By Howard Riell, Associate Editor
Despite the 2015 federal budget proposal calling for tax increases on other tobacco products, which could negatively impact the category, c-stores report continued growth in the smokeless tobacco category known for brand loyalty.
According to the Chicago-based market research firm Information Resources Inc. (IRI), c-store sales of smokeless tobacco products for the 12 months ending Jan. 25, 2015, were $5.5 billion, a rise of 5.05%. Chewing tobacco and snuff accounted for the lion’s share with $5.3 billion, up 4.7% over the period.
Spitless tobacco topped $207 million, with sales jumping 14%.
Will Carne, a Smoker Friendly licensee who owns and operates a Nano Seconds convenience stores in Escanaba, Mich., believes that “nice displays, good point of sale” are enough to present smokeless products successfully.
“The sales keep increasing on smokeless,” Carne said, due not only to effective retailing but to societal trends. “There are no longer the places to smoke in public. People are switching over in environments where they can’t use smoking products.”
The retailer’s top seller continues to be Grizzly, followed by Copenhagen.
Carne said the steady rollout of new products also helps fuel sales.
“It’s hard to get the smokers to switch over to smokeless, but expanding the category makes sense,” Carne said. “I advise c-store operators to just try and get the new products in.”
Discount promotions have proven a plus, he added. A $1.49 special on Longhorn, for example, proved a nice boost to sales.
“Freshness is an issue, so inventory levels have to be kept lean without out of stocks,” noted Ray Johnson, operations manager for Speedee Mart Inc. in Henderson, Nev. “Merchandise both the can and roll on the top sellers, and just the can on all others. Selection is based on store volume. Use the free fixtures provided by the tobacco companies.” Price promotions should be those supported by the tobacco companies, he added.
Speedee Mart promotes a two-can price as what management refers to as a save amount. For example, consumers save $1 when they buy two: a single can is priced at $5.25, and two sell for $9.50. “Or compare the $5.75 for one with $4.75 each when you buy two,” Johnson said. “I don’t advertise two for $9.50 and hope the customer can do the math to figure out the deal difference.”
Johnson recommended adding all new products from major manufacturers even if there are plans to reorder them.
“We are mainly in rural America,” said Jeff Chase, controller and director of convenience store operations for Ed Staub & Sons in Tulelake, Calif. “A lot of our towns have 300 to 3,000 people in them, so we’ve always been a big smokeless tobacco market.” As at Nano Seconds, management has seen sales of smokeless products continue to rise.
Staub’s margin on smokeless products is about 17%. “When you look at the regular tobacco products, we’re pushing about a 12% or 13% margin, usually, with the rebate programs,” Chase said. “Margins are getting squeezed a little bit (due to) the contracts, but it’s still a growing segment.” He has found many cigarette smokers switching to smokeless. “After all, you pretty much can’t smoke anywhere anymore, so it’s going that route. I’ve seen a little bit of the snus making headway in there, but not a lot.”
Chase expects solid upside potential for the category in his stores.
“Based on where we’re at over the past few years, it can only go up, honestly,” Chase said. “I would venture to guess we’ll see a 2-5% increase year over year. This year might be a little higher because of the new sets.”
Sales of chewing tobacco are rising at his 19 stores, Chase said. “The majority of what we sell is Copenhagen products, and right behind them is Grizzly. Historically, Copenhagen accounts for probably 55-60% of our smokeless tobacco market.”
The smokeless consumer base hasn’t changed in recent years, Chase said. “It seems to me to be a lot of the same: the blue collar working man. We have a lot of lumber industry in this area,” Chase said. “But I have also seen that some of the Millennials are kind of picking up on it. But like I said, I grew up in this area, where a lot of people used smokeless tobacco, and we have the same type of demographic segments here. We don’t have a lot of the metro, urban people here, so everybody pretty much chews.”
Chase explained that his in-store merchandising of smokeless, as with other categories, is in transition. “We went through a lot of changes last year, so we are still getting our feet under us. I came over to the stores almost two years ago. Just this last year, we were able to get new fixtures in the majority of our stores, so we can really highlight all our products better. We had sort of a mix-and-match collection before that.”
The current set includes little more than neat fixtures and the flip signs. “Occasionally we’ll have the promos where Philip Morris or RJR will come in and give us those signs,” Chase said. More extensive promotions are in the planning stage. “Now we are just starting to make inroads into working with them to come up with bigger promotions for roll prices, or to make sure we have something going on connected to the rodeos and events like that when they are in town.”
At present, smokeless is part of a three-foot set. That is not expected to change, though there is a possibility it will grow slightly.
“That section also contains other tobacco products (OTP), the White Owls and other cigarillos, and that is going to grow a little bit,” said Chase. “So it might be a four-foot set at the end of the day, split between chewing tobacco and OTP.”
Staub stores occasionally place signage outside in the parking lot, along the property’s fences. “We don’t do too much on the pump toppers or the poles right now, but we will,” Chase said. “We have Chevron, Shell and Valero, so there is limited advertising. But we do have some unbranded sites where we can do more of what we want.”
Chase said promotions have helped sales less than hoped, largely because his customers know that competitors are running the same promotions.
“They might get people in a little more often to buy it, especially the ones that involve consumers looking online for coupons. But people are going to come get the product regardless; I’m not getting a new user because of it,” Chase said. “I might get somebody to buy two cans instead of one at that time, but then he might not come back to the store for three or four more days, so I don’t see it driving sales a lot. I think what drives sales is better customer service and better visibility of the product.
Better customer service is also something in the works, Chase added.
“We’re working on getting our store people educated,” Chase said. “Obviously we don’t talk to everyone, but if customers come in who do take that product, we might engage them in conversation and tell them, ‘You know, you can go on their web site and get coupons.’ We can build a little bit of loyalty that way. That’s more of what we’re going to be going for.”