Tobacco Accessories Face the Unknown

Tied to the fortune of cigarettes, sales of tobacco auxiliary products begin an uphill climb.

By David Bennett, Senior Editor

Given the market for tobacco accessories, lighters, rolling papers and other product lines produce an excellent margin for convenience retailers—between 40-50% in some cases. More importantly, sales have been steady for the past decade, despite the decline of cigarette smoking.

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Private-label lighters and other accessories have done well in the c-store channel during the last few years.

According to Information Resources Inc. (IRI), convenience store sales of tobacco accessories for the 52-week period ending March 19, 2017 totaled $252.4 million, a 0.96% increase compared to the same period a year ago. Tobacco accessories include everything from lighters, cigarette-rolling machines, humidors, pipes and pipe cleaning supplies to tobacco pouches, cigar cutters and rolling papers.

Often, cigarette sales have a direct effect on c-stores’ tobacco accessory profits. When cigarette sales dip, rolling papers at times will spike. However, lighter sales—by far the most popular segment—often dip, too.

Current trends show that many consumers are moving back to purchasing in patterns more characteristic of past years, where premiumization and volume sales were down. Some industry analysts project a deceleration of cigarette sales in 2017, resulting in an estimated 7% decline.
Reasons for the deceleration vary, but include the growing passage of local and state tobacco regulation. For example, Californians last year voted to increase taxes on cigarettes and other tobacco products by $2 per pack.

Tobacco regulations aren’t restricted to just the state level. Tobacco users are seeing sharp price increases in military stores in some states under a 2016 U.S. Department of Defense (DoD) policy being implemented in a further effort to discourage tobacco use.

Current law requires that military exchanges, commissaries and other resale outlets on installations sell tobacco at prices set no lower than the lowest price in the civilian community. But the civilian tobacco price used for comparison doesn’t currently include state and local taxes. The federal cigarette tax of $1.01 is included in the manufacturer’s price, so it’s paid by military customers.
Gregory Moore, senior tobacco buyer, Army & Air Force Exchange Service (AAFES), said the added cost will likely affect every tobacco category.

“The most pressing challenge to the category for accessories in 2017 is the declining use of cigarettes in the military as well as the recent DoD changes in pricing policy,” said Moore. “As customers will purchase their accessories at the same place as their tobacco, the need for accessories will diminish along with the sales of tobacco.”

There are 700 AAFES stores on U.S. military bases throughout the U.S. and abroad, which include Exchange Express convenience stores.

AAFES’ tobacco sales are expected hit a significantly lower plateau this year.

“Tobacco accessory sales are expected to decline at the same rate as cigarettes,” said Moore. Therefore, we expect a 7% decline in sales in fiscal year 2017.”

As tobacco endures an onslaught of challenges, an evolving business segment could positively impact tobacco accessory sales as pockets of consumers help the market expand in states such as California, Colorado and Maine.

VMR Products, a manufacturer in the vapor technology industry, last month announced the results of a commissioned study examining cannabis users’ opinion on the impact that the Obama and Trump presidencies have had—and will have—on cannabis legalization.

When respondents were asked their thoughts on the best approach for marijuana regulation in the U.S., 70% felt that the U.S. should have national legalization and cannabis should be regulated the same way as alcohol and tobacco. Moreover, 22% felt the issue should be decided state-by-state and don’t agree with national legalization.

For the survey, 300 adult cannabis users across the U.S. were polled.

In April 2016, Pennsylvania passed legislation to legalize medical marijuana, bringing the number of states, including Washington, D.C., with some form of legal pot to 24. Similar measures are being consider in multiple other states.