By Howard Riell, Associate Editor
As sales of traditional cigarettes continue to decline, many convenience stores are making the most of the swelling popularity of the smokeless tobacco category.
C-store sales of smokeless tobacco climbed by 7.6% in 2013, and pouch and can sales by 3.8%, according to IRI. Despite the promising numbers, retailers continue to keep a wary eye on federal and state regulations that threaten to weaken the category’s stability.
While the traditional rules of retail certainly apply as much to this category as it does to others—analyzing sales trends, adjusting sets, allocating space, rotating product, tracking expiration dates and weeding out weak performers in favor of newer items— operators must also track and respond to factors outside the walls of their stores.
In addition to the inevitable tax hikes, much of federal and state governments’ efforts center on keeping tobacco products out of the hands of minors. Last year, the Centers for Disease Control and Prevention reported 14.7% of high school boys and 8.8% of all high school students reported having used smokeless tobacco products.
“Legislation and regulation dictate what the customers are buying,” said Matthew Paduano, vice president of category management for Nice N Easy Grocery Shoppes Inc. in Canastota, N.Y. “(With) higher taxes, customers gravitate to lower-priced goods, but they still want a quality product.” He said he sees growth ahead for the category, much of it coming due to diminishing cigarette sales. “More people are looking for alternatives to inhaling their tobacco.”
Tim Greene, category manager/area manager for Smoker Friendly in Boulder, Colo., said he and his colleagues foresee all government agencies continuing to regulate products in the smokeless category. “C-stores need to be aware of any proposed legislation at the local, state and federal levels and make sure that they have a voice in the discussions.”
Case in point: in August, the Englewood, N.J. City Council voted to raise the minimum age for the purchase of tobacco and “nicotine delivery” products—cigarettes, cigars, e-cigarettes and smokeless tobacco—to 21 years old. The age restriction will only hurt retailers, charged Sal Risalvato, executive director of the New Jersey Gasoline, C-Store, Automotive Association in Springfield, N.J., since consumers can simply go elsewhere —“literally right down the street, just over the city limits”—to competitors.
Englewood’s law affects sales of all tobacco products, according to Risalvato.
“The state proposed raising the age for all tobacco products, including smokeless, but so far we have it bottled up,” Risalvato said. “However, I am certain that we are in for a dogfight in the future. C-stores find profits in smokeless tobacco because more people are conscious of using smoking tobacco. Laws are getting more restrictive regarding where tobacco can be smoked, and smokeless is an alternative that fills a void for regular tobacco sales that have been reduced.”
In Brooklyn Center, Minn., the city council called on its police department to research a similar proposal, which also would have raised the legal age to purchase tobacco products to 21. Local retailers, together with NATO, succeeded in convincing the city council not to go forward with efforts to raise the legal age for purchasing tobacco products.
BUSINESS AS USUAL
While the political process plays out, Risalvato’s advice to convenience store operators is to conduct business as usual and stick to the fundamentals of retailing. “They should continue stocking what they stock now.”
He said he remains convinced that 19- and 20-year-old consumers will continue to buy them even if it’s through other means, such as having older persons buy them in their stead.
“I don’t think retailers should immediately go and reduce their inventories,” he suggested. “If they see there is a significant decline then they should react accordingly. I’m more concerned with the penalty (for retailers). I think 19 and 20 year olds are still going to find a way to make the purchase. It’s just putting the store owners at risk.”
Sound retailing means beginning with knowing the customer. The demographic profile for the smokeless consumer continues to be males between ages 21-35, Greene reported. The top-selling brands and varieties across approximately 800 Smoker Friendly stores, Greene reported, are Copenhagen Fine Cut and Long Cut, Wintergreen Long Cut and Pouch, Grizzly Wintergreen Long Cut and Pouch, and Skoal Xtra and Pouch. “The hottest-selling items currently are Wintergreen and pouch products,” he added.
Greene suggested that convenience store retailers ensure they have the correct product mix and offer the hottest selling items.
“Work closely with your manufacturer reps to ensure that you have the correct product mix for your particular area,” Green said. “A 2-3 foot back bar displaying the category has worked well in our locations. Avoid out-of-stocks, especially on the top sellers. Make sure you have good signage inside and out.”
Of course, pricing has its place.
“Low price is still the trend and will continue to be as taxes increase, as well as the cost of goods,” Paduano said. “I still think this is a growth category, so I expect to see good sales moving forward.”
Grizzly, he pointed out, remains the leader. “It has half the snuff business in this market.” Consumers are also trending toward lower-priced, value items.
Also, placing products in prime position on the back bar is the key to effective merchandising, Paduano added. “Keep products rotated, customers are sensitive to freshness. Make sure out-of-stocks do not happen.”
At least those are factors over which c-store operators have some measure of control. When it comes to federal and local governments regulating tobacco the battles grow larger, and must be fought on a number of scattered fronts.
“The first and most compelling phase in the development of any consumer category is curiosity,” said Tom Pirko, president of BEVMARK LLC, a retail consulting firm in Buellton, Calif. “It is the most powerful mover.” The smokeless tobacco category, he added, is still in that phase.
“After initial trial, growth will moderate until enough individuals’ habits form and influence their peers,” Pirko said. “In other words, the key to momentum in the segment is availability, so that both curiosity and habit formation have time to set.”
Trial is critical, he said. Once that is accomplished, it can be followed most effectively by marketing and sales promotions.
“However, we anticipate regulatory action will soon start to serve as a drag,” Pirko continued. “Perhaps a serious one if certain measures are installed. Social consciousness will be affected by how the public reads smokeless tobacco as either ‘okay as a healthier cigarette substitute’ or as ‘bad as another attempt to addict vulnerable consumers.’”
Action regarding regulation of smokeless tobacco will likely come at the state level. For Risalvato, this is New Jersey.
“The nature of this dogfight,” Risalvato concluded, “will be that the state legislature will take the issue up, and resume debate on the issue, and we’re going to have to be back down in Trenton to fight against it.”