With some smart retailing, assistance from suppliers and a bit of help from Capitol Hill, roll-your-own (RYO) tobacco over the past year has accounted for nearly half of total other tobacco products (OTP) sales, according to Information Resources Inc. (IRI). Going forward, RYO should continue to be a productive part of c-store tobacco sets, led by category leaders such as Republic Tobacco.
“I think there is a search for value and a search for alternatives and RYO plays right into both of those themes,” said David Bishop, managing partner at Balvor LLC, a Barrington, Ill.–based sales and marketing firm. “The value is that consumers can come in and buy the tubes and the loose tobacco and roll their own cigarettes more economically than a traditional factory-made cigarette. The search is for an acceptable alternative. It may not be that a consumer is looking to quit smoking; he may just be looking to economize, and the RYO segment offers him the ability to do both.”
According to Bishop, the “heat-not-burn” segment, which allows users to heat loose-leaf tobacco as opposed to e-liquids, can pose another opportunity for c-stores in the months to come.
“It’s very nascent at this time; a tobacco smoker who has been rolling his own cigarettes may look at a heat-not-burn device and say, ‘Maybe I’ll give that a try,’” Bishop said. “Because it is heating the tobacco as opposed to actually burning it, it’s not releasing all those dangerous chemicals. That’s an interesting emerging trend.”
A handful of retailers are starting to introduce these heat-not-burn open systems. Bishop added, “there is still an opportunity for retailers to look at how the adult consumer is using the RYO tobacco leaf. This heat-not-burn device is one way just starting to pop up that they should keep an eye on.”
Anna Bettencourt, category manager for tobacco products for VERC Enterprises, a 70-store convenience chain based in Duxbury, Mass., said RYO products account for a small portion of sales. The chain carries it in just a few of its 24 stores.
TAXING CONCERNS
“One of the big things for us is that Massachusetts is very different from the rest of the world in that we have different taxes,” Bettencourt said. “There are also more specialty stores that sell a lot more of a variety than you could ever keep in a convenience store.” If that weren’t enough, there has also been a fair amount of black-market activity, which has further cut into potential sales.
Bettencourt considers RYO as a product with ongoing potential, despite potential policy challenges.
“It’s a category that I think could definitely grow, especially if President Obama’s budget does get accepted with the $1.95 excise tax on cigarettes,” Bettencourt said. “That’s the last time we saw sales grow, when the excise tax was increased.” VERC stores carry just two brands, 1839 and Golden harvest—six SKUs of bags, and four of tubes.
The key to generating sales even in the absence of an excise tax hike, Bettencourt suggested, is solid retailing in the form of merchandising.
“I think that one of the big things, no matter what area you’re looking at, is always having a vendor partner who works with you,” Bettencourt said. “You want someone who is willing to run promotions. A lot of companies, when you’re looking to come on board, will give you the talk, but they often don’t follow through with their commitments.”