For quite some time now, c-store retailers have been watching a downward trend in cigarette sales due in part to inflation, as well as customers shifting to other tobacco segments, including vape and smokeless, and in some cases tobacco-free or nicotine-free options.
Cigarette unit sales dropped by 6% during 2023, and the price per unit saw a 4.3% increase, according to Chicago-based market research firm Circana. Still, the category remains a $53 billion industry within convenience stores.
At Coen Markets, which operates 56 locations in Pennsylvania, Ohio and West Virginia, “cigarettes continue to be 50% of sales in some of our locations, which indicates that even though the category is declining, there is still a need for combustibles,” said Cindy Gross, tobacco category manager for Coen Markets.
And recent inflation has given way to growth in the fourth-tier segment.
David Spross, executive director of the National Association of Tobacco Outlets, has also noticed widening price gaps resulting in downtrading from premium to lower-priced brands at c-store chains overall.
Convenience store retailers looking to reel in more cigarette customers may consider stocking a wider variety of fourth-tier brands this year.
This being said, at Coen, while baby boomers and Gen X are its top cigarette customers, younger generations “tend to go to the super premium brands” when they purchase cigarettes, noted Gross.
Another trend that is currently influencing the cigarette market involves rewards programs.
“Basically, (for) any retailer boasting a rewards program, manufacturers are allowing additional discounts/buy-downs through a rewards program,” stated Lance Klatt, executive director of the Minnesota Service Station & Convenience Store Association.
Loyalty programs are a great way to tap into the cigarette market in 2024, as customers are more likely to purchase cigarettes if they feel they are getting a deal, especially since inflation has impacted the category so heavily.
Regulation Outlook
In December 2023, a final rule regarding a federal ban on menthol cigarettes was pushed until March 2024, which was still the case at the time of publication. Additionally, a proposed rule that would reduce nicotine levels in cigarettes is intended for publication in April, noted Spross.
However, retailers may not have to worry about how this may affect their sales in 2024.
“Most of (these) proposed regulations would not take effect until at least 2025, so the immediate impact in 2024 would be minimal. …” said Spross. He added that once in effect, however, the regulations will have a substantial negative impact on regulated businesses, and supply will then shift to “an already flourishing illicit market.”
Therefore, although these are not immediate concerns, retailers would do well to follow along with updates and construct future tobacco backbar plans in preparation.