By Howard Riell, Contributing Editor
Sales of smokeless tobacco products remain steady at convenience stores, as many smokers seek alternative tobacco products for areas where cigarettes are not allowed. But the category continues to face hurdles when it comes to rules and regulations.
Case in point: Boston Mayor Marty Walsh in September signed an ordinance, which will go into effect in April 2016, banning smokeless tobacco like dip, snuff and chewing tobacco at all city sports venues—both professional and amateur. And Los Angeles is looking to potentially follow suit.
The challenge for c-store retailers then is twofold: market the category as it would any other, while contending with forces outside the retail arena that continue to pressure manufacturers, distributors, retailers and consumers alike.
FEELING THE PRESSURE
In late October, the U.S. Food and Drug Administration (FDA) moved closer to issuing final regulations related to additional tobacco products. The Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act), enacted in 2009, provides the FDA with authority to regulate cigarettes, cigarette tobacco, roll-your-own tobacco and smokeless tobacco.
The law also allows the FDA to issue regulations requiring other tobacco products that meet the statutory definition of a “tobacco product” to be subjected to the Food Drug & Cosmetic Act, which is commonly referred to as deeming.
A year and a half earlier, in April 2014, the FDA released a proposed “deeming” rule that would prevent minors from purchasing electronic cigarettes and give the FDA authority over e-cigarettes, cigars, pipe tobacco, nicotine gels, hookah and dissolvables.
The FDA proposed to include the additional items in several provisions that apply to regulated tobacco products, such as age and identification requirements to restrict sales to youth under 18 and prohibitions on free samples and vending machine sales. Recently, the FDA sent its final deeming rules to the Office of Management and Budget (OMB) for review.
That said, business continues to progress despite the looming legislation. For the 52-week period ending Oct. 4, 2015, convenience store sales of smokeless tobacco products rose 7.94%, to slightly over $6 billion, according to IRI. Chewing tobacco and snuff were responsible for the lion’s share, more than $5.8 billion, up 7.59%, while spitless tobacco saw sales climb 17.22%, to nearly $238 million.
Smokeless tobacco sales remained “somewhat pressured” in October, according to Bonnie Herzog, managing director for beverage, tobacco & convenience store research for Wells Fargo Securities LLC in New York City. Sales grew 4.8% during the four-week period ending Oct. 3, 2015.
Strong dollar sales and unit growth were driven, she said, by strong results from Reynolds American Inc.’s Grizzly, up 9.5%, and solid results from Altria Group Inc.’s Copenhagen, which saw dollar sales rise 6.3%. Altria remained the dollar-share leader with a 56.6% share, while Reynolds American recorded a 34.5% share and Swedish Match 6.7%, she added. Reynolds maintained its unit-share leadership position with a 44.3% share.
Jacy Lance, communications and research director for the New Jersey Gasoline-C-Store-Automotive Association (NJGCA), noted that, “As it relates to smokeless tobacco, it is our position and strong belief that government should not be trying to make it harder for people to quit smoking.”
Sal Risalvato, the group’s executive director, added that the measure will prove costly to retailers. “With real world sales data provided to us by a member with meticulous bookkeeping, we estimate that the average business will lose about $7,000 a year in profits on these products and the items that often accompany them.”
But c-stores continue to make money with smokeless tobacco products. Ed Wazney director of marketing for Sampson-Bladen Oil Co. in Raleigh, N.C., which operates 76 Han-Dee Hugo’s Convenience Stores in North Carolina, said he believes the category has long-term staying power. “This is even though some of it is more socially acceptable than others. Spit bottles seem to bother people, (but they) haven’t been banned for indoor use.”
While the demographic makeup of the average smokeless consumer is not changing, according to Wazney, it may be evolving in at least one area. “Pouches have expanded to include dippers that are professionals, so they don’t have to worry about appearances.” The major tobacco firms have been making progress in converting some cigarette smokers to this class of products, most notably to snus.
Of them all, he said he has found more success with multi-can promotions. Some suppliers are helping more than others, he added, with point of sale materials, promotions and buy downs.
“The manufacturers tend to send out $1 or (more) off per can, or a two-can deal. I like to sell more cans. I have found that some new product just isn’t worth it sometimes. Currently we are doing 177.5 average cartons per week (CPW) per store, up 6.7%. Consumers know and can see the deal—cost per can—and take advantage of it.”
As for what there is that participants in the category can do about the legislative assaults, Wazney’s recommendation is simple. “Speak out, be involved.” Selling more smokeless items even in the face of the legal dynamics entails the same formula as any other category, Wazney suggested. “Product selection, pricing, limited offers, multi-can, roll pricing.”
“Consumers don’t always prefer to smoke because of the negative acceptability it has in society—plus it also takes time to step out and smoke,” said Karim Sadruddin, national sales manager for Petromerica USA, based in Atlanta. “Also, a majority of the places don’t allow smoke anymore, and with smokeless a consumer can have the tobacco craving satisfied without bringing socio attention to himself or herself.”
Petromerica will have eight Zip Fuels convenience stores in northeast Atlanta operating by the end of 2015, with plans to open between 12 and 16 more stores in northern Atlanta and Ft. Myers, Fla. next year.
Sadruddin takes the dip in cigarette sales as a positive sign for the smokeless category. “In the U.S. there is a decreasing number of smokers, therefore the smokeless could be rising due to the consumers needs of tobacco,” he said.
C-store retailers are divided on the question of whether or not it pays to try and shift cigarette smokers to other product such as smokeless, or whether it is even possible. Sadruddin takes a dim view of such efforts.
“That’s a very small area of consumers that will be converting to smokeless from cigarettes,” he said. “Most are consumers who are quitting smoking and choosing smokeless in order to satisfy their appetite for tobacco. Therefore I would say no, it’s not worth their time to convert cigarette smokers as they will make their own choice.”
Sadruddin sees anti-tobacco legislation being harmless to the smokeless category, possibly even giving it a shot in the arm in years to come.
“Have the smokeless companies give various incentives to the consumers to buy from the c-store,” Sadruddin recommended. “The consumer will go where they get the best incentives, and all the incentives and prices are controlled by the manufacturer. Therefore, it has to come from there.”
Suppliers can help by giving deals to the c-stores, Sadruddin noted.
“But (retailers) need to come up with ways where they can channel that to benefit the consumer.” The types of promotions that work best, he suggested, are instant rebates. “Consumers nowadays want instant gratification; if they will save money, they want to do it now.”