The tobacco category remains in the spotlight at c-stores as the industry grapples with marketing denial orders (MDO) for vape products and braces for pending rules from the Food and Drug Administration (FDA) around menthol cigarettes and flavored cigars.
“Regulations continue to challenge the tobacco industry in 2024,” said Tim Greene, director of tobacco and general merchandise for Boulder, Colo.-based Smoker Friendly, which operates 290 convenience stores in 13 states. “The uncertainty from premarket tobacco product applications drags on another year, and state registries have popped up across many states, challenging retailers to provide products our customers are demanding.”
Regulatory Landscape
On April 28, 2022, the FDA proposed product standards to prohibit menthol as a characterizing flavor in cigarettes and all characterizing flavors in cigars. At press time, the industry was still awaiting the FDA’s announcement of a final rule, which was expected in March, although some have speculated it might now come after election season.
On the vape front, the FDA has approved 23 vaping products to date and has issued numerous MDOs. The FDA continues to issue warning letters to both brick-and-mortar and online retailers for selling unauthorized e-cigarette products.
At press time, the FDA had issued more than 440 warning letters and 88 civil monetary penalties to retailers for the sale of unauthorized e-cigarettes. In March, five senators sent letters to 22 c-store chains and their wholesalers reminding them of their obligations and legal liability under the Family Smoking Prevention and Tobacco Control Act.
“As Chairs of the Senate Judiciary Committee; Finance Committee; Health, Education, Labor, and Pensions Committee; Banking, Housing, and Urban Affairs Committee; and Permanent Subcommittee on Investigations, we are working with the Department of Justice, FDA and other agencies to ensure adequate enforcement of federal laws to protect public health and prevent the unauthorized sale of tobacco products. We strongly encourage your company to ensure compliance with federal laws to prevent youth use of harmful tobacco products and protect your company from liability,” the senators noted in the letter.
As rules and regulations change, c-stores are feeling the effects.
“Recently, one of our major markets, the city of Columbus, Ohio, enacted a flavor ban which removed many of the best-selling items from our stores. Shortly after, through legislative actions, this was overturned,” said Nathan Arnold, director of marketing for Duchess, which operates 120 stores throughout Ohio and West Virginia. “Navigating regulatory and legal actions throughout markets complicates our business and purchasing decisions for our customers.”
With the FDA starting to crack down on illegal vape sales and the menthol and flavored cigar bans still up in the air, c-store retailers have a lot to consider when adding new products to their backbar or refreshing the products they already have.
“There are both challenges and opportunities in the tobacco industry,” said Sean Bumgarner, vice president for Scrivener Oil Co., which has 12 Signal Food Stores in Missouri. “We must make sure we have the items that the customers want at a price they can afford. Also, there continue to be legal issues with the vape and cigar category that we still have to navigate.”
Tobacco Trends
Despite the many ongoing regulatory hurdles for tobacco, consumers continue to demand tobacco products, and retailers are taking notice of evolving trends.
Cigarette sales continue to dip as inflation pushes the price of cigarette packs higher and, as a result, more customers are looking for deals.
“Our customers are looking for multiple-pack offers and loyalty offers to lower the price,” said Bumgarner. “We have also observed many of our customers switching from a full-price cigarette to a lower-price offering.”
“With the rise of inflation, this category, especially, has been highly competitive with promotions,” added Arnold. “We’ve seen a significant increase in loyalty penetration with customers in the tobacco category due to compelling offers.”
Meanwhile, cigars continue to perform well in convenience stores.
“Cigar volumes continue to grow as we see manufacturers introduce new offerings, in particular non-flavored SKUs,” said Greene.
The Rise of Alternative Tobacco Products
Even as the backbar changes amid MDOs, demand for vape products continues to grow.
To keep up with this demand, Signal Food Stores has added space to expand its vape offerings, noted Bumgarner.
“We continue to see migration from cigarettes to our vape offerings, and our other tobacco products are seeing significant increases as well,” he said.
Oral tobacco products are also being purchased more often by consumers.
“While traditional tobacco offerings continue to dominate the tobacco category, we see more and more customers exploring alternative categories,” said Greene. “Duel usage is up; we often see customers purchase a vapor product or a nicotine pouch with their traditional tobacco products. Customers are looking for alternative products and are willing to venture into new brands and delivery formats.”
All in all, retailers are expecting the pressure of regulatory and legislative actions to continue, squeezing the tobacco industry and category. For the foreseeable future, c-store retailers will have to continue navigating these pressures while ensuring their backbars are stocked with products customers want.
“We continue to look for opportunities in each tobacco/nicotine category by partnering with manufacturers to provide quality and value for our customers,” explained Greene. “We continue to bolster our digital and loyalty platforms, allowing customers to gain more value with each purchase.”