By Seth A. Mailhot, Special Counsel, Sheppard Mullin Richter & Hampton LLP.
This is the first of what will be a continuing series on the regulation of tobacco retailing. In future articles, I will address the U.S. Food and Drug Administration’s (FDA’s) regulation of tobacco retailers, and the pressing issues with FDA enforcement at the retail level. For my inaugural article, however, I address the recently released report “Deadly Alliance: How Big Tobacco and Convenience Stores Partner to Market Tobacco Products and Fight Life-Saving Policies.”
The report was prepared by the Campaign for Tobacco-Free Kids, Counter Tobacco and the American Heart Association. It has become increasingly clear that the key regulatory issues with respect to tobacco involve the point of sale, which places convenience stores and other tobacco retailers in the position of having to face the brunt of FDA’s enforcement efforts.
The report, released on March 5, has the stated purpose of examining the relationship between convenience stores and the tobacco industry. The report argues that the relationships between c-stores and the tobacco industry justify even higher tobacco taxes and greater restrictions on retail sales of tobacco products.
The report authors point to three issues in making their argument for higher taxes and greater restrictions. First, the authors cite information about convenience store advertising to suggest an intent to market tobacco products to children. Second, the authors point to promotional practices, including merchandising agreements and product discounts, to imply that such practices are designed to encourage children, minorities and the underprivileged to use tobacco products. Third, the authors claim recent lobbying efforts by convenience store organizations are a cover by tobacco companies to counter efforts to increase taxes on tobacco products.
Assessing the Impact of C-Store Advertising of Tobacco
The report fails to point out that the concerns raised regarding convenience store advertising are largely the result of the laws and regulations that tobacco control advocates requested and secured on both the federal and local level.
Tobacco products are placed at the point of sale in convenience stores to allow retailers to comply with laws and regulations requiring face-to-face transactions. Additionally, a greater percentage of tobacco advertising dollars are being spent at the retail level because most other avenues to advertise tobacco products are now closed to the industry (such as television, radio, print and billboards). Therefore, if current promotional and sales practices used at convenience stores contribute to underage tobacco use (a position I disagree with), the problem is with the design of the current regulatory regime regarding face-to-face transactions and advertising restrictions.
Much of the report is directed at the concern of enticing youth into tobacco use. Not only do the authors make mention of “flavored cigars that appeal to kids,” but they also include images to imply a subliminal intent to market to youth.
Considering the Intent of Tobacco Marketing Practices in C-Stores
Similarly, the report makes prominent use of two quotes, conveniently placed side-by-side, to imply that tobacco companies and convenience stores are working together to thwart laws and regulations aimed at reducing youth tobacco use:
“Both the tobacco industry and the convenience store industry are keenly aware of their customer base and share the common goal of targeting young people.”
A careful examination of these quotes, however, reveals that they lack any connection whatsoever, and certainly do not establish the motive to market tobacco to youth that the report authors attempt to ascribe. The “Tobacco Industry” quote is taken from a report that is over three decades old (dated March 31, 1981), while the “Convenience Store Industry” quote comes from a study written by the market research & analysis company Clickin Research, which was funded in part by the Coca-Cola Leadership Council (and not any tobacco industry sponsor). The authors of the report use these two dissonant quotes to support their argument of a “share[d] . . . common goal to target young people.”
Determining the Appropriate Government Response to the Marketing of Tobacco Products by Convenience Stores
The report’s recommendations do not contain any new ideas on how to prevent youth tobacco use. The principle recommendation in the report is to further increase tobacco taxes. The report’s authors suggest that such an approach is a “win-win-win” for governments: providing reduction in tobacco use, an increase in revenue, and a politically popular decision.
Although the authors of the report suggest that a tax increase of 50 cents to $1 will have a significant impact on youth smoking, their own chart suggests otherwise. The graph used in the report, shows that just under the last two decades cigarette prices have risen approximately $2.85, with a resulting estimated reduction in youth smoking prevalence of only 8%.
In addition, the report relies on outdated information in reaching its conclusion on the effect of tax increases on the rate of smoking. In particular, the report states that:
“Studies have shown that for every 10% increase in the price of cigarettes, youth smoking declines by approximately 7%, smoking among pregnant women falls at a similar rate, and overall consumption declines by about 4%.”
A more recent analysis of data from April 2008 published in The Michigan Journal of Business shows that an increase of 1% in the retail price of a pack of cigarettes only decreases the average percentage of underage smokers by 0.264%. Further, the analysis found that taxes have no significant effect on the percentage of adult smokers, and that a 1% increase in the retail price of cigarettes only reduces adult consumption by 0.06 cigarettes per day on average. These numbers would not appear to support the additional burden in taxes that would be borne by consumers.
The report describes in some detail the joint lobbying efforts that retailers and the tobacco industry have engaged in, suggesting that retailers are serving as the mouthpiece of the tobacco industry. The report, however, makes no mention of the fact that retailers have been working cooperatively with the tobacco industry for many years to prevent sales of tobacco products to minors. The We Card Program, in particular, has been instrumental over the last 17 years in ensuring that retail employees are appropriately trained and equipped to sell tobacco products only to legal-aged adults. The efforts of retailers with programs such as We Card may have as much to do (if not more) with the decline in youth smoking as any increase in taxes.
Another point left out of the report is that increasing taxes and other retail restrictions may have the unintended consequence of supporting the black market sale of tobacco products. The black market sale of tobacco products was cited as a confounding factor in The Michigan Journal of Business analysis. Unlike legitimate retailers, such as convenience stores, the black market cannot be adequately regulated or controlled, and certainly has no interest in restricting the sale of tobacco products only to adults.
This new report undoubtedly represents the talking points that tobacco control advocates will be using with federal, state and local governments. Taken together, the report demonstrates an interest by tobacco control advocates to shift the focus on tobacco control issues back to the point of sale. Convenience stores need to continue to stay active on lobbying issues concerning the regulation of tobacco, particularly given the recent success that retailers have had on these issues. Federal, state and local governments are also increasing their enforcement efforts, as demonstrated by FDA’s focus on retail sales of tobacco. C-stores and other retailers must stay vigilant on all fronts.
Seth A. Mailhot is a special counsel for Sheppard Mullin in Washington D.C., and is a member of the firm’s Food and Drug Law Group. He spent 14 years with the U.S. Food and Drug Administration (FDA). His practice is focused on issues impacting tobacco retailers and FDA enforcement of good manufacturing practices, both domestically and abroad.