Another year passed…for Trafikvilág too

Tóth Zoltán
ügyvezető partner
MindZ Business Design

National Tobacco Shops operate in compliance with strict regulations. All in all, experience is that in addition to entrepreneurs’ skills and business strategy, the profitability of these units first and foremost depends on their location. Another peculiarity of the tobacco shop market: in cities where tobacco shops located in hypermarkets had to close, their turnover didn’t ‘appear’ in other tobacco shops – village dwellers who come to town for shopping don’t buy their cigarettes in other city tobacco stores, they simply go back home and purchase them there. Analysing the turnover of Trafik.hu partners we have come to the conclusion that the tobacco product market is approaching the size of HUF 50 billion a month that was expected earlier. This is good news for tobacco shop owners and the industry but doesn’t solve the problems accumulated in the last few months. About 40 percent of tobacco shop owners are still struggling and let’s not forget about the fact that manufacturers and distributors considerably increased prices in the meantime. These facts suggest that in terms of volume sales the market is contracting, and of course there is a structural change occurring as well, due to the growing consumption of roll-your-own (RYO) tobacco. But of course growing prices result in the expansion of the black market. Cigarillo and cigarette volume sales dropped 27 percent and the 10-percent rise in the sales of RYO products couldn’t offset this. Meanwhile the black market, where formerly 2-3 percent of total consumption was realised now sells 11-15 percent of all tobacco brought in Hungary. The 6 key players in the market all have their stable group of consumers. As for the battle between BAT and PMMO, it seems that in Q4 2013 Phillip Morris managed to overcome its opponent. Behind them JTI and Imperial hold on to their positions and have rather similar size slices of the ‘tobacco product cake’, while smaller players’ positions didn’t change significantly. If we examine monthly data from July 2013, we can see that Philip Morris’ leading position is stable – in part because the company managed to achieve significant growth in the developing RYO category. In Q4 2013 BAT was the first to increase prices and the company was unable to compensate for the negative effects of this until the present day. The selection of products available in tobacco shops is too wide and this causes stock management, financing and distribution problems to retailers and enterprises in the tobacco industry. Cigarettes and RYO products represent 96-97 percent of the market. In July Trafik.hu partners were selling 244 different cigarette products (SKU = stock keeping unit) and 30 SKUs realised 50 percent of total cigarette consumption; the market leader brand’s share from the market is almost 7 percent. 99 percent of total sales can be produced by 200 SKUs. As for RYO products, the leading product has a 9-percent share from sales. A survey conducted with the participation of Trafik.hu partners revealed that the enterprise with the best stock management is working with 31-percent stock value as regards monthly sales. This practically means a 10-day stock in a market where only 2 manufacturers deliver products more often than once a week! From the ‘big six’ only one finances this National Tobacco Shop faster than the speed of turnover, another does it at the same speed and the stocks of the remaining four tobacco companies are financed by the enterprise. Tobacco shop owners experienced a lot in the last twelve months. Still, they need even more information about market trends and last but not least they must improve their interest representing skills. They need to learn and develop.