RYO Tobacco Earns Irreplaceable Status

Shifting economic issues and changing regulatory tides can’t extinguish consumers’ fondness for roll your own.

By Howard Riell, Associate Editor

Roll-your-own (RYO) tobacco remains one of those categories that doesn’t command a tremendous amount of retailers’ attention—until they run out of stock.

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RYO’s fortunes have an inverse relationship with the economy: when times are rocky, consumers look to save money by opting for RYO instead of cigarettes. When economic times improve, and cigarette sales rebound, RYO sales can slide.

For the 52-week period ending March 25, 2018, sales of roll-your-own tobacco in the convenience store channel topped $47.8 million, a decrease of 7.57%, according to the Information Resources Inc. (IRI), a Chicago-based market research firm.

Don Burke, senior vice president of information management solutions for Management Science Associates in Pittsburgh cited wholesale shipment-to-retail data near the end of 2017 that shows roll-your-own tobacco accounted for 0.4% of total nicotine share, up 1.3% over a year ago.

“Regular cigarettes, on the other hand, saw sales drop by 3.7%,” Burke said. “During the same period, 51% of RYO volume came from the convenience store/gas channel.”

REGULATORY PRESSURE
RYO isn’t immune to the legislative assault being waged against tobacco products in general. Currently, Minnesota, Illinois, Washington and Rhode Island are considering bills to raise the state’s tobacco buying age to 21. More than half of New York State residents live in areas where they need to be 21 years old in order to buy tobacco products. California, Maine, Hawaii, New Jersey and Oregon all have 21 as the minimum tobacco buying and using age, according to NACS.

In addition, the National Association of Tobacco Outlets (NATO) has reported that the U.S. Food and Drug Administration is requiring new warning statements to be included on packaging and advertisements for roll-your-own tobacco, as well as for cigarette tobacco, pipe tobacco, electronic cigarettes, vapor products, hookah tobacco and cigars.

SHOWCASE STRATEGY
For those c-store operators whose sales warrant it, David Kraning, president of the five-unit K&B Kwik Stop in Pocatello, Idaho, usually advises focusing on merchandising and promotions. “I would try to showcase it, try to bring in a lot of different varieties and SKU’s, and get your place to be known as the place to go if that’s what you’re looking for.”

Kraning said that the question of whether RYO sales suffer when the economy is doing well is not one that concerns him. “We really don’t do a whole lot with roll your own, so I don’t have an opinion either way. We carry one SKU in our store, and that’s it.”

At the same time, however, Kraning knows that as a retailer he must remain responsive to his customers, which means he is open to expanding his RYO category, if warranted.

“If there was a huge demand for it, we probably would,” said Kraning. We have some customers here who tell us that they like to have it around, but other than that we stick mostly with the combustibles and e-cigs and things like that.”

Those shoppers who do ask for roll-your-own products tend to be older, Kraning pointed out.

“You could probably get by without it, but like I said, we listen to our customers,” he said. “When we had customers who are our regulars and request the product we tried to bring it in for them.”

NICE AND STEADY
“In my experience (the roll-your-own tobacco category) is mostly unchanged over the last several years,” noted Tim Greene, category director of tobacco and general manager for Boulder, Colo.-based Cigarette Store Corp., which owns Smoker Friendly. “It’s kind of a flat category. I mean, it’s a strong category, but it’s just been uneventful and steady, so there hasn’t been a whole lot of change in my experience in our stores. It’s kind of a steady Betty, and it just keeps rolling.”

Smoker Friendly operates 104 stores, including 20 Gasamat convenience stores that offer fuel. The chain’s sales of roll your own are up slightly, about 1.5%, Greene said.

“I can tell you this: we operate in five states, and in the two states where our cigarettes are up and vapor is killing it, in particular JUUL, we are down in RYO,” said Greene. “Sales there are down by probably 5% or 6%. What it tells me is that people are transitioning to vapor or, since the economy is good, they are buying cigarettes. So yes, we are seeing (that correlation) is true.”

Research backs up what Smoker Friendly is seeing in vapor. IRI has reported that for the same 52-week period ending March 25, 2018, electronic smoking device sales in the convenience store channel jumped 49.47%, to nearly $1.3 billion.

“In a state in which cigarettes are down and maybe JUUL hasn’t taken off like it has in Colorado and Florida, roll-your-own tobacco is up,” said Greene. “It’s kind of balancing the other two states.”

Greene reported that he has seen a clear consumer trend toward larger sizes of RYO tobacco. His stores’ 16- and six-ounce packages are up slightly, while smaller three- and four-ounce sizes are down slightly.

“That is why the units are down,” Greene said. “But there is definitely a correlation between where cigarettes are up and vapor has really taken off, and roll your own is down, and vice versa.”

While trends continue to show interest in tobacco products other than traditional cigarettes, consumer interest is diversifying.

“Tobacco in general is definitely going toward the alternative products,” Greene noted, “with vapor leading the way. All the majors are coming out with their new devices and they are discounting the hell out of them. They are really pushing the vapor category. You are seeing more and more innovation with brands like ZYN, the nicotine pouches. Also gums, although we are not seeing a lot of success with those.”

While RYO comes along with several ancillary products, such as tubes, filters, injectors, papers and rolling machines, Greene said he does not feel their impact on sales is significant enough to change retailers’ thinking about the category’s role in their stores. “I don’t know if they are going to be impressed with that. We sell a ton of tubes, obviously, and some injectors and everything else. But really, where you are going to make your money is on the actual roll-your-own tobacco.”

Greene said he routinely declines to offer advice to convenience store operators, other than for them to compare SKUs’ sales figures. “I think that they need to look at it closely. If their cigarettes are down that’s an opportunity, because the shopper is going to be looking for that alternative product.”

Another tactic that convenience store operators can try to move more roll-your-own tobacco is talking to consumers about sustainability, a hot topic at retail. For instance, one major RYO brand, Zen, references ‘earth-friendly materials’ that have been ‘responsibly sourced high-quality materials in our production processes.’