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It is a Catch 22 situation. The margin on a pack of premium cigarettes sold at recommended retail price is overwhelmed by the sheer size of the government's tax take to the point where some retailers say they cannot borrow money cheaply enough to cover the cost of their stockholding. Using a pack of Lambert and Butler as an example, Amal Pramanik, general manager of Imperial Tobacco UK, told wholesalers last week that 81 per cent of its £7.19 selling price was taken in excise duties and VAT, leaving just £1.42 to be shared out by the manufacturer and retailers. On value brands, the government was taking as much as 88 per cent of the selling price. Well aware that retailers are criticising his company for the low margins, Mr Pramanick says that retailers should look at their margin against the net sales price after stripping out government duty. On L&B this works out at 37p, which has increased by 33 per cent over the past five years. It is a tiny 5.1 per cent margin on the ...

There has been an interesting debate on the pages of the Financial Times about proposals to force tobacco companies to use standardised packaging. It was sparked by an interview with Alison Cooper, the chief executive of Imperial Tobacco, who said the proposed measures were anti-business. The FT's business and society columnist Michael Skapinker responded the next week with a column that dismissed her suggestions that the government was going too far in destroying brands. He said that of "all legal businesses, smoking stands alone in its harmfulness." He argued that the government had a right to regulate the market but he failed to note that Ms Cooper did not dispute this right. The tobacco industry understands that its products are harmful. Mr Skapinker moved on to say the only arguable point in favour of the cigarette business is that it allows individuals choice "and even that is largely bogus". As a columnist, he is entitled to his views. But he is mis...

At the Newsagents Federation conference in Birmingham this week, Imperial Tobacco, the UK's market leader, suggested to retailers that they should focus less on cigarette margins, at 6.6 per cent, and more on stockturn, at 183 times a year. Using a simple model, general manager Amal Pramanik, showed that the 50 per cent margin offered by toothbrushes which turned over four times a year, offered a cash return of £200 a year for every £100 invested. Cigarettes, in contrast, would earn a retailer £1,200 for every £100 invested. It is a simple illustration and holds true even when retailers add on investment in assets, such as the space occupied by the product. In order to measure how well you are doing, you need to understand what return you get when you multiply your margin by your stockturn. Mr Pramanik's purpose in reminding retailers of this fact is to head off increasing pressure from retailers for a rise in the margin that they get on cigarettes. However, his reminder ...