Roll-your-own (RYO) tobacco isn’t immune to regulatory policy, but still has the equilibrium to remain a solid industry player.
By Howard Riell, Associate Editor
Roll-your-own (RYO) tobacco remains a segment in flux, tied as it is to such diverse factors as the health of the economy, the price of gasoline and stiffening federal and state regulations.
The category continues to face possible regulatory moves. In the meantime, manufacturers of roll-your-own tobacco, cigarettes and smokeless tobacco products must all comply with the U.S. Food and Drug Administration’s (FDA) new deeming regulations to include:
- Registration of tobacco product manufacturing establishments and a list of all tobacco products manufactured;
- Premarket review requirements for products introduced in the marketplace after the predicate date (grandfather date) of Feb. 15, 2007.
However, this predicate date would allow many pipe tobacco products to avoid the costly and burdensome application processes established in the Tobacco Control Act.
In the meantime, c-store operators recognize RYO as a subcategory with plenty of potential to boost profits.
NACS’ State of the Industry report found pipe/cigarette tobacco sales were down 4.9% at convenience stores in 2015, while unit sales were down 8.4%. Data presented at the NACS State of the Industry Summit is preliminary and derived from company submissions as of March 31.
According to data from Chicago research firm IRI, c-store sales of pipe tobacco reached nearly $82 million for the 52-week period ending April 17, down 4.77% year to year. At the same time, roll-your-own tobacco saw sales of just over $55 million, down 5.87%.
RYO tobacco deserves convenience store operators’ respect because, among other reasons, the margins are better than on combustible cigarettes and cigars, according to Andrea Myers, a veteran c-store retailer and board member and former president of Seymour, Ind.-based Kocolene Marketing LLC, which operates 14 Smoker’s Host tobacco stores.
In fact, the margins on RYO are significantly higher than cigarettes, anywhere from 30-50%, some experts indicate. The RYO customer, said Myers, is extremely loyal. In addition, a dedicated space of about two feet on the floor will suffice for stocking tobacco, tubes and accessories.
“RYO also has a very loyal customer,” said Myers, who recently formed a consulting firm called Oxer LLC, based out of Riverwoods, Ill. “Every convenience store carries Marlboro or Camel, but if you have their brand of roll-your-own they are very loyal. That applies to tobacco and to (cigarette) tubes. Plus, it’s a pretty big ring for your basket.”
Lou Maiellano, president of TAZ Marketing & Consulting Group in Sevierville, Tenn, said RYO doesn’t sell well in every location.
“Back when I was a buyer at Sunoco I didn’t put it everywhere, but I put it in some markets where it did quite well, where there was a consumer who did RYO,” he said. “I don’t think it’s going to go everywhere. And I think there are stores out there, quite honestly, that are selling more RYO than electronic cigarettes.”
Myers said that she sees consumer demographics for the category continuing to range across the board. “(Business) also fluctuates a little bit with gas prices, because when the price of gas is lower the consumer has more income that he can spend, so sometimes he will push back and forth between combustibles and RYO,” she said. “And as more major cigarette brands have taken increases, more and more people are willing to try it, and they like it.”
“Pipe tobacco might have some more regulation coming, but as far as cigarette tobacco and tubes, they are already regulated,” said Myers.
With space issues mitigated, Myers added, RYO becomes another category she believes retailers should take another look at, and indeed some have.
“We have seen some really large c-store chains that have acquired other chains that had been doing well with RYO, and the margins and turns that category got really caught their attention,” Myers said.