New Flavors, Demand Drives OTP

Despite the SCHIP bill and mounting state taxes, smokeless tobacco products have experienced a strong year packed with innovation, new flavors and increased consumer demand.

According to the NACS 2009 State of the Industry report, smokeless tobacco sales surged 6.1% to $2.96 billion last year. The average c-store totaled $1,703 per month in smokeless sales in 2008, the report found, and by all accounts that number should continue growing in 2009.

“The last two years have been great with smokeless tobacco, with double-digit increases,” said John Kelly, chief operating officer and vice president of operations for Mountain Empire Oil Co. in Johnson City, Tenn., which operates nearly 50 convenience stores under the Roadrunner Markets banner. “We really started focusing in on the category more than we ever had two-and-a-half or three years ago, and we’ve really seen great returns on that. Because we’ve had such great growth with it it’s kind of gotten exciting, so we’ve dug more into it than we might have in the past.”

“Digging into it” has meant expanding the number of SKUs it carries from 40 to 58, more promotions and planogram reviews twice a year with all major suppliers.

Much of what will happen to the category in 2009, Kelly said, has to do with regulation and taxes. “Whether or not the tax structure changes is going to determine a lot,” he said, adding much will also hinge on what companies like RJ Reynolds do with snus, which is now rolling our nationwide.

Cigar, Loose Tobacco Strong
The cigar category has been hit a little harder by SCHIP. What that means for c-store operators who sell cigars in an era of a rough economy, state tax hikes and creeping smoking bans is tougher times ahead, as well as a stronger reliance on manufacturers to provide advertising and promotional support and even repackaging to increase value.

Still, the cigar category jumped 9.1% in 2008 with the nation’s c-stores ringing up $1.57 billion in cigar sales. The average convenience store recorded $905 a month in cigar sales.

With taxes becoming a burden for smokers, it should be no surprise that the tobacco segment with the strongest growth in 2008 was pipe and cigarette tobacco. The NACS State of the Industry report found that channel sales increased a healthy 21.1% last year to $99.4 million.

Phyllis Amro, co-owner of Best Cigarettes in Phoenix, said she is finding that loose-leaf tobacco and rolling paper sales have increased as smokers are making their own cigarettes.

However, loose tobacco and rolling papers came under the recent federal tax increase, with taxes on loose-leaf tobacco increasing from $1.10 to $24.78 per pound. Despite the increase, though, Amro said that it’s still less expensive for customers to roll their own cigarettes than buy prepackaged brands.

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