Is domestic tobacco retail in trouble?

By: Tóth Zoltán Date: 2025. 02. 20. 20:37

Price hikes have eroded the domestic market’s price advantage over retail prices in neighbouring countries.

This article is available for reading in Trade magazin 2025/2-3.

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Tóth Zoltán
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DigInStore

Whereas in previous years shopping tourism led to “grey exports” (mainly in border towns), today the case is the opposite: a wide range of both traditional and new types of – heated – tobacco products are entering the country in large quantities. It is adding to this quasi-legal trend that the volume losses are increased by the actual black market of smuggled goods and by the selection of counterfeit products of uncontrolled quality, made either domestically or abroad.

How profitable is tobacco retail?

In previous years we have already seen a transformation in the various tobacco product categories. Sales of smoking tobacco have steadily declined, while the traditional cigarette segment has stagnated or contracted modestly. However, the market for new types of heated products and devices targeting harm reduction has grown dynamically, and it now accounts for almost a third of total volume sales! However, the negative market trend has resulted in an increase in the rate and extent of the volume decline of conventional products, while the previous dynamic growth of 20-30% per year for new types of products has slowed down. This meant that the resultant volume compensation of the segments is negative.

A strictly regulated operating framework

The strict regulatory framework within which the domestic tobacco industry and retail operate may be difficult for FMCG firms to understand. There is an EU level product-path regulation, with the strategic goal of reducing tobacco consumption and increasing restrictions on its use (in some areas under national competence). This includes regulation of the categories of products that can be marketed. For instance heated products – about which the tobacco industry says clinical trials prove they can reduce the intake of harmful substances by 90-95% compared to traditional tobacco products – have been restricted at EU level for flavoured variants. The advertising ban, the previously introduced “uniform packaging” and the conditions for the size (!) of in-store displaying are regulated from the second half of 2024.

It may rain, it may snow…

In recent years the FMCG industry has understood the importance and role of the tobacco shop system as an independent and increasingly powerful sales channel. A positive change last year was the modest expansion of the selection of FMCG products that are allowed to be sold in tobacco shops in the categories of crisps, snacks and nuts, but it seems that tobacco retailers may need to further expand their assortment and add convenience products. Results based on online data collection by Retail Zoom Kft. confirm that digital in-store communication solutions guarantee progress. The approximately 2.4 million smokers who can only buy tobacco products in person in National Tobacco Shops represent a huge purchasing power of more than HUF 3,000bn. TrafikTV alone reaches more than 1 million customers through 950 points of sale. //