A recent manufacturer’s recall of several popular smokeless brands produced some unexpected benefits for retailers.
By Andrea Myers
The last time there was so much chatter in the industry about smokeless tobacco was when the two largest American cigarette manufacturers acquired the two largest American smokeless companies. Those were exciting times.
On Jan. 31, 2017, U.S. Smokeless Tobacco Co. recalled several major brands of smokeless tobacco sold nationwide after customers complained of metal shavings. The fallout from the recall has been a challenge for retailers ever since.
The problem was quickly announced to the trade with letters and listings of products affected, which included a voluntary recall notice to the U.S. Food and Drug Administration (FDA). Once the initial public information surfaced, the company clearly communicated each week what products were disrupted and when the problems would be resolved. However, the letters kept coming and soon the industry knew the problem would not be easily fixed.
Frustrated retailers opened their totes each week and culled through their invoices to see how bad the scratches would be on these c-store staples.
The good news is the supply disruption of America’s best-selling brands appears to be coming to an end. But what had at first appeared to be an isolated problem at a factory sent ripples throughout the wholesale and retail world of tobacco. This didn’t mean, however, that the situation didn’t offer an opportunity for those retailers who were savvy enough to find the silver lining.
Today, moist snuff sales seem to be flat, with consumers moving to other products within the smokeless category.
BENEFACTORS
“Grizzly, by far, was the biggest brand beneficiary, gaining a little more than 5% share of market, which for now is holding. The hardest part was the hassle it caused in having to explain why there were out-of-stocks on brands such as Skoal or Copenhagen, and then offering an alternative,” said Doug Nolan, vice president of Smokers Choice, which operates 56 tobacco outlets in NY and Pennsylvania. “The problem also helped certain company staff members as they learned more about the category, engaging smokeless consumers more in the process.”
A number of retailers I spoke to said the situation was the best training on moist snuff their employees might ever get. “Our staff sells moist all day long, and virtually all of the customers know what they want the minute they walk in the door,” said Ben Reinhart of Smokers Host, a high-volume, 14-store chain in Indiana. “But when we were out of their normal brand, our folks had to learn what other products to recommend, and they learned a lot from our consumers who told them why they liked this or why they didn’t like that.”
Not unlike what happens when a hurricane is announced in south Florida and people run to the store in a panic to stock up on supplies, the same thing occurs when items (any popular items) run out of supply—orders are doubled and tripled to make up for the lost sales and inventory. These “runs” on product are not unusual, but they are difficult to fix, and only settle once a full supply of products is in the pipeline and the market is confident that shortages are a risk no longer.
Retailers with the space and selection broader than a typical convenience store fared best for two reasons: sub-category diversity and total tobacco diversity. For example, discount tobacco stores carry a broader selection of smokeless products, which allowed consumers alternative choices, and these result in a greater opportunity to fulfill a consumer’s desire for a smokeless product alternative if their usual brand was not in stock.
Secondly, these stores have a much wider array of tobacco products and accessories compared to a convenience store that has little or no space for these products, which means while smokeless is a critical category for them, they have a broader base of tobacco products, which dilutes their dependence on any one particular category.
CATEGORY-WIDE
Another effect of the disruption was an unexpected price increase on cigarettes in March. While no official statements were made linking the two events, industry insiders and outside analysts all linked the smokeless shortages to the cigarette price increase in an effort to make up for lost sales. The normal two cigarette price increases don’t happen until May/June and November/December and now the trade is wondering if this means there will likely be three increases in 2017, particularly with cigarette volumes slowly declining. As this unfortunate event of supply disruption unfolded, the entire industry was caught off guard and many people seemed surprised that one isolated incident in one factory reverberated so widely and for such a long period of time.
But, the manufacturer reacted promptly and swiftly, and communicated clearly to the trade, and it’s difficult to fault the efforts put forth.
The common wisdom is that sales weren’t lost at retail, but sales just shifted within the category. Buyers took the opportunity to look at their smokeless sales in more detail and may look at the category in a different way from now on, potentially with a slant on expanding selection. Some store personnel became more familiar with a wider variety of moist snuff, thus encouraging future promotions of different brands. Finally, at many retail sites, a higher comfort level now exists in terms of engaging tobacco consumers.
Andrea Myers, former president and current board member of Kocolene Development Corp., is president of Oxer LLC, a retail and wholesale consulting company based in Seymour, Ind.