Every retailer has been aware for many months of the impending ban on tobacco displays in ’large’ stores those over 280sq m or 3,000sq ft which comes into effect on April 6 in England, and on October 6 in Northern Ireland. At the time of writing it was still unclear precisely when the ban would be applied in Scotland or Wales.

Although both countries have committed to introducing it as soon as they have clarification regarding their legal powers to do so, the consensus of opinion seems to indicate that it won’t happen this year.

Financial factor

Being aware of the looming ban is one thing, but walking into a suburban Tesco Metro supermarket and finding the white canvas rollers pulled down over the tobacco gantry at 11 on a Thursday morning in March was still something of a shock. Enough to make us want to take a closer look at how significant a financial factor tobacco might still be in the modern forecourt. After all, forecourt shops have come a long way since the 1980s and now are generally perceived as much more than just a place to buy sweets, ciggies and soft drinks. With all of the emphasis in recent years on new services, and with small fortunes regularly spent on shop redevelopments and re-imaging, the traditional reliance on tobacco might now just be a historic curiosity.

So we looked at some shop figures from a sample of dealer-owned and operated sites all within a ’triangle’ between London, Liverpool and Bristol and focused on their tobacco sales and margins in relation to their total shop figures. The sites ranged in type from full convenience symbol stores, through traditional major-brand oil company forecourt shops, to smaller-volume minor-brand operations. In some respect, the results were quite surprising.

big sales

Overall monthly shop sales across the sample sites between April 2011 and January 2012 averaged just under £36,000 (excluding VAT), of which tobacco sales were £14,250 (again, ex-VAT). In short, tobacco still represented almost 40% of total shop turnover. This was somewhat higher than we had expected. It was a figure that had been common in the 1990s, but our experience with the old ’Industry Database’ had been that the reliance on tobacco had been falling gradually throughout that decade, with a steeper decline in the early 2000s as forecourt shops evolved into convenience and food retailers, accompanied by a very sudden take-off of new sales lines such as the National Lottery, off-licences, phonecard top-ups, etc.

One possible explanation proffered by a very experienced retailer was that tobacco prices have risen somewhat faster than general inflation, and that while volumes were still following a declining trend, sales values were at least constant.

Penal duty increases

In addition, other areas of the shop had been harder-hit by the post-2008 economic slump. That certainly sounds plausible, given the penal duty increases on tobacco at every Budget, although any complete explanation of tobacco prices would surely have to include some reference to the almost extraordinary degree of ’premium-pricing’ that takes place on many forecourts.

Non-smoking site operators sometimes seem to forget that smokers generally stick to one brand and know the price at which it’s sold, whether in a supermarket or their local newsagents.

Profit contribution

In terms of tobacco’s contribution to total shop profits: overall monthly shop GP across the sample was £7,400 (giving an overall shop margin of 20.6%) of which £1,263 was derived from tobacco sales. Hence tobacco generated just over 17% of total shop profits and to save anyone having to work it out, our sample’s average tobacco margin was 8.9%.

For the sake of comparison, we looked at what has been widely touted as one of the major growth lines in forecourt shops over the past 20 years food.

In this case actually zero VAT-rated grocery and snacks. We found that this group represented 21% of average turnover and generated just over 18% of total shop profits.

What happened to the forecourt-retail revolution? Either it didn’t spread everywhere or, as another retailer explained, yes they’d tried giving ’grocery’ more prominence in their store several times over the years but each time found that their customers largely ignored it.

Clearly tobacco is still a very significant product for petrol retailers even in 2012 despite the apparent change in the nature of the forecourt shop.

Significant product

Even the largest supermarket-type symbol group-branded store in our sample still relied on it for 30% of sales and over 22% of gross profit, while among the more traditional forecourts there were some where it generated over 60% of turnover. Interestingly in these cases it was responsible for less than 17% of shop profit.

Naturally the suppliers are suggesting that the display ban in larger stores offers an opportunity for smaller retailers to gain some competitive advantage, albeit a temporary one, since the law will eventually be extended to include all retailers.

At the moment, the projected implementation date for the whole of the UK is April 2015.

Making hay while the sun shines is fair enough, but our figures suggest that forecourt retailers are still hooked on tobacco and have three years to try and find a decent substitute.