How are tobacco flavor bans impacting convenience store sales?
In a word: badly.
Flavored tobacco products historically have been very popular items. They add variety, excitement and freshness to the category, and consumers have come to expect them. Additionally, limited-time offers (LTO’s) have helped drive customer traffic and boost category sales. Yanking them off of store shelves and denying legal-age adult American consumers free choice serves no one.
While operators have always been forced to navigate volatile regulatory waters, this latest challenge can’t help but be what one operator termed a major blow to the overall business. Tobacco-related products remain a pillar of inside sales, in some locations as high as 40-50%. The inevitable result will be reduced foot traffic and revenue.
Including mint and menthol under the heading of flavored tobacco products, as is happening, is especially worrisome. Management Science Associates (MSA) data shows that more than 36% of cigarette sales in the convenience channel are menthol. In the smokeless category, an estimated 90%-plus of sales are in mint, menthol and wintergreen.
The operator of a dozen c-stores in California made the case in a Sacramento Bee op-ed that flavor bans make a mockery of his city’s excellent 97% compliance rate for age-restricted sales at convenience stores, and limits the choices of products available to adults.
Most product-focused tobacco regulations are not only bad for convenience stores but bad policy to boot, often leading to increased black market activity. The irony that government officials either ignore or fail to realize is that bootlegging tobacco is extremely profitable and a key strategy deployed by terrorist organizations and crime syndicates.
“There is an existing market for menthol cigarettes today and banning them will only shift those sales to the black market,” said Lyle Beckwith, NACS senior vice president of government relations. “Black-market sellers of tobacco products do not check the ages of their purchasers, do not pay taxes on their sales, and sell more than just menthol cigarettes. NACS urges FDA to implement a plan to stop the current black market and prevent a new one before prohibiting a product that we know will result in large numbers of new black-market sales.”
Many convenience stores are choosing to frame the challenge in positive terms, as one more way they can demonstrate their adherence to the law and commitment to their customers by helping eradicate underage smoking. It is important that store personnel make it clear to customers that the absence of their favorite products is due not to the retailer, but to the government.
At the same time, working with lawmakers to craft regulations that will minimize the harm to retail sales has never been more important for c-store owners. The combination of flavor bans and the rise of black market items is a double-whammy that will only hurt law-abiding retailers across the c-store industry.
“As convenience stores struggle to keep the doors open to serve local communities, some elected officials want to further impair the economic viability of these essential small businesses,” said Jim Calvin, president of the New York Association of Convenience Stores (NYACS). “Especially when such a ban would slash tax revenue by hundreds of millions of dollars a year, cause job losses, and intensify an already nation-leading illegal tobacco trade.”
Outlawing the sale of flavored tobacco products for adults – such as cherry pipe tobacco and menthol cigarettes – would deepen New York State’s budget hole, threaten the survival of thousands of mom-and-pop retailers, and place the jobs of frontline workers at these businesses at risk.
That’s the conclusion of an economic study performed by Regional Economic Models Inc. (REMI) for NYACS. REMI estimated the proposed action would cost the state $3.4 billion in tax revenue over the next decade, cost shop owners nearly $500 million annually in lost sales, and eliminate 1,200 jobs in retail and related industries.
