Smokeless continues to be a bright spot in the tobacco category, reflecting durable consumer loyalty and acceptance of the latest line extensions.
By Howard Riell, Associate Editor
The adverse impact of this year’s voluntary recall from the U.S. Smokeless Tobacco Co. has lessened considerably, prompting strong category sales across the convenience store channel.
Top brands such as Copenhagen, Grizzly and Skoal posted strong results recently. According to Information Resources Inc. (IRI), for the 52-week period ending July 9, 2017, sales of smokeless tobacco in the channel topped $6.5 billion, an increase of 4.53% from last year. Chewing tobacco and snuff accounted for nearly $6.3 billion, an increase of 4.16%.
Spitless tobacco registered sales of about $298 million, a spike of 12.91%.
Indeed, there is plenty of reason for optimism. The smokeless category should continue to grow steadily, as it has for decades. Further smoking restrictions, along with social pressures involving combustibles, should continue to develop dual users over time. As in other categories, major manufacturers such as Altria Group and R.J. Reynolds Tobacco Co. are well positioned for the future.
EASING CONCERNS
Issues stemming from this year’s recall have largely been resolved. While there were obvious challenges with out-of-stocks and the timing resulting from production shortages, manufacturers kept in communication with retailers to alleviate concerns after the initial shock and resulting disruption occurred.
The category was buoyed by demand for snuff, including both U.S.-style dip and Swedish-style snus. The success of snus marks a pivot in the smokeless tobacco category, according to industry experts.
Bonnie Herzog, managing director–equity research, beverage, household & personal care, tobacco & c-stores for Wells Fargo Securities LLC, recently said that smokeless tobacco dollar sales remain a bright spot, as consumers continue to respond positively to brand expansions. Growth also reflected continued consumer loyalty to the category and acceptance of the latest line extensions, Herzog noted.
“Notably, sales of (Altria Group subsidiary U.S. Smokeless Tobacco Co.’s) Copenhagen outpaced Reynolds American Inc.’s Grizzly, which suggests light at the end of the tunnel with regard to USSTC’s (U.S. Smokeless Tobacco Co.) January recall,” said Herzog.
RECALL FADES
Indeed, memories of USSTC’s voluntary recall after consumers in six states complained of foreign metal objects in cans including Skoal, Copenhagen, Cope and Husky, are fading.
“That’s all done,” said Bill Walsh, general manager of Vacaville, Calif-based Wood Oil Co., which operates four convenience stores in the Golden State. “People didn’t even really care. The only problem we had was, obviously, getting product because they had pulled everything and were slow to put it back out. But if we got product we were fine; customers were buying it up.”
“The recall issues are all behind us, with the exception of maybe a couple of Skoal pouch SKUs,” said Tim Greene, category director of tobacco and general manager of Smoker Friendly International LLC, based in Boulder, Colo. “These have little to no impact on our business.” He and his colleagues have found that pre-priced and two-fer promotions work well, and for the most basic of reasons. “Customers like to see sale pricing.”
“We had some recall issues due to a product contamination,” said Jeff Chase, controller/director of convenience store operations for Ed Staub and Sons Petroleum Inc. in Klamath Falls, Ore., “It only affected a few products, and the manufacturer pulled the product and reissued new product within about two days.”
Ed Staub and Sons Petroleum operates 18 Ed’s Fastbreak convenience stores.
VOLUME INCREASES
Smokeless sales remain consistent, retailers reported.
“The trend over the last three months has shown positive volume increases over the same months a year ago by as much as 10%,” said Greene. “However, margins continue to be squeezed.”
Smoker Friendly comprises 103 stores in five states, including 20 Gasamat convenience stores that offer fuel. The most prevalent trend that Greene and his colleagues have seen thus far in 2017 is a push by the majors to participate in their multi-unit and loyalty programs.
Copenhagen FC and LC continue to dominate the category, Smoker Friendly has found. Copenhagen LCW is its third-most-popular SKU. “Copenhagen has a loyal following in the regions we operate,” said Greene.
Greene added that he doesn’t necessarily see a big change in the demographics of the smokeless customer.
“If anything, I see a switch to pouch SKUs, and Wintergreen continues to do well. But those trends have been in place for the past couple years.”
Walsh said smokeless sales at his stores remain consistent.
“I haven’t really seen any growth. I know that they came out with refrigerated products a few years ago, and companies are coming in and basically handing out coupons to try and talk them up, but I have never really had a demand for it,” said Walsh. “Maybe there’s one customer who buys it, but after two or three months he disappears. For us it’s pretty much a staple, just like our cigarettes sales, which are also pretty consistent.”
Catering to differences in locations can give savvy managers a sound advantage. Wood Oil operates one store on a smaller local highway, and it excels in the category.
“They sell tons of chew,” Walsh said. “It could be that we are the only game in the area for people who are traveling. The other stores are in the middle of big cities, and though their sales are not as big as that store’s, we are still pulling in $3,000 a month.”
As with locations, customer relationships also come into play with smokeless, Walsh added. “We have our regulars. The cashiers all know what they want when they walk in the door, and they buy pretty much buy the same amount.”
MOVING FORWARD
Expanding smokeless business will require that retailers do little more than adhere to the rules of good retailing.
C-stores need, first, to be in stock and carry a wider variety of choices. The set should be visible and advertised, as it can be a traffic driver in the same way as cigarettes. Any type of discount, such as two- and three-fer deals, capture consumer attention. Many retailers continue to successfully sell rolls of smokeless, though these may face pressure in the long-term as taxes and price increases result in higher out-of-pocket expenses.
“The most important thing retailers can do is have inventory, and fresh inventory, earning your customer’s trust that their brand is fresh and available is invaluable,” Greene said. “On the other hand, out-of-stocks and expired product are a fast way to lose that customer.”
Greene considers the next most important strategy is for c-stores to be aggressive with their promotions.
Chase recommends c-stores ensure they have updated offerings that are merchandised well and they shouldn’t run out of product.
“Include discount in your loyalty program, and accept coupons. We have found that a multi-can discount, and adding it to our loyalty program, helped increase sales and drive more traffic,” said Chase.
Chase predicted that the spate of local and state smoking restrictions will lead to a continued increase in smokeless products for at least the next few years, with growth continuing into 2018 at a 2-5% pace.
Walsh also sees continued stability for 2018. His advice to c-store retailers then is to remember that price is important to customers.
“They need to make sure they have a competitive price compared to their neighbors,” Walsh said. “Price surveys are very important, and something that I do constantly. That’s actually the best way to help yourself, because people will drive across town for 10 cents.”