nickshanagher

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 ...

Higher taxes give tobacco companies the "cover to raise prices" which means the tobacco industry is in rude health, an analysis in the FT's Lex column today shows. For local shops, which depend on tobacco sales to generate footfall, this means that they do not have to rethink their strategy anytime soon. In the US in 2009, a 25 per cent rise in cigarette prices caused consumption to fall by 8 per cent, which was "bang in line" with the impact of the 87 per cent rise in prices since 1969 (adjusted for inflation). Based on this, investment bank UBS argues that tobacco manufacturers can sustain price increases of 4 to 5 per cent a year (8 to 9 per cent for retail prices) for the next 10 years, while absorbing consumption declines of 3 to 4  per cent. What is good news for the tobacco manufacturers may not be good news for tobacco retailers, who might read into these numbers that the former could afford to be more generous with margins. However, they also need t...

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 ...