ASH research shows corner shops don’t need tobacco to be profitable
18 October 2016. Action on Smoking and Health (ASH) has demolished the tobacco industry argument that local newsagents need tobacco sales to keep them afloat. New research commissioned by ASH shows that corner shops make on average profit of only £242 a week on tobacco products compared to £2,611 from everything else they sell, that’s less than 10% of their total weekly profits. For retailers, average profit margins are only 6.6% for the tobacco products they sell compared to 24.1% for all other products.
The figures from ‘Counter Arguments: How important is tobacco to small retailers?’ a joint project with the National Centre for Addiction at King’s College London, reveal the reality that tobacco sales are declining fast and today the majority of all small retailer transactions (79%) do not include the purchase of tobacco products. The ASH findings are backed up by a telephone survey of 600 (final sample size 591) local newsagents where most retailers (69%) admitted that they only made small profits from tobacco product sales.
Newcastle-based small retailer John McClurey agrees, but says corner shops have little choice but to sell tobacco:
“I have little choice to sell tobacco as many of my customers still smoke. But tobacco makes me very little money while tying up plenty of cash in stock. Tobacco is a burden to me.”
He believes it’s time for change and welcomes the ASH report because it challenges retailers to consider whether tobacco companies and their local reps really have retailers’ interests in mind.
“The decline in the market, the disappearance of cigarettes behind gantry doors and the shift to plain packaging have made the traditional approach to selling tobacco out-dated. A better alternative for retailers is to reduce stock, shift the gantry and free-up space for products that actually turn a decent profit.”
ASH says its research shows how tobacco industry messaging aimed at small retailers exaggerates the need for tobacco sales, and the impact it has on footfall and profits. The survey found that tobacco companies use local reps as key messengers to encourage retailers to stock their brands and promote them, and 45% of retailers said they are visited at least once a month.
ASH chief executive Deborah Arnott said:
“Nearly half (45%) of smokers buy cigarettes from corner shops, so for the tobacco industry it is essential that it puts a lot of effort into persuading retailers to maintain the profile of tobacco sales in those stores.
“Tobacco is a high-cost, low-profit product and money spent on tobacco is money not available for other more profitable purchases. Our report invites retailers to see the long-term decline in smoking as an opportunity, not a threat.”
In the retailer survey, small businesses told ASH that they want to do the best for their customers whether they smoke or not. Three quarters of retailers aim to stock a wide range of tobacco brands despite the fact that 72% of them said it meant that too much money was tied up in stock. A quarter (24%) of the retailers ASH spoke to also admitted they regularly had problems with the cost of stocking up.
Bob Blackman, MP for Harrow East (Conservative) and Secretary of the All Party Parliamentary Group (APPG) on Smoking and Health, said:
“This report questions the core messages promoted by tobacco manufacturers that tobacco is essential to retailers’ success. I hope that the findings will support and encourage small retailers to consider whether the traditional approach to selling tobacco in small shops remains in their best interests. A new approach to selling tobacco will benefit our corner shops, and ensure their continued place at the heart of our local communities.”
Notes to editors
The full report: Counter Arguments: How important is tobacco to small retailers?’ is available from the ASH website at: www.ash.org.uk/counterarguments
- Retail sales data was obtained from a sample of 1,447 small shops in the UK. The data, purchased from the electronic point of sale system (EPOS) to the shops, are for the week beginning 21 September 2015. The data was checked against other weeks to ensure reliability. The sample included 500 unaffiliated independent shops and 947 shops affiliated with a symbol group such as the franchises Londis or Nisa. All shops had a monthly turnover of £5,000 or more. Thirty-one shops were excluded due to EPOS errors (zero or negative values), leaving a final sample of 1,416.The EPOS data is for weekly sales of tobacco products and non-tobacco products. Tobacco products include cigarettes, roll-your-own tobacco, cigars, and pipe tobacco. Non-tobacco products include all other products including e-cigarettes and tobacco sundries (lighters, matches and rolling papers). Products not included in the data are weighed products, lottery tickets and Paypoint transactions. Gross margins were calculated using product sales values and cost price values. For products with missing costs data (23%) a notional gross margin value, based on the gross margin of comparable products that did include a cost price, was used to estimate a profit figure. Quantitative analysis was undertaken using SPSS Version 23.
The telephone survey of 600 small retailers considered retailers ‘perception of: the role of tobacco in their business, the opportunity and costs; further regulatory options and their impact; the relationship between tobacco companies and small retailers. The final sample size was 591 retailers.
- The reference to the proportion of smokers buying cigarettes from newsagents is from the ASH YouGov Smokefree GB survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 12157 adults. Fieldwork was undertaken between 2nd to 23rd March 2016. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).