Smokeless Tobacco Remains Stable

Despite lingering health concerns and the threat of continued regulation, smokeless remains a durable part of c-store tobacco sets.

By Howard Riell, Associate Editor

Smokeless tobacco remains a dependable product category, with popular brands like Copenhagen, Skoal and Grizzly, a plethora of price promotions, and a solid customer base made larger by Americans transitioning from cigarettes due, in part, to the greater social acceptability of smokeless.

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Despite the threat of continued regulation, smokeless remains a durable part of c-store tobacco sets. According to IRI, store sales of smokeless tobacco for the 52-week period ending July 15, 2018 rose to nearly $7.2 billion, an increase of 9.06%. Within the smokeless category, chewing tobacco/snuff registered more than $6.8 billion, with movement up 8.3%. Spitless tobacco sales increased 25%, to nearly $375 million during the same 52-week period.

The relatively high average retail price of MST (moist smokeless tobacco) still makes it a compelling category. Premium-priced volume is declining at convenience stores by about 2.7%, based on industry shipment data. What is also driving the relative lack of growth is the slowdown in low-price product volume, up just 1.5% year to date. The biggest low-price brand is Grizzly, whose volume is up just 0.5%.

MORE COMPETITION
Those who are less enthusiastic about the smokeless category explain that it is mature, making it more difficult to generate historical growth rates. In addition, many kinds of nicotine options are available, giving consumers several other options for nicotine satisfaction—some of which, like e-cigarettes/vape and nicotine patches, boast innovation, which many find attractive.

Still others claim retailers can do a better job of selling MST pouches, which account for 18% of category volume and often serve as the point of entry for new consumers.

These products are often not easy to spot on the rack, and can look nearly identical to their ‘loose’ versions. Many also fail to capitalize on strong consumer desire for value-priced product.

“Smokeless will continue shifting toward more affordable and socially acceptable forms,” suggested David Bishop, managing partner in Balvor LLC in Barrington, Ill., a sales and marketing firm that provides analytic, consulting, research and sales support services to retailers, product suppliers, and other organizations across foodservice and retail classes of trade. “This means continued growth in price-value brands, as well as pouches, primarily and snus, secondarily.”

STABLE SALES
At QMart, smokeless tobacco has sustained an independent offering with very stable sales, said Mary Sonatore, retail buyer and merchandiser for Houston, Texas.-based Northwest Petroleum Inc.’s (NWP) 26-store chain. “Poly tobacco users are driving the smokeless tobacco category. In our marketing, we are attracting those who are looking for alternatives to combustible.”

Over the next 12 months, NWP plans to follow up this year’s opening of a co-branded, joint retail location between QMart, Phillips 66 and Burger King at the San Antonio International Airport with the development and opening of 10 new convenience and fuel retail sites.

QMart executives have found that any price point on smokeless tobacco that has been significantly discounted does well, according to Sonatore. The promotions that have worked well in her stores have been deals consisting of from 50 cents to 75 cents off per can. Packaging has proven a factor, as well: QMart customers are seeking smokeless tobacco in traditional flavor pouches.

“As vaping options and technology begin to improve,” Sonatore forecasted, “smokeless tobacco may plateau or slightly decline from poly users who are looking for other options in alternatives to combustibles.”

OPTIMISTIC OUTLOOK
Mallorie Kemo, category manager for Certified Oil Co. in Columbus, Ohio, which either operates or supplies more than 140 c-store locations in Ohio, Kentucky and West Virginia, said smokeless is doing very well across her system. “The category was up 4.43% for the first half of 2018 compared to first half of 2017.”

An introduction of new promotions has helped drive that sales increase, she noted. Grizzly and Copenhagen are both strong, with Grizzly Longcut Wintergreen leading the pack. “The mid-range price point does best for us.” Multi-can discounts and multi-can rewards promotions have had limited success.

Kemo said she is optimistic about smokeless’ prospects going forward. “As the tobacco industry continues to change, we expect to see more cigarette customers opt for alternative and smokeless tobacco options.”

Not every c-store chain is seeing entirely positive smokeless sales.

Maverik’s different results: “Year to date, the MST (moist smokeless tobacco) volume is down 1% nationally,” said Travis Hanke, category manager for cigarettes, tobacco and general merchandise for Salt Lake City -based Maverik Inc., which operates 313 stores across 11 Western states. “At Maverik we’re experiencing different results, as the MST volume is up 5% year to date.”

According to Hanke, the moist smokeless category continues to face velocity pressures from increased competition in the alternative smokeless tobacco segment, with items such as snus and nicotine pouches. “The nicotine pouch segment, led by ZYN, Dryft and ON!, has rapidly grown over the past two years. The new poly users entering the MST category continue to start off in the pouch segment.”

The Copenhagen brand, led by long-cut and fine-cut, continues to be the category leader, Hanke noted. “Grizzly performs well, too, led by wintergreen long-cut and wintergreen pouches.” Skoal has seen some erosion, he added, however it is still a solid third brand in the category, led by long-cut straight and mint pouches.

Now, the smokeless tobacco category has too many price points.

“Less than one-third of the price points in the set are actually displayed on the fixture,” said Hanke. “I’d like to see the number of price points reduced, so that the price points can all be displayed on the fixture, and the pricing is simpler to understand for the new poly users to the category.”

According to Hanke, “The new poly-use MST customers are looking for what’s easy, which is a simple program and a pouched product.” The existing MST customers are looking for value, as they know what product they want with the occasional new trial.

“Retailers implementing two-can and/or roll pricing is pretty much industry standard at this point in order to optimize value shown to their customers,” said Hanke. “In the c-store channel, the MST customers have some of the highest shop frequencies and largest-sized baskets of any consumer.”

According to Hanke, the promotions that present the biggest challenges from an execution, product placement, auto-replenishment, product rotation and inventory standpoint are the pre-priced deals.

“As a retailer,” Hanke said, “I see minimal impact to the category today based on Maverik’s footprint. The vendor partners in the category do an outstanding job keeping us informed and compliant with changing regulations.”

Instead, he said he believes the biggest challenge today for retailers when it comes to smokeless is on the operations side.

“The consistent execution expectations on purchase-age compliance aren’t new, however the current labor market situation presents some challenges,” said Hanke. ”The pending legislations on flavor bans could impact the category in future.”

Despite these challenges, Hanke added, “I see continued growth and innovation with the poly-use trend, specifically in the pouch segment.”