The MYO and RYO Markets are Booming

Source from:  Tobacco Reporter  09/05/2013

The roll-your-own (RYO) and make-your-own (MYO) cigarette sector is nothing if not dynamic at the moment. Demand is robust in many of its traditional markets and is increasing in nontraditional markets. And, as a consequence, manufacturers are launching cigarette-brand extensions into this sector, along with new brands, some of them with innovative blends.

It's not difficult to see why demand is strong. RYO and MYO have always appealed to—among others—those people wanting or needing to cut down on their costs of smoking, and, at the moment, the economic climate is such that more people have joined and are joining their ranks.

So, it seems inevitable that the positive trend toward RYO and MYO will continue in the future, though this trend is likely to be somewhat helter-skelter. Richard Torrance, global brand manager for RYO/MYO/papers/heritage brands at Imperial Tobacco, told Tobacco Reporter by email that demand for fine cut was increasing in all of the markets where Imperial was present, but that southern Europe was seeing a particular boom. The average growth across the EU was cur-rently about 5 percent, he said, but that ballooned to more than 40 percent in Spain.

And another driver is at work, too. "In the Netherlands, where fine-cut tobacco volumes have been historically high, it remains popular, but we have also seen a changing dynamic where some RYO consumers have moved into MYO," said Torrance. "This is due to an increase in awareness and avail-ability of MYO, which is also positioned at a more attractive price point than RYO."

It would be wrong, however, to imply that all RYO and MYO smokers are in it for the money. While saying that the primary reason for smokers turning to RYO and MYO was affordability, Julia Gough, global vice president, RYO/MYO products at Japan Tobacco International, told  TR by email that some customers simply preferred RYO and MYO ciga-rettes. "They especially enjoy the ritual associated with RYO, and smoke them as a complement to RMC [ready-made cigarettes], often buying both products to satisfy their taste," she said. "RYO provides more flexibility to smokers, who can tailor their cigarettes to their own preferences."

The end result of all this is that JTI finds demand for its RYO and MYO is increasing in almost all of its focus markets, which are mainly in Western and Central Europe, though Gough said markets were very price sensitive and could fluc-tuate. In the first quarter of 2013, growth in the RYO/MYO sector had been strong in many markets, including Spain, France, Belgium, Hungary and Ireland. The only markets where demand had been declining were Greece and Portugal, which had seen significant tax increases.

Overall, JTI estimated the total RYO and MYO sector as increasing by 2 percent during the first quarter of this year, slightly down from the growth experienced last year.

"Extremization"

Both Imperial and JTI see the main driver of RYO and MYO growth as being economic, and they both see consumer pref-erence as a secondary driver. And there is broad agreement elsewhere. Imperial made the point that it was adapting to the needs of those consumers who were rolling but who wanted tobacco with a taste close to that of an RMC. "We see a real emergence of cigarette brands entering the fine-cut tobacco segment, enabling smokers to save money but still choose their familiar brand," said Torrance.

And in answer to a question about whether enough new RYO and MYO products were being launched, Torrance added that Imperial was well aware of the growing demand for fine-cut tobacco products. "Understanding consumer needs is at the heart of our sales growth goals and is supported by our unique Total Tobacco portfolio, which includes leading fine-cut tobacco brands and rolling papers, as well as tubes, filters and cigarette making machines," he said.

And when asked what sorts of products were being launched, he said the main dynamic in recent years had been the rapid growth of natural or additive-free, fine-cut tobacco products, "but expect more variety to come in terms of blend. We've also seen much innovation in smoking accessories, with increasingly thinner papers and variety in terms of tips," he added.

Meanwhile, in answer to the same questions, Gough said there had been a huge number of launches over the past three years as companies had sought to increase their share of the segment by tapping into new trends. There were a significant number of new offers that did not exist a few years ago: new formats, blends and packaging for instance; but also new brands had entered the segment.

There was, too, an "extremization" or polarization of prod-uct formats taking place, she added, with smaller, pocket-sized, easy-to-use packs on the one hand and, on the other hand, larger packs that offered better value for money for RYO consumers.

In the MYO segment there were more and more product line extensions of traditional RMC brands, offering consum-ers better value-for-money smoking alternatives, and in RYO the key trend was about additive-free products.

Geographic expansion

The growth in demand for RYO and MYO and the launch of new products to keep up with that demand has been noted on the machinery market, too. A spokesperson for G.D said that, to meet this growing demand, his company had recently entered the machine sector for RYO and MYO with a high-speed line for the production of pouches for tobacco, and through SASIB, which is part of the same group of compa-nies, with a line for the production of filter tubes for MYO. This entrance, he said, was attracting a lot of interest from the main tobacco manufacturers, which seemed to have a real desire to increase the production capacity of their machinesin these areas.

Reto Iten, of Reto Iten Metals, said demand for RYO pouch-packer lines, including high-speed lines, remained strong, which led him to believe that RYO product demand was just getting stronger and stronger. MYO, too, had definitely increased its share during the past few years across Europe. Ever-increasing tobacco excise played into the hands of the MYO category; so demand for tube making machines had been very strong during the past two to three years, a trend that seemed to be continuing. Many additional tube makers had been installed in Eastern Europe in recent years, he added.

Iten's comment about Eastern Europe is particularly inter-esting. The major fine-cut tobacco markets have traditionally been found in Western Europe, where tobacco duty rates are high; so, typically, they have encompassed the Netherlands, Germany, Belgium, France and the U.K. But asked whether demand for RYO and MYO was spreading farther afield, Torrance said yes. After witnessing the emergence of these categories within southern Europe, Imperial was now starting to see them spread toward Central Europe, "while we watch Eastern Europe and Asia with interest," he added.

Gough said that, until five years ago, the belief was that the RYO and MYO sector would remain within its histori-cal geographies. But recent history had shown that the sec-tor could grow anywhere if RMC became more expensive for consumers. So, during the past five years, a significant number of markets had developed RYO and MYO sectors, including Spain, Italy, Portugal, Greece, Hungary, the Czech Republic, Ireland and Poland.

This, of course, raises a question or two about a recent tendency for authorities to increase, or talk of increasing, the excise on RYO and MYO closer to that imposed on RMC. "We have seen the minimum tax on fine-cut tobacco raised in Italy and Spain recently, reducing the price gap with cigarettes," said Torrance. "Our view is that fine-cut tobacco provides an important option for cigarette smokers wishing to move to less expensive, legal tobacco products, given that duty rates are lower. If cigarette and fine-cut tobacco taxes were harmonized, the only place value-seeking consumers could go would be into illicit tobacco products."　Enditem