the new cornerstone on the back bar

Cigarette sales are still one of the biggest draws for convenience stores, but many retailers are gradually shiftingtheir attention to the new king of the back bar: the othertobacco product (OTP) category.

It’s no secret that OTP products—moist smokeless tobacco (MST) in particular—have been red hot over the past two years, showingvolume growth as high as 8% in 2006. The trend shows no sign ofslowing either, with analysts predicting the segment will continueshowing growth of 6 to 8% all the way into 2010. CSD‘s RoundtableWebcast, “Boosting OTP Sales: Consumer Data, Trends and Analyses inSmokeless Tobacco,” focused on ways retailers can ride this momentum and dip into even bigger profits.

Premium sales strength

Ed Chrupcala, director of category development and strategy forU.S. Smokeless Tobacco (USST), the sponsor of the Webcast, said 2007is shaping into another strong year for OTP thanks to suppliers, retailers and consumers all taking an interest in the high-end segment ofthe category.

With six out of 10 consumers entering the MST category beingcigarette smokers as well, Chrupcala explained that the rapidlyevolving premium segment is piquing much of this new customer base’s interest.

“Much of the growth we’re seeing for MST comes from a renewedvitality in the premium segment,” he added. “But it’s also coming fromcontinued innovation in the category, as seen with the entrance ofthe pouch category.” New flavors and forms of OTP—such as the snusproducts that both Phillip Morris and R.J. Reynolds are introducing-are continuing to drive in smokers who become duel users, thanks toan increase of smoking restrictions.

The adult incident rate for MST has increased 30% between 2001and 2006, and out of those new consumers, two-thirds were attractedto the category by premium products, Chrupcala said.

Dan Moir, tobacco category manager for Bloomington, Minn.-based Holiday Stationstores, has also seen the OTP category soarthanks to consumer loyalty to the premium segment. He offered thata key driver in the increasing sales of MST and OTP has been the promotions that suppliers are offering as a way to help retailers garnermore customers.

With suppliers offering his stores promotional packages, such astwo-can packs for a reduced single price, Moir has been able toentice customers into becoming more dedicated smokeless consumers. “The promotional packs are sent to our store on a bi-weeklybasis and they’ve been helping the premium segment stay strong inall of our stores,” he said.

Sub-premium products, above-average sales
As Chrupcala mentioned, lower-end OTP products have also beenselling well due to the segment’s lower prices leaving consumers feeling like they’re getting more bang for their buck. That trend is playingout at Holiday Stationstores.

“Even though we’ve seen a very slight decline, brands such asGrizzly and Husky are still showing strong growth numbers,” said Moir. John Kelly, chief operating officer and vice president of operations for Mountain Empire Oil, revealed that the company’sRoadrunner Markets stores have also experience success with the value segment.

“Competition for below-premium products has created innovation,”said Kelly. “These products have proven to be high-quality items at discount prices and customers are starting to realize that.”

Like Moir, Kelly is able to keep his OTP customers interested byrewarding them with promotional deals offered by suppliers. “The ability to get customers to spend just a little bit more in order to get morehas made a difference in many of our stores,” he said.

Product buydowns, partnerships with manufacturers and constant evaluation of scan data are also essential aspects to keepingthis category selling, Kelly said.

While an increase in promotional attention has helped garnerand solidify interest in OTP, Kit Dietz, founder of Dietz Consulting, suggested that an additional push in popularity comes from retailersmarketing the products more seriously.

“Prior to 2000, it wasn’t unusual for a back bar to be littered withMST as well as other products, like batteries. It was an unorganizedcategory,” Dietz explained. But in 2000, retailers and suppliers alikemade a point to increase category awareness and merchandisingfocus by presenting the products as a more serious, more legitimateoffering than it was in the past. “MST and cigars have benefited frombeing well-organized and accessible to adult consumers.”

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