a single penny advertising their product; it sells on price and by word of mouth. And when plain packaging becomes obligatory, they'll carry on doing what's worked so far. That'll be crucial when they're forced to only offer pouches that are no smaller than 30g because - as things stand - they'll still be able to come in under another price point of £10, even in little outlets with ludicrous markups.

But that's not the only example I've come across. There's a new kid on the block in the form of The Modern Tobacco Co Ltd - and they produce Tazz Hand Rolling Tobacco that sells at this place (and lots of other tobacconists) for the princely sum of £3.65 for a 12.5g pouch (01).

And this is their blurb.

Tazz is a totally new Tobacco introduced to the UK by a unique company that appeals to us more than the attractive packaging itself!!

The company was formed by former employees of the global tobacco corporations (no names mentioned) that we as specialist Tobacconists have grown to loathe. These employees came to realise that their former employers were missing a trick. That trick was to look after your retailers and consumers with quality tobacco and fair trading practices.

They left their jobs, formed The Modern Tobacco Co Ltd and in 2014 introduced their flagship brand Tazz to the UK. Tazz is in direct competition with the likes of Drum, Samson and Amber Leaf tobacco's with a similar strength, flavour and quality. Their unique selling point is the lack of greed from the owners as they work on a reasonable profit margin so that the consumer can enjoy a rollie at a reasonable price!

So if you are looking for a quality Virginia based tobacco that you can enjoy at a reasonable price in the knowledge the fair profits are going to a UK firm with morals then Tazz might just be the one for you!

Another new entrant is one that Legiron brought to my attention, Bayside Mixed Tobacco. That sells for £9.33 for 50g (02) and while it's billed as a pipe tobacco, Leg's felt it was a darned good smoke as a rollup (03).

I have considerable regard for our two huge tobacco companies. They work well for shareholders and are very consistent at producing good dividends every year without fail. They've worked well within a hostile regulatory framework and that takes some doing.

However much of their growth has been through acquisitions and while they invariably extract value from whatever they buy, there is a limit to this business model. British American Tobacco has for the past couple of years been using their considerable cash flow to buy back their own shares, partly to support the share price and partly because good acquisitions are becoming far more difficult to find at a price that makes sense.

Another business strategy they both follow is to chase volume. Supermarkets and Cash and Carry are their main outlets and almost all corner shops get their tobacco from the Cash and Carry. This way the big tobacco companies get maximum return for the lowest outlay.

The cost of running a full blown sales force simply doesn't make sense for the tobacco majors, certainly not for low margin things like cigarettes or rolling tobacco, so independent tobacconists and obscure corner shops are left to their own devices. Either sign up with a Cash and Carry where the greatest discounts are to volume buyers, or restrict your stock to cater to what will sell very quickly in your market.

Individually these tobacconists and little newsagents generate few sales, however when taken as a whole the figure is substantial. This leaves an opening for bit-players in the market who don't have all the obligations landed on publicly listed companies and who don't have a workforce that's fully documented with pension plans, offices, vehicles, mobile phones and a very large Human Resource department to oversee the lot of them.

Small tobacco firms keep things very simple and very lean. Each employee multi-tasks and any sales force is likely to be self employed and paid purely on results. For these small firms it's about price and yes they can produce a good quality product at a far cheaper price - and maintain that all important one on one contact with all their customers. After all, as anyone who's been there knows, it's far cheaper to keep a customer than find a new one.

Tazz and Bayside tobacco were little known names just one year ago yet they've taken off, partly because they offer excellent value for money and partially because tobacconists are prepared to push their products at the point of sale. It's always a big plus for tobacconists to have a budget brand, it keeps people coming back - and that's all too rare with tobacconists these days.

Although I enjoyed my pouch of Medal tobacco, I suspect their business model is different. That can only be found (in Edinburgh at least) via a small number of late night convenience stores - and then only if they feel comfortable with you. Medal's about making money, with margins that make it worth the shopkeeper's while. It's not illegal tobacco, but it's not and never will be mainstream. I can produce the same tobacco from my own home grown, using this shredder (04) and I can flavour it as well as keep it moist using my own recipe or by buying a bottle of this stuff (05).

Nevertheless it all eats into the market share of the tobacco majors and let's face it when plain packaging becomes the norm, SP (Scotland) only needs to do a tiny amount of work to produce a master graphic, then photocopy it and insert that in their double walled plastic envelopes. And to them the brand's not important, it's getting it sold. And price still does it with many people, especially those in the less well off parts of Scotland.

So yes the pundits are correct, the ban on displays has resulted in a several new arrivals to the market, all chasing a lower price point that's acceptable to those who want "the cheapest". I look forward to seeing to what extent the same phenomenon as happened in Australia (the mainstreaming of illegal tobacco) is repeated in the UK when plain packs are introduced.
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Smoking Scot
November 2015