The Response of Retailers in Scotland to the Standardised Packaging of Tobacco Products Regulations and Tobacco Products Directive

Abstract

Introduction

With most marketing channels prohibited, the retail environment has assumed greater importance for tobacco companies, even in markets with a ban on the open display of tobacco products. Research has yet to qualitatively explore how retailers respond to standardized packaging in a country where this has been introduced.

Methods

As part of the DISPLAY study, face-to-face interviews were conducted with 24 small retailers in Scotland between May 23 and June 26, 2017; the interviews were conducted after The Standardised Packaging of Tobacco Products Regulations and the Tobacco Products Directive were fully implemented.

Results

We found high retailer compliance with the legislation. With price-marked packs and packs containing less than 20 cigarettes and 30 g of rolling tobacco banned, retailers stated that this helped simplify ordering and stock management. The removal of price-marked packs also allowed them some flexibility to set their own prices, but many chose to stick closely to recommended retail price in order to remain competitive and avoid complaints from customers. In contrast to one of the tobacco industry’s arguments against standardized packaging, most retailers suggested that transaction times had not increased, even though the changes had only recently come into force.

Conclusions

This study challenges some of the arguments used against standardized packaging and provides an insight into the storage and pricing strategies adopted by retailers following the removal of price-marked packs.

Implications

This study explores the response of the retailers to the introduction of standardized tobacco packaging and provides an insight into the storage and pricing strategies adopted by retailers following the removal of price-marked packs. It explores the importance of the retailer in tobacco companies’ desire to maintain tobacco sales and challenges some of the arguments used against standardized packaging, such as an increase in transaction times. Countries seeking to introduce standardized packaging should monitor the experiences of retailers, preferably from preimplementation through to post implementation, to help understand how retailers respond to this policy and to inform compliance.

Introduction

Following Australia and France, the United Kingdom became the third country to implement standardized (or plain) packaging. The Standardised Packaging of Tobacco Products Regulations¹ and also the Tobacco Products Directive (TPD),² which was incorporated into UK law through the Tobacco and Related Products Regulations,³ were phased in between May 20, 2016 and May 20, 2017. The legislation stipulates that all packs of cigarettes and rolling tobacco must be drab dark brown and display pictorial warnings on 65% of both principal display areas, with two additional text warnings on 50% of the lateral surfaces.⁴ It also sets a minimum pack size of 20 for cigarettes and 30 g for rolling tobacco; bans financial incentives (including price marks) on packs; any reference to taste, smell, and flavour; and anything that may create an erroneous impression about the product characteristics (eg, that it is less harmful than other brands).

In the United Kingdom, as with many other markets with comprehensive bans on tobacco advertising, promotion, and sponsorship, the retail environment has become more important for tobacco companies.⁵ Tobacco companies have acknowledged that retailers are well positioned to gather information about consumer demands.⁶ The importance of the retailer holds true even in countries with a ban on the open display of tobacco products. For instance, previous research shows that retailers benefit from a range of incentives for maintaining stock levels and availability, positioning brands in specified spaces in the public-facing storage units, increasing sales, trialing new products, and participating in promotions, such as verbally recommending specific brands to customers.⁵

To date, however, little is known about the response of retailers to the implementation of standardized packaging. No published studies have qualitatively explored how retailers respond to this measure or how this legislation has influenced their relationship with tobacco companies. Research in New Zealand has explored retailers’ perceptions of the proposed standardized packaging legislation preimplementation and found that retailers were generally supportive of the public health goals of the legislation but were concerned about the potential financial implications.⁷ In Australia, post standardized packaging, studies have instead explored the brand strategy of tobacco companies,^8,9 retail transaction times,^10,11 advertised price of cigarette packs in retail outlets,¹² and channel of purchase.¹³ Understanding how retailers respond to this change and the influence that tobacco companies have on this is important given that tobacco industry journals suggest that in countries with standardized packaging, the retailer becomes the only medium to transport news of innovations.⁶ British American Tobacco’s Head of Brand Marketing has explained that as standardized packaging makes brand building more challenging and trade marketing less effective, the voice of the retailer becomes critical.⁶

In this study, we explore the response of retailers in Scotland to standardized packaging and the TPD shortly after these measures became mandatory.

Methods

Design and Sample

The data reported here form part of the DISPLAY study, a longitudinal study designed to evaluate the impacts of the legislation prohibiting the open display of tobacco products at point of sale in Scotland.^14–16 Part of this study involved interviews conducted annually with a panel of 24 small independent retailers selling tobacco in Scotland to explore their experiences of implementing the display ban and their relationships with tobacco companies over the a 5-year study period. The retailers interviewed were from four Scottish communities selected to match the main DISPLAY study communities in terms of different levels of urbanization and social deprivation, assessed using the Scottish Index of Multiple Deprivation (SIMD) scores (for more detail see Haw et al.¹⁴).

This paper presents data collected between May 23 and June 26, 2017, with all interviews conducted after the full implementation of standardized packaging and the TPD (May 20). This permitted an insight into how retailers initially responded to the legislation. The 24 retailers were recruited using a structured protocol to represent five retail categories: grocery/convenience stores (n = 12), confectioners, tobacconists, and newsagents (CTNs; n = 5), off-licences (liquor stores; n = 3), petrol station/garage forecourt shops (n = 3), and fast food or take-away outlets (n = 1). These five retail categories accounted for approximately two-thirds of tobacco sales in the United Kingdom¹⁷ and represented all small fixed retail outlets in the study communities selling tobacco.

Procedure

Retailers were initially approached to assess whether they met the sample criteria and whether they would be interested in participating in the study. Those that expressed an interest were given an information sheet and then recontacted to answer any questions, provide written consent, and schedule a time for interview as appropriate. A financial incentive (30 GBP) was offered for participation. Data were collected by M. Stead, D. Eadie, and R. I. Purves, with a short (20–30 minutes) semistructured interview conducted face-to-face in store during business hours; the interview and recording were paused during customer transactions. The interviews examined retailers’ attitudes toward the display ban, how they set prices and convey pricing information to customers, the implementation of standardized packaging, the level and nature of support provided by tobacco companies, and the emergence of new strategies to promote tobacco products. Field visits also provided an opportunity to examine marketing materials and incentive offers designed for the retail trade. Ethical approval was provided by the Stirling University School of Management Research Ethics Committee.

Analysis

Interviews were audio-recorded and fully transcribed. A coding frame was developed and transcripts coded using QSR Nvivo11. Themes were developed using an inductive approach. The reliability of these themes was then reassessed by a process of familiarization with the transcripts reviewed by one researcher (R. I. Purves) and cross-examined by two others (D. Eadie and M. Stead). Discussions between researchers enabled identification of emerging themes and resolution of interpretive difference.

Results

Retailers described their response to the legislation, the removal of noncompliant stock, and how this had influenced their storage and sales practices. These findings are reported here under the following themes: compliance and transition, storage and sales practices, and pricing and profits.

Compliance and Transition

Most retailers appeared to have complied with the legislation and removed noncompliant stock from their shelves in advance of the implementation date. Retailers did not want to risk being fined for noncompliance: “end of the day, it’s not worth it, it’s a big fine” (Retailer C, CTN). In addition, retailers had been notified by the tobacco company representatives (reps) that any noncompliant stock that they had left over would be exchanged free of charge for new compliant stock. Some retailers had also received word that their local wholesalers were organizing special events where they would be able to swap their old stock which was not exchanged by the reps who visited them:

Embassy (The Imperial Brands rep) came out last week, but ones like Philip Morris cigarettes, that’s all your Marlboro cigarettes and things like that, they are having a kind of amnesty day at Bookers in July, well you will take your cigarettes and you can swap them over. (Retailer D, Off Licence).

Many retailers reported that they had been left with branded stock after the legislation came into force. Some indicated that they had purchased noncompliant stock (ie, 10 packs) for certain brands close to the deadline as they believed they would be able to sell them in time: “To a certain extent, we made sure we were buying the branded stuff – one or two 10’s that we knew we were selling on a regular basis” (Retailer B, Convenience Store). Some retailers also suggested that the best-selling brands were the last to switch over to the new packs, whereas the products that did not sell as much were gradually changed over the course of a year. Some retailers were concerned that the reps would not swap their noncompliant stock and that they would lose out financially, and some reported that they had to pay the difference in value between old and new stock for their stock to be exchanged because of the difference in pack sizes: “so they will take away and you have to top up and pay the balance” (Retailer A, Convenience Store).

Retailers left with large amounts of noncompliant stock very close to the deadline reported that some tobacco reps had advised them to provide customers with two 10 packs when they had asked for a 20 pack in order to sell the old stock as there was a ceiling on how much the reps were prepared to take back:

The Rep was telling me, there’s a few shops…they have bought so much up when they were maybe cheaper at the Cash & Carry…So he tried to explain to them, sell two 10’s instead of a 20. Just say, you don’t have 20, here’s two 10’s. You need to get rid of them, cos they can only take so much back (Retailer H, CTN).

One retailer still had, and intended to sell, fully branded stock, 10 packs, and price-marked packs after the implementation date and indicated that they were prepared to take the risk because of the infrequency of inspections. If caught, the retailer indicated that they would claim that they were unaware of the legislative changes:

Nobody comes to check on me, why? So what am I doing here? Somebody is not doing the job right I believe. If they come now… my excuse is you’ve been late, why didn’t you come 2 years ago?… obviously I am going to tell lies saying look I forgot. I didn’t! I put them there (Retailer E, CTN).

Storage and Sales Practices

With fewer tobacco products, this had made ordering and storage more straightforward. Retailers said that the removal of smaller cigarette pack sizes (10s, 17s, 18s, 19s) meant the range of products had reduced significantly, freeing up space in the storage gantry. Retailers stated that this had led them to cut down on the slower selling brands and only replenish their best-selling brands, which had positive implications for their costs:

It is (good) because if I was going in there and I was getting six sleeves of Mayfair, I was maybe getting six sleeves of tens as well, so that was twelve sleeves. So you are paying the same per sleeve on them, so I’ve cut back and I’m not buying tens at all. It is a lot easier as far as your stock control (Retailer K, Garage Shop).

Some retailers mentioned confusion between products because of standardized packs and also the new names of products; brand variant name changes were common in the run-up to, and shortly after, the full implementation of standardized packaging. Immediately following implementation, there were occasions where customers had been given the wrong cigarettes. However, for many retailers, there were no problems or mistakes and any issues that there were became less common once the retailers became more familiar with the name changes. Lack of familiarity regarding the brand variant name changes was also ameliorated by stocking brands in the same positions on the storage gantry. Because of this, retailers reported that transaction times and the ease of locating products on the gantry were not affected:

R We just put the replacement in the same place as the old ones were, so that helped us I think. And sometimes you just have a mental image of where they are from previously. So it’s just kind of –

Q And the name just falls into place?

R The name just falls into place. Before, I think the first few weeks, it was a mental image of all the old packets but now that’s – now the newer ones, that image has just amalgamated with the newer ones. I think it’s worked. (Retailer F, Convenience Store/Post Office)

Some retailers reported that they had begun to stock certain packs upside down on the gantry so that the brand and variant name were visible to the staff: “Just so it makes it easier” (Retailer J, Off Licence).

While products were hidden from public view, retailers reported that shelves which were located at the customers’ eye-level were still the most desirable space in the storage gantry for the manufacturers (particularly Imperial Brands reps), with other shelves left empty. This had involved relocating some of their brands from less-visible shelves. Reps had suggested that retailers increase the number of facings of their brands on the eye-level shelves, with those retailers involved in loyalty schemes awarded points for keeping certain manufacturers’ brands fully stocked on their shelves:

They come in and check them, for example, that company they don’t want to run out of their stock. That’s why we must have a line and they come, if no line you lose a (loyalty) point you know, for example, 20 lines, 20 points, if we have 18, 18 points (Retailer C, CTN).

One retailer mentioned that they had taken ownership of their tobacco gantry from the manufacturers and had repurposed some sections which were no longer required for tobacco products. The increased visibility of these products drew positive comments from customers and resulted in increased sales of the grocery products which now occupied the space:

We used to have all those groceries over there, and up there. People would come in in the morning and get served, and without a word of a lie “when did you start selling soup? When did you start selling this?” That sells more. People come in a lunchtime for some rice or a mugshot. And that sells more now because people can see it (Retailer H, CTN).

Pricing and Profits

Although the removal of price-marked packs offered greater flexibility in pricing, retailers mainly priced their products in line with the recommended retail price (RRP). They exercised some flexibility on setting prices for premium brands (where they believed customers were more brand loyal) but justified relying on RRP for much of their stock in order to remain competitive. This was particularly true for retailers who were situated close to larger shops or supermarkets which tended to price at RRP:

We are sticking with the RRP. (Imperial Brands) gives us the price list and we are sticking with that… because we have a competition with Tesco’s, Asda, and those sort of people (Retailer L, Convenience Store).

Retailers did not appear to be particularly motivated to try and make a better margin on cigarettes as they believed it was not worth the hassle. The RRP of most products was reported to be “quite stagnant” (Retailer A, Convenience Store) because the pack sizes changed to 20s, with most brands increasing their RRP slightly in line with the increase in pack sizes. Most of the retailers were reluctant to go much above RRP on their most popular brands because they felt their customers would be aware of the RRP and would raise this with the retailer if they felt they were being overcharged. However, for some retailers, the lack of price-marked packs offered the opportunity to set their own prices and make higher margins. This tended to be a practice followed by retailers who had less direct competition in their locality:

Most of the direction of traffic is coming down this way, so you come Semi-Chem, Co-op, XXXX the stationers and things. So my company (rep) has said keep your cigarettes at RRP and I’ve said no I’m adding 5 or 10 pence on a packet. I can get away with it (Retailer M, Convenience Store/Off Licence).

Most retailers alluded to receiving loyalty points, which were redeemable for goods, for adhering to the RRP of certain brands that were set by tobacco companies; these points were forfeited if retailers failed to comply. These were monthly payment/points schemes with associated payment cards where the reps conducted monthly checks to ensure they were stocking all the designated product lines and selling at RRP.

Discussion

These findings provide an insight into how retailers responded to standardized packaging and the TPD. There was high compliance among our sample of retailers, consistent with studies monitoring retail data.¹⁸ Despite the small sample size, these findings are consistent with a report on the cigarette market in the United Kingdom, which suggests that tobacco companies offered support to retailers in order to help them with the introduction of new legislation.¹⁷ With opportunities to promote their products running out, tobacco manufacturers were clearly looking to strengthen their relationship with retailers.⁶ Not all retailers in our sample were compliant with the legislative changes, however, with one retailer openly admitting that they were prepared to risk being caught with noncompliant stock (fully branded packs, 10 packs, and price-marked packs). That a minority of retailers are willing to flout the law, as also suggested by research in the United Kingdom using Electronic Point of Sale data,¹⁸ merits consideration in other markets planning to introduce standardized packaging.

While previous research has suggested that there has not been an increase in retailer transaction times,^10,11,19 this is the first study to explore and confirm this from the perspective of the retailer. Any confusion regarding customers being sold the wrong products was minimal and short term and, importantly, was reported to be more likely because of the changes in brand variant name than to pack appearance. Changes to brand variant name have been common in both Australia and the United Kingdom in response to standardized packaging,^20–22 and while some of these changes are the result of a ban on the use of misleading descriptors, others have been introduced by tobacco companies. Tobacco companies have neglected to mention their role in any delays in the retail environment that may accompany the introduction of standardized packaging.

The reduction in product range associated with standardized packaging and TPD changes had some benefits for retailers, as fewer tobacco products made ordering and managing stock more straightforward; it also reduced retailers’ costs as they reported no longer having to carry several pack sizes for each brand and only needing to replenish their best-selling brands. This is consistent with previous research which found that the average number of different products sold by retailers decreased by one-third^18,23; this might have also been the result of the ban on price-marked packs. Having fewer tobacco products also freed up space on the tobacco gantry to display other products, with one retailer reporting that this had resulted in increased sales of these nontobacco products.

With low margins (c.3%) on many tobacco products, price marking prohibited, and minimum pack sizes, the retail press suggested that following the introduction of standardized packaging retailers may raise prices above the RRP to boost margins.²⁴ That tobacco companies strongly recommended that retailers sell at RRP or below^17,25,26 highlights how concerned they were about the possibility of price increases post standardized packaging. Imperial Brands even provided retailers with stickers to be displayed on the gantry to make it clear to consumers that they were selling products at RRP.²⁵ The retailers in our sample generally followed the advice to sell at RRP in order to remain competitive and to avoid any possible complaints from customers about overcharging. However, some did take the opportunity to increase prices above RRP to improve their profit margins. As this study was only based on a small number of retailers, further research observing real-time price changes is needed to understand what trends are generalizable to the wider small retailer market. Other ongoing research in the United Kingdom^18,23 is currently investigating these wider trends and potential factors which could have influenced retailer pricing decisions (eg, retailers increasing the price of packs to protect revenue as a result of the slight decline in overall sales following full implementation of the legislation).¹⁸

Despite cigarettes coming in standardized packs and being hidden from public view, we found that some retailers stocked their brands upside down on the gantry, thus ensuring that the brand and variant name were visible to the retailer and consumers, at least during incidental exposure. This was reported to be for ease of access but is helpful for tobacco companies given that one of their key objectives is to achieve brand visibility at the point of sale in retail outlets.^27,28 Displaying products on eye-level shelves was still important for tobacco manufacturers, highlighting the importance of placement as one of the last remaining sales tactics. Indeed, tobacco reps were keen for retailers to increase the facings on eye-level shelves and incentivized this practice through their loyalty schemes.⁵

While our study provides insight into a number of contrasting communities in terms of deprivation and urbanization, the sample is not necessarily representative of all tobacco retailers in Scotland. The small sample size meant that there was limited scope to explore subgroup variations (eg, by community or shop type), although heterogeneity across shop types was achieved in the overall sample. There was variation across the sample in the extent to which retailers reported compliance with the legislation, although the majority reported high levels of compliance. However, there was more consistency across our sample in relation to pricing and storage. This suggests that the pricing and storage practices identified in our study are likely to be adopted in other countries with, or planning to implement, standardized packaging of tobacco products in the United Kingdom and internationally.

In summary, our study provides insight into the response of retailers to the implementation of standardized packaging and how this affected their relationship with tobacco companies. It provides some evidence of the pricing strategies retailers have adopted with the removal of price-marked packs, challenges some of the arguments used against standardized packaging, and provides an insight into how tobacco companies, via their reps, continue to incentivize retailers. These findings suggest that there is a need for further investigation of pricing strategies over a longer time period and a larger number of retailers. Countries seeking to introduce standardized packaging should monitor the experiences of retailers prior to, during, and post implementation to help inform compliance and challenge some of the arguments used against standardized packaging, such as an increase in transaction times.

Funding

The study was funded by the United Kingdom National Institute for Health Research (NIHR) PHR project Grant 10/3000/07. The study sponsor had no influence on study design and the collection, analysis, and interpretation of data, the writing of the article, and the decision to submit it for publication.

Declaration of Interests

None declared.