In more ways than one, tobacco’s pie is shrinking. The net result for convenience stores could cut either way.
By Carl V. Phillips, PhD, Chief Scientific Officer, Consumer Advocates for Smoke-free Alternatives Association
The future is bright for tobacco consumers.
Sure there’ll be some bumps along the way as tobacco control dead-enders fight their desperate holding action against low-risk products. But in a few decades, these products—including e-cigarettes, smokeless tobacco and others that don’t even exist yet—will be as widely used as cigarettes were at their peak.
About half the U.S. population likes the effects of other tobacco products. Data from the anti-tobacco extremists will delay many smokers and others in learning they can get these effects with little health risk. But once known, they’ll take advantage of the low-risk products.
Predicting how many consumers will use low-risk products is much easier than predicting which products they will use. Tastes, technology and accidents of fate (known as “path dependence”) come into play, and these are remarkably hard to measure and predict.
FILLING A NICHE
It’s quite plausible that e-cigarettes could fill much of this niche, but it is also plausible they are nearing their peak and yet-undeveloped products will fulfill the demand.
The reality will probably fall somewhere between, and U.S. e-cigarette consumption will undoubtedly continue to grow for at least a few years. But, anyone who claims to know where it will be in five years, let alone 10, is just making up unsupported claims.
While the future is bright for consumers, the implication for merchants is more mixed. So far, the net impact of tobacco harm reduction on the convenience store sector has been pretty minimal. It has cut into cigarette sales, and sales of alternative products have made up for some of that. But the trend will eventually leave cigarettes as more of a niche product like big cigars, not the mass-market staple that they are today.
The market for tobacco products will be larger but different, so there will be winners and losers among retailers, as with manufacturers. Some of future tobacco products that will be popular fit the fast-moving consumer good retail niche of cigarettes, but others—like higher-end e-cigarette hardware today—will not.
Moreover, consumers who adopt new products often change their purchasing habits. In today’s world, that often means replacing queuing up to buy a few days’ worth with having bulk online purchases delivered to their door for a lower cost.
BACK AT THE STORE
Storefront retailers could still have the advantage for products that are purchased more like snacks with the consumer wanting to choose the exact product based on his tastes that day. E-cigarette liquid could fit that pattern for many consumers.
But people whose consumption patterns are more like current smokers, consuming the same variety of the same brand every day, month after month, are likely to find more efficient ways to buy.
The increasing competition among categories and among many more manufacturers is great for consumers, but is another mixed bag for retailers. The cigarette market generates oligopoly rents for manufacturers—at the expense of consumers—and the retailers share in the resulting profits. That slice of the pie is shrinking, but greater competition among manufacturers will tend to increase demand for shelf space.
The net result for convenience stores could cut either way, depending on numerous variables that are difficult to predict.
Among those variables is the behavior of regulators. Governments make more profit from cigarette sales than manufacturers and retailers combined, and are already acting to protect that market. This includes protecting cigarette retailers from competition from online sales or new retailers like vape shops, though these market distortions are unlikely to be sustainable in the medium-term.
Regulators want to impose high taxes on new products to make up for lost cigarette revenue, but face strong pushback from consumers. If they do succeed, however, they will find that products like e-cigarettes can easily shift into black or shadow markets, and this will further harm traditional retailers.
We do not know which tobacco products will be popular in a few decades, but we can be sure that total volume will increase. We can predict that the cozy and easy world of cigarette making and retailing will be gone. The net impact on convenience retailers is difficult to predict.