By Howard Riell, Associate Editor.
Convenience stores have a significant opportunity to target consumers in overlapping tobacco segments, such as converting cigarette smokers over to moist snuff or cigars.
Experts expect this group to increase moist smokeless tobacco usage, which can help retailers boost sales. Savvy chains are already helping nudge consumers in that direction by carrying, merchandising and educating customers about other tobacco products.
Successfully transitioning cigarette smokers to smokeless and other products is not a new concept. Smokeless sales have been rising steadily for the past five years. According to the Federal Trade Commission, from 1998 to 2011, total annual marketing expenditures for smokeless tobacco increased by 210%, from $145.5 million to $451.7 million.
Complicating the mix, of course, has been a volley of tax proposals and government legislation aimed at smokeless products. While Swedish-style snus and dissolvable tobacco products are said by many to be less harmful than traditional chewing tobacco since they contain fewer nitrosamines, many in the public health arena have warned of their becoming so-called “gateway” products that lead to the use of other smokeless products and even cigarettes.
New York City Mayor Michael Bloomberg has apparently taken aim at electronic cigarettes. The recently leaked drafts of three tobacco-related bills set for votes in the City Council suggest that the definition of “tobacco products” could be changed to include e-cigarettes and related components, parts and accessories. Should the bills become law, they would outlaw the display of e-cigarettes and smokeless tobacco in retail establishments. Similarly, in Canton, Mass., the board of health recently held a public hearing on proposed regulations that would, among other things, ban the sale of e-cigarettes, nicotine lozenges, orbs and sticks.
While legislation is bad for sales, there is an opportunity to drive new business.
“There is, by all means, more crossover for the tobacco consumer,” said Robert Perkins, vice president of marketing for Rutter’s Farm Stores, which operates 58 stores, and is based in York, Pa. “Nicotine delivery is taking on many forms, as we have seen over the last couple of years, and marketing to satisfy the craving, as you would say, is much more apparent these days. Moist snuff has continued to increase in volume over the past years as combustibles have declined.”
“In smokeless tobacco, stores are buying in, but just not yet understanding how to push and merchandise,” said Tom Pirko, president of BEVMARK LLC, a retail consulting firm in Buellton, Calif. “I think we will have something of an experience curve—likely 1-3 years—before retailers correlate how cigarettes and smokeless relate, and in some instances compete.”
Ultimately, Pirko said he believes that category cannibalization will occur. “Inducing trial for smokers who are hesitant to smokeless will remain the objective,” he noted. He recommended featuring alternative products prominently. “Some will trumpet smokeless as the less risky alternative, but smokers are loyal and this is not as big a factor as some assume. As coffee and energy drinks are caffeine delivery systems, one shouldn’t forget that both cigarettes and smokeless are still nicotine delivery systems. There is an interesting psychology at work here.”
Matthew Paduano, vice president of category management for Canastota, N.Y.-based Nice N Easy Grocery Shoppes, which operates 86 stores, agreed that there is a significant opportunity for retailers to target overlapping tobacco segments, such as cigarette smokers using moist snuff or cigars.
“Experts expect this group to increase moist smokeless usage, which will boost sales,” Paduano said. “Of the three main tobacco categories—cigarettes, snuff and cigars—snuff is the one that is on the rise in sales and units. We noticed a significant increase in snuff sales several years ago when many companies banned smoking in company vehicles.”
Many of these smokers turned to alternative products, of which snuff emerged as the most logical choice.
“We also noticed that the snuff user is also a very good customer, similar to the cigarette customer in that they are in the stores many times per week purchasing a can or two at a time,” Paduano said.
In fact, Nice N Easy has found that moist smokeless customers were responsible for increased basket size and ticket rings. “We made it a priority to make sure we had expanded product offerings and very aggressive pricing for these great customers. Ten years later, this still holds true.”
Nice N Easy, which has to compete with Native American reservations throughout upstate New York, has maxed out its efforts to draw the cigarette customer into the stores.
“We are at legal state minimum, have contracts with all of the major cigarette companies and carry an above-average SKU count of cigarettes. There is not much more we can do with cigarettes.” Paduano said. “Add to that the increased taxation, competitive disadvantage from the Indians and the increased scrutiny from the local authorities, and it’s evident that our best course of action is to continue focusing on cigarette alternatives, such as snuff and now e-cigarettes.”
While giving up on cigarettes may be a counterintuitive concept to convenience stores, it may be necessary to help them focus on the future.
“You’ve got to realize that c-store operators don’t want to lose that cigarette smoker,” said Lou Maiellano, president of Taz Marketing & Consulting Group based in Sevierville, Tenn. “But they need to start letting customers know that when they cannot smoke—at work or on a plane—there are products out there for them.”
One powerful way to do that, Maiellano believes, is through creating a specific section for those products in store, something he has done by developing what he called The No-Smoke Zone. A five-shelf, 24-inch high, 11-inch wide display rack, No-Smoke Zone was designed to hold up to six alternative products, ranging from smokeless tobacco and snuff to nicotine strips, dissolvable tobacco, a nicotine gel, nicotine gum and tobacco pellets.
There are, Maiellano emphasized, viable products on the market that have failed because they never had a home in convenience stores or tobacco shops. “What we are looking to do is segment the category, and actually give them a home, give them space,” he said.
This principle applies to other categories, in greater or lesser measure, as well, said Maiellano, who was a retailer for more than 20 years at chains, such as Wawa and Sunoco. “I remember in the past working with chip guys, and they wanted their brands to be displayed all over the store. I told them, ‘Put all your chips together and your sales will grow as a result.’ They thought they wouldn’t, but they had to apologize because you have to keep focused on the customers and making it easier for them to shop, not more confusing.”
The product categories Maiellano envisions as being part of his No-Smoke Zone are all growing, he explained. “There are consumers for them out there. If there is one consumer out of every 100 who enjoys tobacco and wants to buy one of these products, stores should carry a solution for them.”
At the same time, Maiellano is quick to point out that he doesn’t want to overload retailers with products. “We’re talking about a five-count box, a very low investment. I don’t even know that the products in this rack will cost more than $150 to $200. The goal is to start providing customers, at a minimum investment, an alternative to cigarettes.”
In-store marketing support will also prove to be invaluable, Maiellano said. “There needs to be a window sign that lets people know you have these products. You may also want to have some pumptoppers and front door decals that lets customers know that if they choose not to smoke or will be in a position where they can’t smoke, they now have some options. Giving your customers choices will lead to incremental sales growth.”