Historically, the smokeless tobacco category in convenience stores hasn’t benefited from a frequent influx of new products, packaging redesigns or special-edition flavors, unlike candy and snack categories that regularly welcome innovations. Over the past several months, however, this other tobacco product (OTP) segment has expanded, which could inject new energy into an otherwise quiet category.
In October, Swedish Match released the Thunder Xtreme line of snus with packaging prominently branded by a large “X.” Its ZYN nicotine pouch — test marketed exclusively in the West — started rolling out nationwide on April 1.
Last month, the American Snuff Co., a subsidiary of Reynolds American Inc., announced a national relaunch of Grizzly Dark, its premium brand. In addition to redesigned packaging, the manufacturer updated point-of-sale (POS) materials and initiated an online sweepstakes to reinvigorate consumer interest.
These announcements have captured the attention of c-store owners and operators.
“I am excited to see how ZYN performs…It is basically the same concept to moist as Juul is to the e-cigarette category,” said Dave Linder, chief operating officer for Meyer Oil Co., DBA Mach 1, which owns and operates 19 Phillips and Marathon retail sites in its home state of Illinois, and one in Indiana.
Even before this recent series of product introductions and updates, smokeless has been making incremental gains while cigarette volumes continue to weaken. In fact, smokeless banked more in total dollar sales for most of 2018 than the trending electronic nicotine delivery systems (ENDS) sector. According to IRI, a Chicago-based market research firm, smokeless tobacco products cashed in more than $6.8 billion in sales at U.S. c-stores for the 52 weeks, ending Jan. 27, compared with $3 billion for electronic smoking devices.
However, ENDs experienced a 169% increase over the previous year’s performance, compared with a 5.6% gain for smokeless tobacco, while cigarettes eked out a mere 0.1% gain for the same period.
Within the category, there’s a significant split between chewing tobacco — or moist — and spitless tobacco — or snus. The moist segment accounted for more than 94% of dollar sales.
“Year to date versus prior sales are up 7.5%, but … snus are a … small piece of the pie,” said John Kolb, director of merchandising for FKG Oil Co. The Belleville, Ill.-based chain runs 79 Moto Mart stores in six states. “Snus represent 5.5% of the sales when combined with moist.”
Still, snus are gaining ground by posting the larger change in dollar sales at 25.8%, opposed to 4.6% for moist. The difference in unit sales is even more jarring. Moist outsold snus in volume by more than a 15:1 ratio; but snus registered a 17.5% increase for the 52 weeks versus a loss of 1.1% in unit sales for chewing tobacco, according to IRI.
MARKET MANAGEMENT
Merchandising strategies for categories with frequent product introductions are more fluid and receptive to changes. Planograms for tobacco products rarely change, due in part to regulations that dictate where cans and pouches can be displayed. Plus, c-stores are limited under law as to how to promote this category, and as such, OTPs do not lend themselves to innovative marketing and merchandising options. In fact, neither Linder nor Kolb has initiated new campaigns for smokeless tobacco products in their stores.
That said, customers have responded to discounts.
“The manufacturers have done a few consumer engagements at the store level with coupons, and that always helps,” said Linder. “However, I have not seen any significant increase in repeat sales/purchases.”
But, smokeless does demonstrate extreme strength in brand loyalty. Data from Nielsen and Wells Fargo Securities suggests unit share among the most popular product lines has not significantly changed. Copenhagen, manufactured by U.S. Smokeless Tobacco Co., a subsidiary of Altria Group, led with approximately 34% of unit share for the four weeks ending Feb. 23. It’s held steady at this percentage for the 12-week period, and was only slightly less — 33.2% — for the 52-week gauge.
Other brands performed similarly: Grizzly maintained an estimated 28% for each period; Skoal registered 13.6% at four weeks, 13.5% at 12 weeks and a slight bump to 14.4% for 52 weeks. Each of the remaining brands claimed less than 5% each, none of which posted any notable movement up or down from one period to the next.
CONTROL FACTORS
Of course, no discussion of tobacco products would be complete without reviewing the latest on the regulatory front.
“Twenty-eight states are considering bills to raise the legal age to purchase tobacco products. If a state adopts and enacts this kind of legislation, retail sales would decline due to the loss of consumers in the 18-, 19- and 20-year-old age range,” said Thomas Briant, executive director for the National Association of Tobacco Outlets.
Plus, some states are contemplating tax hikes: Tennessee is weighing a 17% tax on wholesale of OTPs; Mississippi has proposed a 22.5% tax on the manufacturer’s list price for all tobacco products other than cigarettes; and Nebraska may raise the state excise tax on OTPs to 65% of the purchase price, a 45% jump from the current level.
In Southern California, Beverly Hills city leaders proposed banning all tobacco sales within its limits at a February city council meeting. As of mid-March, no further action had been taken.
Nationally, the U.S. Food and Drug Administration (FDA) has gone public regarding its intent to heavily oversee sales of tobacco. In November, then-Commissioner Scott Gottlieb announced two major proposals — to ban menthol in combustible cigarettes and prohibit flavors other than mint, menthol and tobacco in e-cigarettes. Last month, the FDA delivered its plan for the e-cigarette flavor ban to the White House. Also last month, Gottlieb announced his resignation, prompting some analysts to forecast a reprieve from the tighter oversight. Others suggest his replacement may further the FDA’s focus on menthol regulation. For now, the federal agency’s newest proposed rule changes do not specifically call out smokeless tobacco.
“The FDA’s actions are all about youth tobacco use. What’s saving smokeless tobacco from the flavor ban is the fact that it’s not very popular with young people,” said Alex Clark, CEO for the Consumer Advocates for Smoke-free Alternatives Association. “But if we start to see teenagers in more affluent neighborhoods start picking up smokeless products, you can bet there will be action.”
The FDA’s decisions on multiple applications for modified risk tobacco products (MRTP) could directly affect the category’s future potential. Eight Swedish Match General snus are under consideration, there’s an MRTP application pending for Copenhagen fine-cut moist snuff, and Reynolds American has submitted documentation for its Camel snus.
Approval of a modified-risk order by the FDA might help correct people’s misconceptions about the risks of smokeless tobacco, Clark said. “The ability to make modified-risk claims about any of these products could lead to a measurable consumer shift from combustible products to smokeless tobacco.”
