2019 Looks Clear for Smokeless Sales

As regulators target menthol cigarettes and popular e-cigarette brands, the smokeless segment is expected to thrive in the coming year.

By Howard Riell, Associate Editor

Smokeless remains the largest tobacco category outside of cigarettes.The combination of a loyal adult tobacco consumer base and strong brands continues to make this product category an appealing one for convenience store retailers for the long term.

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This might be more so given last month’s aggressive position by the U.S. Food and Drug Administration (FDA), which announced Nov. 15 that it will seek a ban on the sale of menthol-flavored cigarettes.

The announcement came as the agency officially released a detailed plan to also restrict the sale of flavored electronic cigarettes. It also wants to ban flavored cigars.

In a prepared statement, FDA Commissioner Scott Gottlieb said the moves are aimed at fighting smoking among young people. Flavored e-cigarettes, menthol-flavored tobacco cigarettes and flavored cigars are all popular among teenagers.

Smokeless continues to provide an excellent opportunity for retailers using manufacturers’ limited offers. Operators should do well by taking advantage of these price/blend/special editions, as consumers have shown a strong preference for these items.

The introduction of new and innovative flavors remains a key driver of growth, according to ResearchAndMarkets.com. In-store discounts remain effective, of course, as does rewarding adult tobacco consumer loyalty. For example, earlier this year, Copenhagen executed a gift-with-purchase program that rewarded adult dippers for their loyalty.

In addition, savvy retailers continue to emphasize the category basics, starting with product freshness and variety of offerings. Each retailer should work with its manufacturer associates to help hone their product assortments.

For the 52-week period ending Oct. 7, 2018, smokeless tobacco products notched c-store sales of nearly $7.3 billion, an increase of 8.35% over the same period last year, according to IRI scan data. The overwhelming majority of sales, nearly $6.9 billion, came from chewing tobacco and snuff. The remainder, just over $395 million, was generated by spitless tobacco.

The global snus market is expected to reach $1.5 billion by 2023 from $890 million in 2017, reported ResearchAndMarkets.com, with a compound annual growth rate of 9.29%. U.S. Smokeless Tobacco Co.’s Copenhagen remains one of the best-selling smokeless tobacco brands. Additionally, its Skoal brand offers alternatives to traditional dip with flavor blends and manageable forms such as Skoal Snus.

One important ongoing trend within the smokeless tobacco category, as in a great many categories, has been a growing consumer preference for new flavors and forms. In October, was Swedish Match’s launch of Thunder Xtreme in the U.S., a product line featuring three varieties (Original, Original Strong and Red Strong), two flavors and two strengths. The cans, easily identified by premium packaging with a large “X” and subtle flair, contain 24 one-gram pouches.

C-stores are also aware some tobacco companies are turning to heated products as smoking rates decline, calling them less risky than conventional cigarettes because they warm tobacco until it is hot enough to release nicotine but not to cause combustion. Philip Morris International, for example, has unveiled two new versions of its smokeless tobacco device, iQOS, in more than 40 markets. The device heats tobacco instead of burning it.

More than some other categories, smokeless tobacco’s fortunes often rise or fall based on the region in which they are sold.

Karen McGregor, director of convenience store operations for Max Arnold & Sons LLC in Hopkinsville, Ky., which operates 22 Maxfuel and Max’s Convenience Shops c-stores and truck stops, said smokeless tobacco has always been a strong category for her chain.

“We are in western Kentucky,” she pointed out, “so there is a lot of tobacco out here. Literally a mile and a half from our office is U.S. Tobacco, so we really do well in this area with the snuff and those products.”

Max Arnold’s smokeless purchasers are primarily male, but encompass a wide age range.

“The age group is probably from 19 up,” McGregor said. “It could be a 19-year-old buying it; it could be a 60-year-old buying it.”

In-store marketing includes discounts—customers can save $2 when they buy five cans.
Management also makes sure stores do not experience out-of-stocks. Personnel keep close track of what sells, such as wintergreen-flavor and long-cut straight products.

The year ahead, said McGregor, should be much like the one just ending when it comes to smokeless tobacco. “I don’t foresee anything new, just a continuation, although there is a coffee now and it’s doing pretty good in some of our locations. It’s called Grinds, and you just put in your mouth as you would snuff.”

Legislatures continue to impose restrictions on tobacco, from tax increases, retail sales bans and restrictions to underage tobacco-use prevention. But while there was plenty of tobacco legislation in 2018, none of it directly impacted the smokeless category. Indeed, there were only two tobacco tax increases nationwide, and those were on cigarettes in Kentucky and Oklahoma.

“There really weren’t any state legislative issues on OTP/smokeless this year that were enacted, (and) no tax increases on smokeless,” said Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO). He theorized that could have been because it was an election year. “Generally, in election years legislators do not raise taxes.”
As for the year ahead, Briant said there is almost always a potential for excise tax increases, but that FDA has shown more interest in the vapor and flavored cigar categories.

“The FDA issued its unified agenda and said they will likely propose a ban on characterizing flavors in cigars in 2019,” Briant said. “But again, that’s cigars, not smokeless. I haven’t heard a whole lot on smokeless otherwise.”

Briant sees additional regulation on the local level as a threat,including expansion of local tobacco ordinances that aim to ban flavors, usually including mint and wintergreen. Briant urged c-store retailers to form relationships with their local government officials.“Reach out to them before a restriction is proposed so these officials understand the importance of tobacco sales to the c-store model,” Briant said.

Briant continued, c-stores must be careful to sell only to adults, who should have the choice of buying smokeless tobacco in c-stores.

Today’s trends will certainly continue, as will adult tobacco consumers’ desire for a variety of forms and flavors, including an assortment of smokeless products.