As a longtime staple in the convenience store industry, tobacco has always been a key category on which retailers have focused.
In recent years, however, increasing regulations have forced c-stores to repeatedly revamp their backbars to stay in compliance with changing rules, particularly around vape. Now, c-store operators are keeping an eye on the Food and Drug Administration’s (FDA) next round of proposed regulations, including a potential ban on menthol cigarettes and flavored cigars on the horizon. The FDA has continued to push back the announcement date of the anticipated final ruling.
Legislations and Regulations
In December, the FDA announced the final rules regarding flavored cigars and menthol cigarettes will be further delayed until March 2024.
“Overall, I think the Administration is doing its due diligence in understanding the potential unintended consequences these rules may have as well as the policy positions of the stakeholders who are engaged on these issues,” said David Spross, executive director of the National Association of Tobacco Outlets (NATO). “Since it figures to be a close presidential election, political implications are in play and could push a final decision on whether to finalize the rules until after November 2024.”
Kevin Harder, category manager at Yesway, which has 440 stores in nine states, agreed “the proverbial can may continue to be kicked down the road” and that a decision may not come until the 2024 presidential election passes.
He noted, nonetheless, that the outcomes of these rulings may define 2024.
“The plan is to monitor legislative activity, speak up and let our voices be heard about things that could negatively impact the tobacco category, and try to be prepared for whatever changes may come,” said Harder.
Statewide bans are also being proposed. For example, New York has considered enacting a ban on flavored cigars and menthol cigarettes.
“We successfully defeated a statewide measure in 2023 and expect a similar effort will be required in 2024. Prohibitions of products just don’t work — look at the failed flavored vape ban,” said Kent Sopris, president of the New York Association of Convenience Stores (NYACS).
New York has instated a ban on flavored vape products, which Sopris noted NYACS members continue to abide by, but there have been increases in illegal flavored vape sales elsewhere.
“This is something we’ve been fighting at the state and local levels and will continue to do so in 2024,” Sopris continued.
According to NATO’s Spross, only 23 vapor products have received marketing granted orders. He recognized, however, the confusion that exists within the marketplace due to the FDA having yet to rule on many premarket tobacco product applications (PMTA).
“Many flavored vapes, particularly disposable products, are readily available because of limited information on what vapor products currently have timely filed PMTA applications under review,” said Spross.
Sopris urged c-store retailers not to sell illegal products, however, because it “makes the industry look bad and really contributes to a poor quality of life in communities.”
At the same time, Harder encouraged operators to have backup products waiting in order to prepare for worst-case scenarios.
Trends to Watch
While c-store retailers wait for the outcome of potential regulations, they continue to evaluate tobacco purchasing trends among their customers.
Cigar dollar sales at c-stores have so far remained flat with only a minimal 0.6% uptick for the latest 52 weeks ending Dec. 3, according to Circana, a Chicago-based market research firm. Unit sales, however, have seen a 3.7% drop. At Yesway, though, cigar sales are performing well.
“Cigar customers seem to be getting used to what appears to be a new strategy of annual cigar manufacturer price increases, which is a strategy taken directly from the cigarette manufacturer playbook,” said Harder. “With rapid inflation, we think it may be that customers are so used to everything going up that they are becoming numb to it when they see it in out-of-the-ordinary places like cigars.”
Meanwhile, dollar sales of electronic smoking devices nudged upward by 2.7% to hit $7.23 billion. With a large 11.9% jump in price per unit, though, unit sales decreased by 8.2%.
Harder believes Altria’s acquisition of NJOY is worth paying attention to in terms of how it will affect the vape segment.
“We think the addition of another strong manufacturer with plenty of resources to spend should only benefit retailers and our customers,” he said. “Similarly to how On! fueled additional category growth without necessarily taking competitive oral nicotine sales, we may see additional growth in vape as customers find themselves in an increasingly competitive environment between vape manufacturers. Growth, of course, would be predicated on the assumption that segments of the vape category are not banned.”
One emerging trend c-store retailers should watch for is the modified-risk tobacco product (MRTP). As of print time, 16 MRTP applications have been granted, noted Spross.
“The marketing of MRTP products has been limited since so few products have received an MRTP order, and some with orders have had limited or interrupted distribution,” said Spross. “With Philip Morris International entering the U.S. marketplace over the next few years and companies focusing on smokefree products, interest in the MRTP pathway may increase.”