Working With Roll-Your-Own Tobacco

Depending on the local marketplace, RYO products are popular offerings for some convenience retailers.

By Jeffrey Steele, Contributing Editor

Some c-stores’ roll-your-own tobacco (RYO) sales are significant enough to justify a large display at or near the counter. For others, customer demand is barely sufficient to rationalize small display facings, if that.

Still, other retailers such as at Truesdale, Mo.-based Warrenton Oil Co. lack enough customer interest to justify committing display space to RYO.

“We have talked about it,” said Mark Unnerstall, merchandising manager for Warrenton Oil, which operates 35 FastLane Convenience Stores. “Due to the low cigarette state tax in Missouri roll your own is not big in any convenience stores in our area. Most of our competitors do not carry the product.”

It was only a few years ago that the RYO segment was generating a sizable buzz.

“There was a tax loophole for pipe tobacco, which created an underground market that allowed cigarette tobacco to be sold as pipe tobacco in bulk,” said Lyle Beckwith, senior vice president, government relations, for the National Association of Convenience Stores (NACS).

“You had to buy a very expensive machine to make the cigarettes. Anyone could do it, and it was disrupting the cigarette market,” Beckwith said. “It wasn’t sustainable because there was a huge amount of tax loss. It was inevitable that the government would stop that loss. Retailers were put in a bind, [asking] ‘Do we fight them or join them?’ ”

NACS stepped in and worked alongside Congress to close the loophole, Beckwith said.

“Our board of directors said if we don’t stop this, we will have to get into this. And this is a business we don’t want to join. . . NACS is not against people rolling their own cigarettes, but having a machine at retail making them in bulk was problematic,” Beckwith said.

SELECT CLIENTELE
Among today’s convenience stores experiencing greater success with roll-your-own tobacco products is Team Oil Travel Center in Spring Valley, Wis., tucked away in the western part of the Badger State. It’s hard to say if recent robust sales have had more to do with demand or the fact Team Oil’s competitor stopped carrying the product.

“Because we don’t have to display it behind the counter, we recently created a six-foot tall display adjacent to the counter, so that consumers can buy their big bag of tobacco and tubes and stuff like that,” said Eric Huppert, company president.

“That seems to have increased sales of that product. If you’re standing at the counter you can easily see the display. It’s one of those things I’m not sure deserves the space, because it’s an impulse buy. But putting it there starting at the beginning of the year did increase sales.”

The c-store offers three RYO in packages ranging from eight to 32 ounces, as well as the tubes and filters. The different sizes sell about evenly, Huppert said. The customers who buy roll-your-own tobacco tend to have less money to spend, he added, and tend to be older, in their 40s and 50s. Interestingly, buyers appear to be equally divided between men and women.

“All the tobacco we sell is labeled pipe tobacco,” Huppert added. “I don’t know if anyone sells product labeled cigarette tobacco. And that may be in accordance with regulations.”

FILLING A NICHE
Think about top markets for roll-your-own tobacco, and it’s not likely a college town with an upwardly mobile demographic will be top of mind. It’s not a surprise Zarco USA, which operates four c-stores in Lawrence, Kan., doesn’t do a land-office business in RYO.

“We don’t have much of a market for it in our university town,” said Zarco USA CEO Scott Zaremba. “We carry two varieties of loose leaf and we are heavily into packaged and little cigars. That’s what sells for us.”

That’s not to say Zaremba isn’t intrigued to fill more of a RYO niche.

“We looked into it a couple of times because with the price of packaged cigarettes continuing to increase over the years, we thought customers might be interested in buying roll-your-own tobacco for much less than they were paying for the packaged product,” said Zaremba.

Zarco also looked at rolling machines to better help sell the concept.

“We looked at the self-rolling machines and we looked at the automated system to produce our own when those were getting popular,” said Zaremba. “The customer could buy the tobacco here and have the machine and roll it themselves. There were some legal challenges as well. And there just never appeared to be a market for the product.”

Zarco USA stores carry the packages and the accompanying tubes both at counter and on a rack behind the counter. Patrons tend to be those who began smoking at younger ages when the habit was less costly, and now seek an inexpensive alternative to the increasingly costly packs. Asked to characterize buyer age, Zaremba replied simply: “50.”

At Zarco USA, RYO appears to be in a holding pattern. It’s not growing, but not going away any time soon, either. “I don’t think we’ll eliminate it in my lifetime,” Zaremba said.

“But if there is something new that comes into the marketplace to propel it forward, we’ll take a look at it. Something like the rolling machines that were so interesting a few years ago, and that we thought might provide some traction for sales, but ultimately didn’t.”

Through the country, RYO has become a bit of an afterthought in the years since then-President Obama’s signing of the 2012 transportation bill that tacked on provisions ensuring roll-your-own buyers would have to pay the same taxes and face the same regulatory rules that buyers of packs and cartons of big-name cigarettes would face. Until then, buyers who purchased roll-your-own cigarettes were literally paying a fraction of packaged cigarette cost.

“Back when there was that tax loophole to take advantage of several years ago, there was a big spurt in that category,” said Emily LeRoy, executive director for the Tennessee Fuel & Convenience Store Association. “After that, the tax loophole was closed, and it returned to being a fairly obscure item in convenience stores here.”

At the federal level, there’s now a wait-and-see attitude with the arrival of President Trump and his new administration. The president’s recent budget proposals outlined broad cuts to several agencies such as the U.S. Environmental Protection Agency. However, plans for the U.S. Food and Drug Administration (FDA) haven’t been communicated.

“With the new director of the Food and Drug Administration, which oversees the Center for Tobacco Products, it remains to be seen if there will be a new direction the agency will take regarding its approach to tobacco products,” Beckwith said.

 

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