More Consumers Go for Smokeless

Slow but steady describes the growth in sales of snuff, snus and moist chew the convenience store channel has experienced so far this year.

In its recent State of the Industry report, the National Association of Convenience Stores (NACS) ranked other tobacco products (OTP) No. 4 among its top 10 c-store merchandise categories, trailing only cigarettes, packaged beverages and beer.

According to Infoscan Reviews, Total U.S. Convenience for the latest 52 weeks ending March 25, 2018 published by Information Resources Inc. (IRI), a Chicago-based market research firm, the smokeless OTP segment is an over $7.5 billion business.

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Sales in the category, which includes snuff, snus and moist chew, have increased by 7.6% over last year. Unit sales have grown by close to 1.4%. Chewing tobacco and snuff sales alone total almost $6.7 billion. Dollar and unit sales for this sub-category have been relatively flat.

Spitless tobacco (or snus) is close to a $348 million subset of OTP. That represents a 20.85% increase in dollar sales over last year and an 11.50% rise in unit sales.

Moist chew does particularly well in the stores partnered with Dallas, Texas-based Empire Petroleum Partners, said Ted Roccagli, director of partnerships and preferred vendor programs for the company. While Roccagli doesn’t see massive growth going forward for the subcategory, he does point out that sales are up and predicts they will continue to steadily increase, probably another 1-2% this year and beyond.

Empire Petroleum has 1,600 partner stores to which it supplies fuel in 30 states. The company also owns and operates 74 stores in eight states.

The partner stores report that moist tobacco users are a loyal group of consumers.

“They come in every morning for their smokeless chew just as they would for cigarettes,” said Roccagli. “A lot of store owners and people behind the cash registers know what brands, like Royal Copenhagen and Skoal, they have to always keep on hand for these regulars.”

FRESH ALTENATIVES

With smokeless chew, store owners must keep a sharp eye on the freshness date stamped on the packages.

“If the date (on smokeless chew) is past its freshness date even once, you could lose the customer to another store,” Roccagli said.

In addition to the traditional favorites, the stores usually feature limited time offer flavors provided by the manufacturers.

“Manufacturers come into the stores routinely to put up racks and/or signage behind the checkout counter,” said Roccagli. “Personally, I think the manufacturers come out with just enough flavors to keep the category interesting without overwhelming it.”

Roccagli said moist chew has a wide-ranging fan base in terms of age, ranging from 18-year-olds to seniors.

Referring to an MSA research report on Wholesale Shipments to Retail through Dec. 30, 2017, he noted that dollar stores are amping up the competition with convenience stores when it comes to selling smokeless tobacco products. Shipment of the products to convenience stores was up 1.2% last year, while shipment to dollar stores was up 29.9%. For snus, the shipments increased 5.4% to convenience stores and 32.9% to dollar stores.

Snuff is the OTP sales driver for the 58 White Oak Station convenience stores located in Texas, Arkansas, Missouri, Iowa and Florida, said CEO Rodney Thomas, who is seeing growth in the category.

Although he agrees that new flavors help to keep consumers interested and engaged in the category, Thomas feels that manufacturers go a bit overboard with new varieties, making the category a challenge to manage.

“No matter how many new flavors they introduce, wintergreen remains the favorite,” he said.

De Lone Wilson, president of Cubby’s convenience stores with 36 locations in Nebraska, Iowa and South Dakota, agrees with Thomas that the avalanche of new products in the smokeless category requires closer management and “at the end of the day, you end up holding more inventory.”

To avoid tying up too much money in untried inventory, Wilson will negotiate with manufacturers, offering to take a case of the new flavor to see how sales go.

“Sometimes manufacturers will do it and sometimes they won’t,” said Wilson.

Wilson explained that the best-selling item in the category is moist dip, but, overall, sales of OTPs are flat. Wilson expects that trend to continue.

Although Wilson will generally participate in a promotion created by the manufacturer, he said that 50-cents off or coupons don’t move much product.

“If someone comes in to buy his regular Skoal Long Cut Wintergreen, he’s going to buy it no matter what,” Wilson said.

NAVIGATING LEGISLATION

While taxation is always a major issue for all tobacco products, most states tax smokeless at a lower rate than cigarettes because they perceive the products as lower health risk, said Alex Clark, executive director of the Consumer Advocates for Smoke-free Alternatives (CASAA). However, the National Association of Tobacco Outlets (NATO) announced that New Jersey’s governor has proposed a jump in taxation of snuff from $.75 per ounce to $2.25 per ounce.

Iowa’s House Bill (HB) 2339 proposes to increase taxes on OTPs from 50% of the wholesale price to 67%. In Kansas, HB 2768 seeks to increase the tax on OTPs from 10% to 60% of the wholesale price. And a New York Assembly Bill (AB) would allow a city of one million or more to tax tobacco, other than cigarettes, at a rate not to exceed 10% of the purchase price.

Clark said he expects to see more legislative efforts to ban flavored OTPs.

“A very popular flavor in smokeless is wintergreen,” said Clark.

In an advance notice of proposed rulemaking, the U.S. Food and Drug Administration (FDA) is calling for comments, data, research results and other information to help determine if flavors attract youth to initiate tobacco product use and how they may help adult cigarette smokers reduce cigarette use and switch to potentially less harmful products. Comments can be posted at www.regulations.gov.

The deadline for posting is June 19.