As the tobacco industry evolves, the convenience store and tobacco shop operator continues to grow to meet its customers’ needs.
By Erin Rigik, Associate Editor.
Kocolene Marketing LLC maintains a booming tobacco business at its Fast Max convenience stores and Smokers Host Discount tobacco stores, and is implementing a number of IT initiatives to keep its business growing into the future.
The company, which was founded in 1938, operates 11 Fast Max convenience stores in Indiana and Kentucky, and 18 Smokers Host Discount Tobacco stores in Indiana. It also owns Ranger Enterprises, a warehousing, logistics and recycling company, and Komac, an environmental services company.
Fast Max does a strong tobacco business, featuring a range of roll your own (RYO) items, snuff, snus, loose leaf tobacco, e-cigarettes, cigarettes, cigars, cigarillos and pipe tobacco. Smokers Host offers many of the same products, but also sells hookahs & hookah tobacco.
Andrea Myers, president of Kocolene Marketing, has watched the tobacco business at her stores change in recent years. Traditional cigarette sales have fallen, while smokeless sales have grown. RYO sales and filtered cigar sales have also seen an uptick, while traditional cigar sales are declining. Meanwhile, electronic products are attracting customer attention.
Just two years ago, some c-stores didn’t even carry e-cigs, now not only c-store but even big box and drug stores are getting into the game.
“RYO, filtered cigars and electronic tobacco products have demanded more space the past couple years due to increased sales,” said Myers, who is also a board member for the National Association of Tobacco Outlets (NATO). “Foil cigar products have taken over the cigar category.”
Tobacco margins remain tight across the entire category. “Margins are tight because of all the pre-priced cigar products and on cigarettes. As more retailers have ventured into the fourth-tier game, margins are being squeezed even more,” she said. “Low-priced snuff sales have increased and therefore dollar sales in that category are down. People are now buying $2 cans of snuff versus $4 cans of snuff because there are so many brands for $2 out there now. So even though margin percentages might be the same, gross profit dollars sure are not.”
Moving through 2013, federal, state and local regulations are top of mind for tobacco retailers like Myers. As a NATO board member, she also encourages c-store retailers to join the tobacco advocacy fight.
“NATO is a great advocate and resource for the tobacco industry,” she said. “I urge anyone in this industry—retailers, wholesalers, manufacturers, etc.—to join NATO. NATO is a voice. The more membership we have, the bigger we are. The bigger we are, the louder we are. The louder we are, the more they will hear what we have to say.”
In addition to keeping her thumb on the pulse of potential regulations, Myers makes it a point to keep up with the continual shift and changes in the tobaccobusiness.
“I think some regulation on e-cigs and pipe tobacco will actually help the industry,” she said. “It will weed out the ‘fly-by-night’ companies and products that hurt margins and gross profit dollars.”
NATO is focused on “anything detrimental and harmful to the tobacco industry, such as onerous regulation, taxation and restrictions on all levels, which includes federal, state and local,” said Myers, who encourages retailers to establish relationships with government representatives at the local, state and federal levels. “Do this in order to communicate concerns and the negative impacts on your businesses that harmful government actions can cause.”
This is especially vital as local initiatives are targeting tobacco businesses across the U.S., usually in the form of advertising bans, display bans or proposed taxation, but have also included proposed bans on the redemption of coupons on certain tobacco products and proposed bans on selling multi-packs of some tobacco products. In response, NATO has established a “Local Projects Team” to keep up with these local initiatives.
NATO has established a working relationship with the FDA and looks to carry that forward with Mitch Zeller, the newly appointed head of the FDA’s Center for Tobacco Products (CTP).
In addition to a strong tobacco business, Fast Max works to differentiate itself by mastering the basics of a clean store with friendly employees. “We’re 47% employee-owned and it shows when you walk in the door,” Myers said. The team operates using a set of philosophies that the company has had in place since 1938, which include the golden rules: working with teamwork and a positive attitude. “They aren’t just rules hanging on a wall,” she said. “We live by this philosophy at Kocolene.”
Kocolene is also making a number of company-wide IT updates. About a year and a half ago, the company added PDI’s Enterprise system, and is now implementing specific features of the software, such as item-level inventory, with rollout scheduled this summer for its OTP category.
“Because our locations are heavily invested in tobacco, we’re going to try it with the OTP category, and run a test to see the results,” said Lance Gentry, the company’s director of fuels and information technology. “We hope with item level inventory, if we’re missing product, we’ll be able to pinpoint what’s missing and when the item disappeared. It will help us point to where there might be a problem.”
The OTP inventory will be especially helpful at the tobacco stores. “The OTP category keeps expanding and there are so many SKUs, so we think this will help us get a better handle on that department,” Gentry said.
Looking into the future, Kocolene remains open to new acquisitions if the deal is right. While it’s not foodservice focused, Myers noted Fast Max could consider heading in that direction down the road. “Our current store layouts aren’t foodservice friendly due to space restrictions, but we’ve talked about upgrading some stores to add a foodservice presence,” she said. “We have a handful of stores with a small foodservice presence now.”
But for now, tobacco remains the main driver at Fast Max stores, and Myers works to stay current with pending tobacco legislation, products and challenges. “I think the most important role of someone in my position in the tobacco industry is to stay on top of what’s happening in all directions—retail, legislative and consumer trends,” she said.
Myers also strongly advised other c-store decision makers to “be responsible tobacco retailers. As the tobacco business shifts, shift with it. Don’t resist change, or you will be left behind,” she said.