If you thought that once the Food and Drug Administration (FDA) issued its ban on most flavored vaping products in January, that would be the end of new federal tobacco regulations, think again. One month later, the U.S. House of Representatives passed the Protecting American Lungs and Reversing the Youth Tobacco Epidemic Act of 2020 (H.R. 2339). Among the numerous restrictions contained within the legislation is a ban on all tobacco flavors including menthol.
The bill passed in the U.S. House despite stringent opposition from the convenience store industry. In addition to the nearly 1,400 retailers who sent letters to their representatives expressing concerns, a letter from the National Association of Convenience Stores (NACS) was entered into the record stating, “It is unreasonable to assume that consumers will simply transition away from these flavored products to unflavored tobacco alternatives. Instead, a ban on menthol cigarettes, flavored smokeless tobacco and flavored cigars will undoubtedly lead to a black market for these products because of the broad consumer base that exists among adult users.”
The c-store industry’s reaction to the expanded restrictions stems from basic economics. Not only do tobacco products account for nearly 40% of inside sales, per NACS research, but menthol and flavors represent a large percentage.
“Menthol makes up 30% of the cigarette market, and flavored other tobacco products (OTPs) is around 80%. It is unrealistic to think this demand will immediately go away. This bill is a stimulus package for illicit trade,” said Lyle Beckwith, NACS senior vice president, government relations.
In good news for c-stores, the legislation is not expected to become law. As of mid-March, no companion bill had been introduced in the U.S. Senate, which prevents the House version from progressing. States, on the other hand, continue to push for flavor and menthol bans. Since December, sales of flavored tobacco products in Massachusetts have been prohibited, and starting June 1, menthol joins the list.
“We’re already seeing 30-35% off of business,” said Tarek Yatim, CEO of Yatco Energy. The family business based in Northborough, Mass., operates gasoline distribution services along with 22 retail sites. “We’re expecting that’s what we’re going to see in June, too.”
This month, New Jersey c-stores prepare to adjust to a ban on flavored vaping products signed into law in January. By April 20, all flavored e-cigarettes and vaping items except menthol, mint and wintergreen must be pulled. This ban includes self-contained disposable e-cigarettes along with open vaping systems, which were exempted by the FDA. A second measure also taking effect bars the use of coupons or rebates for tobacco products.
NOD Opportunity
Although the new law limits smokeless tobacco flavor options, it’s created an opportunity. James McElroy, senior category manager for QuickChek, plans to buff up the nicotine-on-demand (NOD) pouch section of the tobacco back bar. Until this month, he only carried VELO in the company’s more than 160 stores in New York and New Jersey.
“The FDA ban removed a lot of SKUs in the vape category, and by the end of April, that will go even further. It’s opening space for me to add, and I’ll be adding ZYN,” he said.
Greg Moore, a buyer for the Army & Air Force Exchange Service, is reevaluating his NOD inventory, too.
“Customer response to ZYN has been positive. At this time, the product is in limited Exchanges, but due to its success, we are looking to introduce it into more stores during the next planogram update,” he said.
In fact, there may be no better time to highlight NOD pouches as the OTP segment continues to post notable gains — Swedish Match announced ZYN fourth quarter sales increased by 15% in a year-to-year comparison. Under the burden of changing regulations, such impressive growth confirms c-stores can count on their ongoing consumer appeal.
