Smokeless tobacco sales continue to grow at convenience stores, which are pressing their advantage over competing retail channels.
By Howard Riell, Associate Editor
While the overall cigarette smoking prevalence has declined in recent years, the overall use of smokeless tobacco has remained strong. That’s good news for the convenience store channel.
The main types of smokeless tobacco generating strong profit dollars are snuff, chewing tobacco and snus.
Nielsen’s latest 52-week convenience store numbers ending April 11, 2015 indicate smokeless totaled nearly $4.8 billion dollars, which is up 5.3%. But the same 52-week span in 2014 showed sales up by 6.5%.
IRI’s Infoscan data shows that for the 52-week period ending April 19, 2015, c-stores rang up nearly $5.7 billion in sales, an increase of 5.8%. Of that, nearly all of the sales—approximately $5.4 billion—came from chewing tobacco and snuff, with only a small portion, slightly over $214 million, generated by spitless tobacco.
How long that growth will continue remains a matter of some discussion. Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, recently reported that while there are reasons for optimism, given the increased foot traffic and larger basket sizes for in-store purchases—she questions the long-term prospects of smokeless.
“It’s difficult to keep cycling robust smokeless category growth forever, or as one contact said, ‘Eventually all categories hit terminal velocity,’” Herzog said.
SMOKELESS IS ENCOURAGED
Fred Faulkner, sales and marketing director for Jaco Oil/Fastrip Food Stores Inc. of Bakersfield, Calif., is seeing customers increasingly move to smokeless as an alternative to cigarettes due to smoking restrictions.
“Flavor additions are a positive move (by) the tobacco companies. Packaging is a challenge since many of the flavors and styles all look the same. It can be intimidating for an employee to find the right item.”
The primary driver of smokeless sales at Fastrip’s 53 stores is “definitely” moist tobacco, Faulkner reported, with the top performers being Copenhagen, Skoal and Grizzly.
Faulkner said c-stores need to redefine the smokeless space to make it easier to shop. They also need to delete older, slower items more quickly. Promotions, Falkner added, can encourage multiple purchases and create awareness in the category.
The combination, he suggested, will prove effective.
“I see smokeless continuing to grow as more smokers are not able to light up or vape they will migrate to smokeless or to snus.”
Because of stricter smoking policies, smokeless tobacco remains a popular option with many consumers.
“Not a lot has changed on moist smokeless tobacco,” said Tim Greene, category manager/area manager for Smoker Friendly International in Boulder, Colo. “We continue to see strong growth month after month with a focus on wintergreen and pouches. Copenhagen continues to lead the way, followed by Skoal and Grizzly.”
Greene fully expects these trends to continue for the remainder of 2015, with the focus continuing on wintergreen and pouch.
That includes different regions of the country.
“In our areas, which are pretty rural, I think we will continue to see smokeless tobacco continue to increase,” said Jeff Chase, controller/director of convenience store operations for Ed Staub and Sons Petroleum Inc. from Klamath Falls, Ore. “I think it will continue to grow a little (in the months to come) mainly because in most states you can’t smoke in public.”
The chain’s best smokeless seller remains Copenhagen.
Andy Revella, whose Dallas-based firm Vision 360 consults with a wide range of regional and national foodservice clients, including convenience stores, pointed out that the decline in cigarette sales has created merchandising opportunities for smokeless tobacco and other products.
“Most of the older-style stores have the cigarettes front and center behind the cash register in direct sight of the front door,” Revella said. “That was done like that for years for two main reasons: the direct line of sight to the front door, and the fact that cigarettes and tobacco products sales made up a huge portion of why someone stopped in at a c-store.”
But with the decline in the number of packs of cigarettes selling and consumers moving to new options like vapor and small cigars, real estate has become available.
“All of my stores have elected to carry more cigars and chewing tobacco as well, and they do have trouble keeping them in stock,” Revella said. “The fact that they carry more of a selection has, in fact, helped build sales for that category.”
BRIGHT STRATEGIES
The most effective ongoing promotions, according to some convenience store retailers, are those that offer quantity discounts, allowing the customer to save a specified amount by purchasing two or more cans. Indeed, many operators have been successful in offering roll deals in which the discount is based on the customer buying a full roll.
Ray Johnson, operations manager for Speedee Mart Inc. in Henderson, Nev., said he sees a direct correlation between people spending less on gas and more on premium products, including smokeless.
“Smokeless is up 20% over last year for us,” Johnson said. “Cigarettes are up 10%, cigars are up 15% and e-cigarettes are up 18%.”
The upbeat state of the southern Nevada economy is also helping move smokeless at his stores, Johnson related.“The construction guys were our heavy tobacco users,” Johnson said. “The housing boom that is going on right now has brought the construction guys back to the market.”
As a result, Speedee Mart is currently running a two-can promotion on the multi-packs of premium items and downplaying the discount brands. Consumers save 50-cents per can—$4.75 instead of $5.25—when they buy two cans at a time of Copenhagen or Skoal.
“I’m doing 70% of my sales in premium, which is really great. The guy who wants to buy the one cheap one, OK, I’ll sell him the one cheap one,” Johnson said. “But I’m not giving him a better deal by buying more. I wanted to get out of the war to see who could be the cheapest.”
Speedee Mart used to offer five-can promotions, but has found that consumers aren’t buying in the quantities it once did. Plus, purchasing the freshest products available remains a priority for most smokeless customers.
Speedee Mart stores trumpet their smokeless selection and promotions with a sign that hangs over the fixture. Using window signs has proven less than effective, Johnson explained, because of Nevada’s potent sunlight.
“Signage is not that effective in the windows here because the windows are so heavily tinted,” Johnson said.
The c-store has recently added a smokeless-themed change mat.
“We try and do a different one every 30 days,” he said. “We’d never even done smokeless on a change mat before, so that was new. Since we noticed the trend, the movement toward premium product, we decided to buy it ourselves.”
Johnson doesn’t spend time strategizing against competitors in other channels who carry smokeless products. “Smokeless is such a heavily male product, and drugstores are shopped more heavily by female customers. They’re not buying it there anyway; I don’t think they do well with it.”
Grocery stores, Johnson continued, have made it so inconvenient to buy tobacco, he feels they aren’t really a competitor anymore.
“And when you look at smoke shops, you have to keep in mind that smokeless product is so time sensitive; people always look at the date, and that’s a big deal to them,” he said. “Smoke shops generally don’t have the freshest product because they turn product slower than we do. So, c-stores really have the advantage in smokeless.”