By Anne Baye Ericksen, Contributing Editor
At an average price of less $2 per unit, tobacco accessories, such as lighters, rolling papers, cigar cutters and pipe accessories, may seem like a low-demand category for convenience stores.
However, according to Information Resources Inc. (IRI), purchases of these peripheral products added up to more than $245 million for the 52-week period ending Jan. 25, 2015. That figure represents an increase in unit sales of more than 6% from the previous year.
“I think it’s a category that gets overlooked sometimes. From what I see, our carton customers will buy a lighter every time they buy a carton of cigarettes,” said Mary Szarmach, vice president of trade marketing and government relations for Smoker Friendly. The company operates smoke shops as well as 90 Gasamat fuel retailers and convenience stores in Colorado, Wyoming, Montana, Utah and Nebraska. Szarmach also serves as president of the National Association of Tobacco Outlets Inc.
Cigarettes and other tobacco products (OTP) remain top sellers for c-stores, as do the accessories that go with them. According to the National Association of Convenience Stores’ 2015 State of the Industry report released last month, tobacco accounted for more than 35% of in-store sales in 2014. Although government statistics show that the percentage of American adult smokers is at its lowest in 50 years, industry research indicates that tobacco sales remain strong. For a four-week period during the first quarter of 2015, Wells Fargo Securities recorded a nearly 6% increase in tobacco sales. That sales spike has been aided, in part, by movement in the drug store channel.
“We believe c-store unit sales have been aided by CVS’s no longer selling tobacco,” noted Bonnie Herzog, managing director, beverage, tobacco and convenience store research for Wells Fargo.
The market analysis also attributed warmer-than-expected weather for boosting foot traffic into c-stores as well as growing disposable income for the positive sales numbers. “Our contacts indicated a greater propensity for consumers to ‘indulge‘ in more premium-branded merchandise and higher grade fuel during the first quarter, given higher disposable income, which bodes well for first quarter c-store merchandise results,” said Herzog.
When tobacco performs well, then there’s usually a carryover effect on accessories as well. The accessories category covers a variety of items, of which lighters continue to rank No. 1. “Tobacco accessories are an impulse item, and lighters are a big piece of the business,” said Szarmach. “We don’t carry hundreds of brands. We have three or four we stick with, [but] we offer the whole realm, from the very inexpensive to the high quality, all the way up to Colibri.”
Because customers tend to be brand loyal with their tobacco purchases, it’s logical to conclude that behavior applies to accessories as well. To entice consumers to pay more for these accessories, manufacturers appeal to people’s fan loyalty by producing novelty versions sporting logos for professional teams, television shows and bands. That immediate recognition reinforces the impulse to purchase even if it costs a bit more than a generic option.
“BIC does a good job with novelty pieces. By the end of summer, all the NFL logo lighters come out. There are baseball team logos, too, but not with the NBA as much,” observed Szarmach.
Other traditional tobacco accessories, such as ashtrays, pipes and cigar cutters, still hold their own.
“There are very few places where you can buy ashtrays anymore. We actually get calls from restaurants asking us where we get our ashtrays,” said Szarmach.
According to IRI data, pipe tobacco sales in 2014 surpassed the previous year by 22%, totaling nearly $72.5 million. Roll-your-own tobacco, however, showed minimal growth with a 1.25% increase over 2013.
A NEW MARKETPLACE
Perhaps one of the more intriguing elements of the accessories category is items catering to marijuana users. “This category has grown for us because the bulk of our stores are in Colorado. With the legalization of marijuana, we’re selling a lot of accessories that pertain to that,” said Szarmach.
In 2012, Colorado and Washington voters passed legislation to legalize recreational sale and use of marijuana. Since then, Alaska and Washington, D.C., have also passed laws making recreational marijuana legal. Plus 23 states have authorized the use of medical marijuana. However, Colorado was the first state to see dispensaries open for business, selling a variety of products, including sweets and candy containing marijuana.
The now-legal arena has created a demand for accessories, such as pipes, bongs, grinders and vaporizers. Smoker Friendly, including its Gasamat division, decided to fill the void and began carrying marijuana-related merchandise shortly after the law took effect. In fact, the retailer went a step further and created its own line of products called Glass Werx.
“We did bring in things we didn’t carry before. The dispensaries and recreational stores sell very little in terms of accessories, so it’s become an opportunity if retailers recognize it,” said Szarmach. “When recreational marijuana stores opened, they looked like dispensaries, medical and not retail. Customers may feel more comfortable coming into a c-store than going to a head shop for all that stuff. It’s done in a clean and discreet area.”
Although she hasn’t conducted any specific market research, Szarmach does believe carrying a marijuana-oriented line of accessories has brought a younger demographic into stores. “Obviously, there’s a piece of that business that is young and hip, and we market to them. They might be tobacco users as well,” Szarmach said.
TAPPING INTO TRENDS
Another relatively recent addition to the accessories category are products designed for non-combustible smoking devices, including e-liquids for open systems, tanks—also known as cartomizers, glassomizers, or clearomizers—and batteries.
While some components are essential to vapor use, secondary items are bolstering accessory sales.
At first, consumers were drawn to electronic cigarettes and cigalikes all-in-one systems; however, within the past year or two, many of these customers have graduated to vaping. As a result, interest in ancillary products has grown, too. Wells Fargo data indicates that the average consumer spending on all vapor items grew 60% in 2014. Additionally, vaporizers and associated merchandise accounted for more than half of the non-combustible product sales last year.
“We sell a lot of vaping products, including open systems with juice. That’s a good crossover product for marijuana customers as well,” said Szarmach.
How fast vapor customers go through e-liquids for open systems, cartridges for closed systems and batteries depends on how often they vape. Plus, many in the industry have observed that people are experimenting with customizing systems and trying out various e-liquid flavors. In fact, the liquids offer a tremendous profit potential. Not only can stores stock a wide selection—reports estimate there are at least 7,000 flavors available—but the profit margin could be as high as 50%, according to Wells Fargo research.
The OTP segment remains a reliable revenue source for c-stores; however, it could incur a shakeup if the U.S. Food & Drug Administration (FDA) moves ahead in establishing policies restricting vaping items, to include lumping them in with “tobacco products.” Several state legislatures also are considering age restriction laws and/or taxing the category.
Also, the Tobacco Tax Equity Act was introduced into the U.S. Senate earlier this year. If passed, this federal law would mandate all tobacco products be taxed at the same level as cigarettes.
A provision in the bill includes vaping merchandise if the FDA declares them to be a tobacco product. Currently, small cigars and roll-your-own tobacco items are taxed at the same rate as cigarettes, but cigars, smokeless tobacco and pipe tobacco qualify for a lower rate.
While such tax increases may not directly affect sales of accessories, a residual influence could be felt in this otherwise steadily performing c-store category.