Increases on cigarettes have put the category’s long-term viability in jeopardy.
By Jim Callahan, Convenience Store Solutions
I recently saw a statistic that declared tobacco was no longer king in convenience stores. While that is not yet true for most of us, it’s about to become an indisputable fact.
The entire country now gets to enjoy the extra $6.10 per carton federal tax. Now my home state of Georgia is not satisfied with its measly $3.70 per carton tobacco tax and is keen on following the feds lead. The state has a bill pending that would raise the carton tax an additional few bucks. Is this not a great country!
As if retailers and wholesalers won’t be hurt enough by the federal tax hike, the states that are increasing taxes are creating a bootleggers dream for all the neighboring states with a lower tax. We find ourselves as mere pawns in this race to eradicate tobacco from store shelves.
With apologies to JR Robertson and The Band, the lyrics of their ever familiar 1970 folk standard, “the night they drove old Dixie down” seemed made to be bent around the predicament retailers and wholesalers are facing with tobacco, except now it should read, “the night they drove cigarettes down, and big tobacco’s registers were singin’ and all the politicians were singin’, ha, ha, ha …”
Don’t get me wrong, I see the role government plays in reducing the health risks inherent with using tobacco products and I understand the mounting financial pressure tobacco companies are under as they pay the piper under the 1998 MSA. What I don’t understand is both sides–in their haste to cover financial shortfalls–seem to have forgotten the very vehicle that does the grunt work: the 144,000-plus proud convenience stores and the handful of dedicated wholesale grocery suppliers.
Retailers Need Help
Over the last few years big tobacco has reduced “buy downs” as a way of cutting retailers and grocery wholesalers out of critically needed inventory appreciation. Where’s the extra money to replace inventory to come from? Whole dollar increases leaves all but big tobacco in the unenviable situation of paying higher inventory replacement costs without means.
Last month Philip Morris led the way, followed closely by Lorillard & RJ Reynolds with a mammoth $7-plus dollar a carton increase. This was quickly followed by rumblings that the increase “might” include the new federal tax increase. Even if the increased tax is included in the new price, big tobacco according to my calculations amassed an astounding $369 million dollars during the 20 days that led up to April 1. The feds yearly take will be close to $6 billion, and they both left us only the shells the peanuts came in.
Using allocations to limit supply and waffling on whether the tax is or isn’t included in the price increase created the demand. Wholesalers and retailers can’t help but feel used and resentful as they dance to this suddenly sour song. No one can fault big tobacco for using survival skills to stay in business, but history will fault the tobacco companies for all but forgetting their loyal partners as all parties are struggling to cope with reduced tobacco sales and profits in the worst economy in 50 years.
Federal and state governments, under the guise of healthcare concerns have found tobacco a guilt-free vehicle to cover pork barrel spending short falls as they race to see how much the poor smoker will tolerate before they become smoked out. We fault not what you are doing rather the way you did it.
About the Author
Jim Callahan has more than 40 years experience as a convenience store and petroleum marketer. His Convenience Store Solutions blog appears regularly on CSDecisions.com. He can be reached at (678) 485-4773 or via e-mail at [email protected].