Smoking ban: Stubbed out or burning bright?

With just days to go until the smoking ban comes into force in England, brands in a host of sectors are either frantically devising strategies to minimise the impact on their profits or plotting how to capitalise on the predicted upswing in their market. Jane Simms reports.

As of next week, smokers will be out in the cold - literally. On 1 July, the long-awaited smoking ban comes into force in England. Overnight, pubs, clubs, workplaces - indeed, any enclosed public place people gather - will become smoke-free. The nicotine-laced miasma that has characterised the nation's watering holes will become a thing of the past.

Makers of patio heaters are rubbing their hands with glee, but if recent headlines are to be believed, the ban will result in pubs closing, brewers' sales falling and swathes of bar staff and bingo callers out of a job. Consumers would rather stay at home, runs the argument, than drink or play bingo without the familiar fag in hand.

For alcohol and pub brands, the evidence from the Republic of Ireland and Scotland, where smoking bans were introduced in 2005 and March 2006 respectively, is mixed. The data suggests that sales will fall in the short term, but pick up again, due to a combination of good outdoor smoking facilities, new groups of customers who had previously been put off by the smoky environment, and efforts by businesses most at risk from the ban to enhance their offering.

These developments are likely to be replicated in England. 'While the ban represents one of the biggest challenges for the on-trade for some time, it is also a genuine opportunity to drive it forward, because as an industry we are going to have to reconsider how to retain and attract additional custom,' says Philip Almond, marketing director at Diageo GB.

The ban is likely to exacerbate a decline in beer consumption. In response, pub chains have been investing millions in creating attractive outdoor smoking areas and refurbishing pubs to make them more appealing to non-smokers. They are also improving food offers to achieve wider consumer appeal.

The smoking ban is an important milestone among shifting customer expectations, according to Adam Collett, marketing director for the destination pub business at Greene King. 'Over the past 15 years the decline in the number of regular, frequent pub-goers has been outstripped by growth in the number of people attracted by pubs' increasing food and family orientation,' he says. 'More people than ever are going to pubs.'

Greene King is one of the biggest pub operators in Scotland and has been operating a number of smoke-free pubs in England for several years. 'We see the ban as a very positive step, but to exploit it, you have to be well prepared,' explains Collett. 'This means having a hospitable outdoor area that is clean, easily accessible, sheltered and, ideally, warm and light, and adapting your offer to give people more reasons to visit the pub.'

The company has invested several million in preparation for the smoking bans, which Collett says have been its 'biggest single focus over the past 18 months'. Its efforts appear to be paying off: sales of its Bellhaven Best beer, the biggest ale brand in Scotland, have grown by nearly 5% over the past year.

The expected changes to pubs' customer profile provides an opportunity for the soft-drinks industry. Several companies in this sector believe that the adult soft-drinks category will grow, and have been reworking their on-trade offer accordingly. Earlier this month, for example, Coca-Cola Enterprises announced it was to reposition its Oasis brand as a non-alcoholic alternative to beer, to be drunk in a pint glass as an accompaniment to food.

The smoking ban is a more severe challenge for the bingo sector, which is battling a number of problems, including double taxation (uniquely in the gaming industry it pays both VAT and gross profit tax) and the prospect of higher licence fees and additional bureaucracy as a result of the Gambling Act, which comes into force in September. Combined with such pressures, the expected loss of revenue as a result of the smoking bans caused Mecca to close 10 of its clubs recently.

This is forcing bingo brands into a change of strategy. Online bingo services, for example, are now aiming at traditional players expected to turn their backs on bingo halls. Ladbrokes launched web bingo last year, and has attracted tens of thousands of regular players since. Another option is to lure 'bingo virgins' into clubs. In March Ladbrokes launched a TV campaign, created by Leo Burnett, to achieve just this.

Miles Baron, sales and marketing director for Mecca Bingo, points out that whereas a few years ago bingo companies were targeting each others' customers, the ban has forced the industry as a whole to find new customers. 'We are constantly racking our brains to think of ways to mitigate the impact,' he says. 'We discovered that smoking has been a barrier among some prospective customers, but so have other things. For example, people are telling us they would like us to focus more on our food and fun offering.' However, changes may be slow in coming; he admits that some of these developments are 'one or two years down the line'.

Market boosts

By contrast, smoking-cessation products and anti-smoking charities view the smoking ban as an unprecedented opportunity, and have ramped up their marketing activity in preparation. 'Our research shows that 4m of England's 10m smokers plan to quit, almost three-quarters within the first year after the ban,' says Martin Dockrell, policy and campaigns manager at charity Action on Smoking and Health (ASH).

ASH has been working with other charities including Quit, Asthma UK, the British Heart Foundation and Cancer Research UK. On 7 June, the latter launched www.sponsormetoquit.org to urge people to raise funds for charity as they try to kick the habit, and on 18 June it launched 'The Great Indoors', a campaign to raise awareness of the benefits of a smoke-free England. Activity will include radio and poster ads, as well as sites in pubs and toilets.

Smoking-cessation brands such as Nicorette, Nicotinell and NiQuitin CQ are launching ad campaigns to exploit the potential of what is likely to be a bumper year for them. Their market has grown 50% in the past five years, according to Mintel, and the ban is expected to spur fresh expansion.

Aside from these key sectors, there will be other winners and losers as a result of the ban, ranging from outside-furniture manufacturers to vending-machine suppliers. But amid this rash of self-interest, it is easy to overlook the purpose of the ban, which is to protect workers in enclosed spaces from cigarette smoke. Many firms are using the ban to help their staff stop smoking, in the hope that the net result will be a healthier workforce. 'Smokers take almost 10 days' more sick leave than other staff, so smoke-free environments should result in falling sickness levels and rising productivity,' says Dockrell. 'Companies will make savings on not having to clean up after smokers, and insurance premiums could fall as a result of the reduced risk of cigarette-related fires. Going smoke-free is good news for the economy as a whole.'

THE WINNERS - SMOKING-CESSATION PRODUCTS

- WHY WILL THE SECTOR BE AFFECTED?

According to the Office for National Statistics, 70% of smokers want to quit, and evidence from countries that have already introduced smoking bans suggests that many smokers will see 1 July as an impetus to do so. The charity Action on Smoking and Health (ASH) reports that 46,000 smokers (one in 20) attempted to give up their habit in the first year after a smoking ban was introduced in Scotland, while the number of smokers in Ireland fell from 27% of the adult population one month before a ban was imposed there to 22% one year later.

- WHICH BRANDS ARE INVOLVED?

Nicotine-replacement therapy (NRT) products such as Nicorette, NiQuitin CQ and Nicotinell, as well as anti-smoking charities.

- WHAT IS THE EXPECTED IMPACT?

Based on the effects seen after the bans in Scotland and the Republic of Ireland, NRT brands predict sales of their products during July and August will be three times greater than the traditional 'quit' season of January and February. The sector experienced a 17% sales uplift in Scotland in the year after the ban, and, so far, sales in Wales have followed a similar pattern. The nicotine-replacement market is set to hit £100m this year, according to Mintel, and to surpass £140m by 2011.

WHAT ARE BRANDS DOING ABOUT IT?

NiQuitin CQ launched a national £5.5m campaign on 11 June. The activity included an interactive TV ad that allows viewers to find out more about how NRT products can help double their chances of giving up smoking. Consumers will also be able to access a NiQuitin CQ personalised smoking-cessation support plan via its website, www.click2quit.com. This is being supported by an intensive three-week radio campaign, which broke on 25 June.

Nicorette, too, has launched a national TV drive entitled 'For every cigarette there's a Nicorette'. It broke on 11 June and highlights its range of products, including patches, gum and inhalators. For the first time, the brand will also be available where cigarettes are sold, such as garage forecourts, corner shops, off-licences, pubs and bingo halls. In mid-June, the brand launched a month-long partnership with Virgin Radio, comprising ads and a branded microsite that can be reached via the station's website. The site, initially branded The Smoking Room, will be renamed The Non-Smoking Room from 1 July.

THE LOSERS - BINGO

- WHY WILL THE SECTOR BE AFFECTED?

The proportion of smokers among bingo players is 50%-60% - more than twice that of the UK population as a whole. Also, while smokers in pubs can pop outside for a quick cigarette, taking their drinks with them, bingo clubs make the majority of their money from people playing machines during breaks in the main games. Once the smoking ban begins, punters will go outside for a cigarette instead, depriving the clubs of a big portion of prime revenue.

WHICH BRANDS ARE INVOLVED?

The major bingo brands such as Mecca and Gala.

WHAT IS THE EXPECTED IMPACT?

Research from St Minver, supplier of white-label gaming solutions to Yahoo! Games, lastminute.com, Telefonica and Littlewoods, suggests that one in three bingo players will play less often, one in 10 will stop playing altogether and more than three in five bingo-playing smokers will increase their spend online. The research is backed by the experience of bingo clubs in Scotland; attendance at Mecca clubs there fell by 15% and revenue by 10% in the year following its smoking ban. The company has already closed 10 clubs that were making marginal profit in preparation for the ban. 'We are going to get a drop in spend per head, but it is only temporary, and will recover within 12 months,' says Gala chief executive Neil Goulden. However, Gala has warned it will close up to 13 of its clubs if the Scottish experience is repeated in England.

WHAT ARE BRANDS DOING ABOUT IT?

The clubs are trying to structure bingo sessions differently, by providing more frequent, but shorter breaks, for example. They have set up outside smoking shelters where availability of land and planning rules permit, and invested in technologies and portable games that customers can play outside. The Gambling Act later this year should allow bingo clubs to provide a wider range of games. In addition, the clubs are using the ban as an opportunity to attract new non-smoking customers by improving ancillary activities such as restaurants and bars, and offering bigger prizes. Online and TV offerings are also being improved. Gala customers, for example, can play bingo at galabingo.co.uk or via Gala TV on Sky Digital, while earlier this year the National Bingo Game Association launched a website for its Bonanza Bingo game.

THE JURY'S OUT - PUBS AND ALCOHOL BRANDS

WHY WILL THE SECTOR BE AFFECTED?

An estimated 55% of pub and club customers are smokers. Those pubs that are 'wet-led' and make poor provision for customers to smoke outside are likely to be worst affected. However, while pubs may lose some hardened drinker-smokers, who may opt instead to buy their alcohol from the supermarket and drink it at home, they are likely to gain customers attracted by the smoke-free environment.

WHICH BRANDS ARE INVOLVED?

Pub chains, brewers, alcohol producers and anyone else involved in the on-trade.

WHAT IS THE EXPECTED IMPACT?

About 12% of pubs, bars and nightclubs across the UK are forecast to cease trading over the next four years as a result of the smoking ban, according to a recent report by PricewaterhouseCoopers. It claims that in the nine months following the smoking ban in Scotland, pubs' revenues typically fell or grew within a range of 2%, as drink revenue fell and food revenue grew. However, as there are lower margins on food sales compared with alcohol, because of the additional staff needed by pubs that serve meals, most pubs saw a drop in profits. Brewer Scottish & Newcastle predicted in February that £10m would be wiped off its profits in 2007. However, 15 months after the introduction of the ban in Scotland, brewers and pubs are more optimistic, having seen sales start to recover based on new food offerings, a broader clientele and attractive outdoor smoking areas.

WHAT ARE BRANDS DOING ABOUT IT?

Drinks company Diageo is supporting the on-trade in a number of ways. Its activity includes the provision of promotional material for its brands, including Pimm's, Smirnoff and Guinness, to help pubs better exploit the potential of beer gardens and outdoor space. It also offers licensees a free training programme, 'esp 360', which it launched in 2001. This covers areas such as improving brand and product knowledge, staff training, running responsible-drinking promotions and boosting profits by focusing on quality and premium brands.

Scottish & Newcastle is supporting its licensees with a range of mechanisms designed to retain customers and attract new ones. These include finance packages to help upgrade outdoor areas, branded awnings, windbreaks, parasols, shelters and patio heaters, 'bounce-back' promotions such as food-linked deals or free drinks, a wide range of food offerings suited to different pub occasions and local advertising and PR.

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