In the face of ongoing tobacco regulations and mounting inflation, c-stores are reevaluating their backbar and shining the spotlight on other tobacco products (OTP) to cater to changing consumer preferences.
In May, the U.S. Food & Drug Administration (FDA) issued a marketing denial order (MDO) on JUUL products; however, the court gave the brand new breath when it placed a stay on the MDO, prompting the regulatory agency to review the company’s data one more time. Once again, convenience stores are waiting for the next chapter in the JUUL saga and what it might spell out for the OTP segment.
Meanwhile, modern nicotine products have been pushed under the regulatory spotlight. In spring, Congress passed legislation authorizing the FDA to regulate synthetic nicotine in the same manner it oversees cigarettes and other tobacco products. By the July deadline for Premarket Tobacco Applications (PMTAs), the agency confirmed receiving approximately 1 million submissions from more than 300 companies. As of this printing, the FDA has yet to release marketing decisions on these applications.
Despite the prolonged regulatory uncertainty, the modern nicotine subcategory remains the top performer in the overall tobacco/nicotine category. According to NielsenIQ data for all retail channels including c-stores, reported by Goldman Sachs, the smokeless tobacco products segment, which includes oral nicotine, posted gains in both dollar sales and volume for each of the last four months.
“This segment continues to provide great wins for us to enhance the total OTP category and help offset the natural declines in cigarettes. Year to date, we are up 34% in dollars and up 90% in units,” said Jon Manuyag, director of marketing for Beaverton, Ore.-based Plaid Pantry, which runs more than 100 stores in the Pacific Northwest.
Customer Shifts
Indeed, cigarettes experienced losses for each of the past four months. Plus, global analytics firm Gallup recently reported that more Americans currently smoke cannabis (16%) than combustible cigarettes (11%). Even the e-cigarettes/vape segment has had an up-and-down summer — price increases bumped up dollar sales, while volumes fell off on a national level. These opposing circumstances along with high inflation pushed category managers to adjust nicotine planograms to maximize customer interest in OTPs and non-premium tobacco brands.
“The current economic environment is one in which customers will continue to see increased pressure in terms of purchasing power,” said Adam Long, senior category manager for Rutter’s c-stores. The Rutter’s Cos., headquartered in York, Pa., owns and operates 82 retail sites. “We pay particular attention to how the gaps between the price segments evolve and what those gaps likely mean in terms of customer shifts in the category, then respond accordingly with our brand offerings.”
“With the recessionary environment today, we are seeing a trend where customers are wanting to see better value and potentially cheaper cigarettes,” said Manuyag. “But like anything, there is give and take on both the decision and the impact to customers. We will continue to review this to see if a switch in program is needed in the future.”
“We do not carry fourth-tier cigarettes at this point, but customers are asking for a cheaper option at our locations. Our cheaper cigarettes, such as Pall Mall and Lucky Strikes, are up more than our premium brands,” noted Sean Bumgarner, vice president for Scrivener Oil Co., which runs 12 Signal Food Stores in southwest Missouri.
Regulations and the economy aren’t the only influential factors. Perhaps more impactful is the growing phenomenon of dual or triple use across tobacco/nicotine product families.
“New emerging categories are teaching us a great deal. There is significant dual and multi-category usage, with evidence of customers using different products on different occasions. A cigarette smoker may, for example, use a premium product when out socially, a discount cigarette when smoking alone, and a vapor or nicotine pouch product when out and about in public spaces where it’s difficult for them to enjoy traditional combustibles,” Long explained.
Whereas each segment of the tobacco category traditionally had its loyal and separate customer base, evolving demographic splits produce add-on sales opportunities. Such market shifts push tobacco/nicotine category managers to not only stay abreast of regulations and economic conditions, but also adopt more flexibility. Adjusting the backbar to reflect changing consumer interest will deliver a better return on investment for this key in-store category.
