Roll-your-own (RYO) tobacco should remain a potentially profitable segment throughout 2017, despite lagging sales in 2016.
The higher taxation on traditional cigarettes drove many consumers to RYO in previous years, but the increasing parity in taxes since 2009 has prompted a dip in sales. Despite that, solid margins and a growing appeal in the eyes of many younger consumers have kept the category vibrant.
In convenience stores, total dollar sales for other tobacco products (OTP) comprising pipe tobacco and RYO totaled $126 million, a 8.41% decline from the previous year, according to Information Resources Inc. (IRI) Total U.S. Convenience Store All Scan data for the 52 weeks ending Dec. 25, 2016. Of that total, RYO sales accounted for $52 million, a 6.53% drop in sales from the previous period.
THE YOUNGER CROWD
Despite lagging sales, RYO is ripe for attracting the next generation, some say.
“RYO appeals to the college crowd—that age group,” said Robbie Parish, supervisor with Parish Oil Co. in Montrose, Colo., a demographic that the company’s Gunnison c-store business sees in large numbers. “They are marketed more as all-natural, and (youngsters) don’t see it as ‘big tobacco’ as much. They don’t see it as being so mainstream.”
Tim Greene, category director-tobacco and general manager for Smoker Friendly International LLC in Boulder, Colo., said that while the RYO category has been slightly off in his stores for the past couple of years, margins have been slightly up; hence, he also sees cause for optimism.
“We are starting to see the Millennials look for that unique, customized cigarette,” Greene said. “They are starting to pick up brands like Stokkebye’s and American Spirit so that they can kind of craft their own cigarette, if you will. Again, I wouldn’t say it’s a huge market, but we’re starting to see a trend, maybe, a little bit that way.”
Challenges do remain for RYO—unfortunately due to public perception.
As Ryan Mathews of Black Monk Consulting in Eastpointe, Mich., noted, “This is obviously a problematic category for two reasons. First, the entire tobacco category is under constant media attack. Second, roll-your-own products—in many critics’ minds at least—are often associated with lower-income customers. So, the optics of the category represent significant challenges.”
For that reason, Mathews added, RYO items should be merchandised wisely.
Darryl Jayson, chief operating office for the Tobacco Merchants Association in Princeton, N.J., said it is up to each c-store operator to judge how much emphasis to place on RYO.
“They understand how much they move, and that it’s part of the entire tobacco package,” Jayson said.
Still, there are profits to be earned in the c-store channel of RYO handled smartly.
“Buy smart and get your margin,” Greene said. “It’s definitely a higher-margin category, as opposed to cigarettes or moist. It’s 35-40%, while cigarettes are more like 15-20%.”