Despite hurdles, smokeless tobacco sales continue to grow.
By Howard Riell, Associate Editor
As America continues its love/hate relationship with cigarette smoking, smokeless tobacco and other tobacco products (OTP) sales continue to inch higher.
At the same time, smokeless and other forms of tobacco continue to face hurdles in the form of local restrictions. For instance, Boston Mayor Martin Walsh has called for a ban on dip, snuff and chewing tobacco, as have officials in Los Angeles. A similar ban in San Francisco takes effect Jan. 1. And Hawaii recently became the first state to raise the tobacco age to 21.
Bonnie Herzog, managing director for beverage, tobacco and convenience store research for Wells Fargo Securities LLC, recently reported that several factors continue to drive smokeless tobacco category growth. Among them is the fact that there are more non-combustible options than ever before for smokers that are seeking alternatives.
For convenience stores, the opportunities are abundant. According to Wells Fargo, smokeless tobacco dollar sales have been growing at a rate exceeding 6% this summer.
“The strong dollar sales and unit growth were likely driven by continued national expansion of Reynolds American Inc.’s Grizzly Dark Wintergreen and solid results from Altria’s Copenhagen,” Herzog said.
STRONG IN OHIO
“It’s done very well for us,” reported John Tomlinson, director of purchasing and merchandising for Heath, Ohio-based Englefield Oil Co., which operates 122 Duchess Shoppe locations throughout Ohio and West Virginia. “We’re at a per-store average of 438 cans per week. That’s very good. It’s growing. We’re up, total category, 2% year to year.” Leading the way are Copenhagen, with sales up 5% so far this year, and Grizzly Dark Wintergreen, which shows a sales increase of 2%.
According to Tomlinson, the buzz among his colleagues in the industry continues to be positive.
“I think everybody believes that it is going to continue to grow because cigarette smoking is starting to be obsolete. We are still selling a lot of cigarettes, but people, I think, are tending to go to snuff, mainly for the time when they are in the office,” Tomlinson said.
Duchess is currently running a five-can special, providing customers a dollar off.
“We’ve been really promoting that really good for about four months now,” Tomlinson added. “In fact, right now it’s doing well and margins are staying where they need to, so hopefully we are going to stay with it until it runs out of gas.”
Duchess executives aren’t seeing a major legislative threat on the horizon at present, Tomlinson pointed out.
“We’re in Ohio so they did put a crimp (in our tobacco business) when they increased the tax on cigarettes, which just went into effect. It could drive more people over to OTP,” Tomlinson said.
Growing smokeless sales can be achieved by expanding the category, Tomlinson suggested, a step that his own chain took between two and three years ago.
“I’ve been doing this for about 28 years, so I saw it coming. We were one of the first ones to do an OTP set. We went from two shelves to four shelves, and we have seven shelves right now.” The current set should suffice for now, he said. “Time will tell. I think seven is fine.”
There have been changes in the way Duchess customers view and approach smokeless.
“I think there are more high-end people doing snuff. It used to be more (lower-end people). I think there are more other people doing it now,” Tomlinson said.
FORWARD MOMENTUM
“We do a lot with our moist tobacco business,” said Butch Harris, director of operations for seven-store GoCo Ltd, based in Butler, Ala. “Our business is up.”
Much of what is driving sales up has to do with geography.
“We are in the right market for that. This is a hunting area. Hunting season is between October and February, and that’s when our moist tobacco sales grow,” Harris said.
Sales have remained consistent throughout the years.
“But it’s during hunting season that it really goes up,” Harris said. “We can see sales rise by as much as 10-15%.” Indeed, sales year to date have risen by about 7%.
Marketing efforts behind the category have remained minimal, Harris pointed out. “We just have to have it. Philip Morris and R.J. Reynolds are doing a pretty good job (of managing the category and marketing) for us.”
Wells Fargo’s Herzog pointed out the momentum of the smokeless category might be coming to a head.
“It’s difficult to keep cycling robust smokeless category growth forever,” Herzog said, “or as one contact said, ‘The category is approaching critical mass.’”
MORE MARKETS
Still, smokeless tobacco remains a relevant cash machine for c-stores.
“It’s like this machine that just keeps moving on,” said Lou Maiellano, president of TAZ Marketing & Consulting Group in Sevierville, Tenn. “There is still continual growth. I guess one of the things that the category definitely has is the ability to maintain growth.”
Maiellano said he is seeing some consumer attitudes changing when it comes to smokeless tobacco.
“You also have a much better platform now than ever before, from the way I see it, with Altria and Skoal and Copenhagen,” he said. “The sets are getting nicer, the fixtures are getting better.” Maiellano continues to have confidence in smokeless despite the excitement being generated by what he called the astronomical sales of e-cigarettes.
“I think that people are just more attuned to using smokeless products, especially in the pouch portion of the business,” Maiellano said. “It’s more discreet. You realize that you can take that little pouch out of your mouth and throw it away. You’re not spitting, so you don’t need a spittoon.”
With social mores in mind, Maiellano pointed to the need for store-by-store approach to marketing smokeless products.
“Definitely, developing a plan that reaches that retailer’s specific markets is a key. It’s not a one-size-fits-all type of presentation.” He stopped short, however, of suggesting consumer research is pertinent. “I don’t know that (the operator) needs to do that. I think that there is enough information, in a sense, with volume and the trends for different marketplaces; what sells in Pittsburgh, for example, versus what sells in Connecticut.”
His own area illustrates the need for playing to local sentiment. “In this area here, even when you get to pouch tobacco a lot of women use it,” Maiellano noted. “They just were raised in families that chewed tobacco. But again, I would say study your marketplace—and the manufacturers have that data. They know what’s selling, and that would be what I would always look at: what will drive volume in your specific marketplaces.”
Demographic breakdowns by market are available from suppliers and can prove quite valuable, Maiellano said.
“I just don’t want numbers from Phillip Morris. I want information from Altria, I want it from Reynolds, from American Smokeless, and I also want it from Swisher even though they are a little player,” Maiellano said. “I just want to be able to look at the data and put a business plan together that is directed by the demographics, the consumer pull-through in those marketplaces. Retailers, if they want to grow their business, need to be very conscious of segmenting their presentations to be driven by the market.”