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OTPs Brace for More Change

C-store retailers face an unpredictable regulatory landscape for vape and cigars as they await PMTA decisions and flavor ban regulations.

By Anne Baye Ericksen | July 26, 2021

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Tobacco category managers have gotten used to recalculating vape and e-cigarette planograms with each new regulation issued, be it city ordinance or federal mandate. Now, the other tobacco product (OTP) segment could undergo yet another makeover when the Food and Drug Administration (FDA) releases its decisions on pre-market tobacco applications (PMTAs).

More than 6 million PMTAs were accepted, and the agency’s 12-month deadline to decide whether a product can remain available for retail sale or must be pulled from shelves once and for all is fast approaching.

“At a recent House hearing, Acting FDA Commissioner Janet Woodcock pledged the FDA would make every effort to conclude review of the PMTAs from the top five vaping companies by the fall deadline,” said Gregory Conley, president of the American Vaping Association. “The FDA does not exactly have the best track record on keeping to their pledges, but it seems likely that decisions will be made on, at minimum, the tobacco and menthol varieties of Juul, Vuse, NJOY, etc., by September.”

In the meantime, vape sales keep generating encouraging numbers. IRI data for U.S. convenience stores shows dollar and unit sales for electronic smoking devices each climbed approximately 14% for the four weeks ending June 13. A 12-week review revealed a gain of 16.3% in dollar sales and 18.6% in unit sales.

“From where we were a year ago to now, I would guess we’re selling at least 10 times more in vape products, with brands like Vuse, Posh and Excel,” said John Archer, owner of Shell Food Mart in Hinsdale, Ill.

Mixed Messages for Cigars

Overall, cigars started the year on a strong footing, too. According to the National Association of Convenience Stores (NACS) State of the Industry report, the cigar market share of OTPs grew by nearly two points between 2019 and 2020.

“In our market, cigars are a bigger seller than vape or e-cigarettes. While there seems to be more advertising dedicated to the vape category, and we have seen an increase in these sales over the past few years, cigars still are a better seller,” said Nathan Arnold, director of marketing for Englefield Inc. The family-owned company runs 119 Duchess c-stores throughout Ohio and West Virginia.

“Cigars are growing because manufacturers seem to slowly be catching up on the production side, so we actually have product to sell,” added Jesse Dix, category manager for Dandy, which operates 67 locations in New York and Pennsylvania.

However, enthusiasm may be waning. IRI data indicates cigar dollar sales dropped 6.9% for the four weeks ending June 13, 2021, and lost 13.4% in unit sales. And the 12-week review showed a loss of 3.4% in dollar sales and 10.8% in unit sales.

Another concern for the industry is the FDA’s intent to institute a national ban on all flavors of mass-produced cigars as well as menthol cigarettes. FDA’s Woodcock publicly stated the regulatory process, including a period for public comments, would begin “within the next year.”

“It would definitely hurt our sales since we do sell quite a bit of flavored cigars; customers like their options,” said Dix. “I guess it depends how far the final ruling goes, especially if they even ban flavors similar to the original Swisher Sweet, which does have a sweet flavor profile.”

Could the looming regulation prompt tobacco category managers to buff up the premium cigar section of back bars because typically they’re exempt from tobacco restrictions, including PMTA and substantial equivalence mandates?

“We’d have to test it because a number of our stores are in rural communities, and I’m not sure how much people would be willing to spend on premiums,” said Doug Galli, vice president and general manager for Reid Stores and Crosby’s, which operates more than 80 sites in New York and Pennsylvania.

“Over the years, we have tested the premium cigar category. Most recently, in late 2020, we introduced this at our new prototype store to test the market. While it’s early in the test, we do see that few customers are trading up from their original purchase to the more premium,” Arnold said.

At the same time, he noted that consumers for other OTPs are adjusting to the shifting product offerings as a result of legislative restrictions.

“It appears customers flex with these rulings, too,” said Arnold. “Instead of purchasing their normal item, their behavior changes, and they start purchasing something new.”

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