Lower gasoline prices and trends in tobacco alternatives will both play a role in determining the kind of year 2015 will be for cigarettes—as will well-stocked sections and clear in-store messaging that trumpets value. Nevertheless, cigarettes remain the tobacco category’s top product performer in terms of in-store sales.
C-store operators watching the cigarette market in 2015 will probably see continued jostling for market position among the major domestic producers, according to Steven Marascia, director of research for Glen Allen, Va.-based Capitol Securities Management Inc.
“Marlboro still obviously has a good slice of the non-discount retail share,” Marascia said. “(Philip Morris USA) has been investing a lot of money into the Marlboro platform to maintain its market share and/or expand it. But again, this is where the e-cigarette question comes into play.”
A major question involving cigarettes in 2015 and beyond is whether or not e-cigarettes will continue to grow and how much, as consumers search for alternate smoking solutions.
ALON Brands LLC in Odessa, Texas, which operates 7-Eleven stores, saw good growth in cigarettes in 2014, according to category manager Chris Kaden. “It was in the discount brands, like Pall Mall for example, because it’s lower priced.”
This past January, ALON made the decision to go to the Every Day Low Price (EDLP) merchandising program offered by R.J. Reynolds.
“It was basically a shot in the arm for the Pall Mall and Camel share of market,” Kaden said. “They offered additional buy-down discount dollars for the lower advertised street price compared to a competitor that is not on that program.”
Price, ALON has found, is the key to maximizing sales. “That’s the No. 1 factor, and the consumers want to make sure you’re in stock on their brand when they show up,” Kaden said.
In-store marketing, then, takes on a very fine edge, Kaden explained.
“I think it’s basically the way you advertise or market,” Kaden said. “Is it clear? Do people understand that you are offering a better value than the competitor across the street?”
ALON locations post signage in the front windows that calls out its lowest price per unit, to make customers aware.
“Over the years, companies have put focus on trying to advertise carton prices or savings,” Kaden said. “Today, people are advertising the lowest pack price that they have. Most consumers come in knowing what they want to purchase. It’s a planned trip to the convenience store. If you are able to have a competitive price on a premium brand, you are in a good situation.”
The e-cig category could also be impacted later in the year depending on the content of the U.S. Food and Drug Administration (FDA)’s eventual guidelines.
“That might impact how those are sold, but would not necessarily result in higher cigarette sales,” Marascia said. “It could be a case where you simply have to show your ID before you can buy an e-cig, just like you have to do with cigarette packs.” For that reason, he added, it could impact sales to youngsters more than to older consumers.
“There is no reason to be doom and gloom about the cigarette category,” Kaden said. “Many people see it as a declining category nationally, and it has been. But it’s still one of the very top profit centers within the convenience store industry.”
“People are going to continue to smoke,” Marascia concluded. “People always smoke. It’s one of the habits that people seem to have had for centuries.”