Surging demand and the ongoing assault on cigarettes have MST positioned for a profitable 2013.
By Erin Rigik, Associate Editor.
The smokeless tobacco category showed strong growth in 2012, with help from promotions and a growing customer interest in alternative tobacco products to supplement their smoking habits. Manufacturers are capitalizing on the strong sales demand by introducing more products in an array of flavors.
The smokeless tobacco c-store category overall grew 5.61% for the 52 weeks ended Dec. 30, 2012, according to SymphonyIRI data for the convenience store industry. When broken out by type, chewing tobacco was up 5.64%, while spitless grew 4.89%.
Industry sales statistics show the smokeless tobacco category is poised for additional growth. For the 52 weeks ended Dec. 30, 2012, the smokeless tobacco category overall totaled $4.82 billion in dollar sales, selling 1.22 billion units at an average unit price of $3.95, according to SymphonyIRI. Spitless tobacco, such as snus, accounted for $174.55 million for the same period.
“We have seen double-digit growth in moist smokeless in 2012 over 2011,” said Ruth Ann Lilly, category manager for Mid-Atlantic Convenience Stores (MACS), which oversees 61 company-operated stores and more than 200 dealer locations. “I think part of the reason is because we are very competitive in the discounted SKUs.”
In summer 2012, MACS announced it was unifying its company-operated store banners by converting them to the Circle K brand, a move that has had a positive impact on OTP sales.
“Our new Circle K store brand is driving traffic into our stores, and the next part of that equation is to eliminate out-of-stocks,” Lilly said. “Our operations team is focusing on inventory levels and is doing a very good job. So being in stock, being competitive, bringing traffic into our stores, and capturing that customer group and selling them more products—all that is working together, and in this case OTP is a beneficiary.”
MACS is seeing its discounted moist cans like Skoal Xtra and Grizzly move a little better over the premium brands, effectively driving the category. “We are seeing some strong movement on the pouches as well. Those customers tend to be more of an entry level customer who is just getting into the category,” Lilly said. “They may actually be a dual user. We’re seeing fluidity between cigarette pack customers and moist users, and that’s usually from the tobacco customer who can’t smoke everywhere and is seeking an alternative.”
Indeed, as more cities and states implement public smoking bans, smokeless is proving an alternative to cigarette smokers to provide a nicotine fix that can be used discretely, for example in an office or a restaurant. In addition, more consumers are paying attention to the inherent health risks associated with smoking and looking for an alternative nicotine option that they perceive as healthier.
Smokeless Tobacco Legislation Looming?
While the prospect for increased sales are good, retailers in several states could be in for a rude awakening if proposed tax measures go into effect.
“A number of state legislatures are considering bills that would raise the tax on other tobacco products, which would include smokeless tobacco,” noted Tom Briant, executive director of the National Association of Tobacco Outlets (NATO). “These states include Kentucky, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New Mexico and Pennsylvania. Retailers in these states should be vigilant and contact their elected officials and urge them to oppose the unfair tax increases,” he urged.
For example, Pennsylvania State Senator Andy Dinniman (D-Chester), noting that Pennsylvania is the only state without a tax on smokeless tobacco products, has proposed legislation for taxing smokeless tobacco products at the same rate the state taxes cigarettes, which is 59.2% of the wholesale price. The tax would impact chewing tobacco, dipping tobacco and snuff. The proposal is intended to reduce smokeless tobacco use among kids.
In March, New York City Mayor Michael Bloomberg proposed legislation that would ban tobacco products from public view, a move that would especially be detrimental to smokeless tobacco.
“An ‘out of the public view’ display ban would be very detrimental to tobacco retailers in several ways,” Briant said. “First, customers will not know whether a store carries their brand of smokeless tobacco products, which could result in reduced sales. Second, when a similar display ban law was implemented in Canada, tobacco retailers incurred expenses of up to $2,500 per store to install new shields and display cabinets with covers to comply with the law.”
What’s more, converting customers from cigarettes to smokeless tobacco products could prove increasingly difficult if customers cannot see and touch the product.
