Cigarettes Still King

State Tax Grab

During 2009, cigarette tax increases were defeated in 19 states and passed into law in 12 states. States where cigarette tax increases were not enacted include:
STATEFailed TAX Increase in 2009
Alabama32.5 cents per pack
Connecticut50 cents per pack
Georgia$1 per pack
Kansas95 cents per pack over six years
Louisiana$1 per pack and 50 cents per pack
Maine$1 per pack
Maryland75 cents per pack plus 27.5 cents per pack in three years
Minnesota$1 per pack
Missouri16 cents per pack
Montana17 cents per pack
New Mexico$1 per pack
Oregon60 cents per pack
South Carolina50 cents per pack
Tennessee20 cents per pack
Utah$1.31 per pack
Virginia89 cents per pack
Washington$1 per pack
West Virginia65 cents per pack
Wyoming50 cents per pack

 

Despite the gloom and doom predictions for tobacco, cigarettes continue as the top in-store category based on sales dollars. However, largely due to taxation, packs sold in U.S. c-stores were down in 2009.

According to IRI, the c-store industry rang up $47.27 billion in cigarette sales in 2009, a strong 14.2% increase over 2008. Units sold, however, fell 1.82% to $8.17 billion for the 12 months ended Dec. 27, 2009. On the heals of the SCHIP federal tobacco tax increase, and other state tax hikes, the average price for a pack cigarettes in c-stores jumped 81 cents to $5.79. A typical c-store relies on cigarettes for about 35% of its total sales.

Not surprisingly, cigarettes remain one area where consumers are making price-conscious decisions, with many moving away from pricey carton purchases and instead opting for three-pack premium brand bundles. Still other consumers are shifting to third tier cigarette purchases to save money.

With federal and state taxes increasing, in 2010 it is incumbent upon convenience store chains to work with tobacco manufacturers to deliver value to consumers—something market leaders Philip Morris and R.J. Reynolds are working on.

Push Promotions
Fred Faulkner, sales and marketing manager for Fastrip, has had success working with JTI and its family of cigarette brands. As consumers grow more careful about what they purchase, Faulkner uses promotions to entice consumers. He also includes a steady stream of new items to pique consumer interest when they run in for just gas or cigarettes. By combining these promotions with employee incentives, Fastrip is able to gain their help in suggesting certain products to consumers.

While the sales dollars are up, retailers warned that these numbers are misleading. “The cigarette industry is ratably declining at 3-4% annually. Excise taxes at these levels are unprecedented, and it is difficult to project the potential sales loss,” said Tony Miller, the senior vice president of sales and marketing for Thorntons Inc. in Louisville, Ky. “Nonetheless, many industry experts are predicting additional 6-10% declines on top of the current 3-4% trends. In addition to the reduction in cigarette sales and gross profit dollars, retailers will also lose sales and gross profit dollars associated with affinity purchases—other products purchased with cigarettes.”

If the convenience store industry experiences double-digit sales declines in its largest inside-sales category, it will have an epic impact on the way the industry does business, which will influence the total retail strategy, Miller noted.“With unit sales predicted to decline by more than 10%, retailers will need double-digit percentage increases in average retails to make up the loss in revenue dollars. While retail increases associated with the FET will make up the revenue shortfall, they will not make up the deficit in gross profit and net income dollars,” he added. 

 

The 12 states that passed higher cigarette taxes were:

STATEtax Increase in 2009
Arkansas56-cent per pack increase
Delaware45-cent per pack increase
Florida$1 per pack increase
Hawaii$1 per pack increase over three years
Kentucky30-cent per pack increase
Mississippi50-cent per pack increase
New Hampshire45-cent per pack increase
New Jersey12.5-cent per pack increase
North Carolina10-cent per pack increase
Rhode Island$1 per pack increase
Vermont25-cent per pack increase
Wisconsin75-cent per pack increase
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