Cornering the Smokeless Tobacco Market

Keeping sets fresh—allocating shelf space, rotating product, keeping tabs on expiration dates and weeding out slow sellers in favor of new items—is the key to maintaining strong sales.

By John Lofstock, Editor.

Convenience store operators are enjoying the growing popularity of smokeless tobacco products, but they are also being forced to keep a wary eye on federal regulations from the Food and Drug Administration (FDA) that could strike the category at any time.

Retailers can be forgiven for feeling insecure. The changes to the way tobacco is marketed in the U.S. have been swift and decisive. For now, however, smokeless seems safe.

“As of the current time it does not appear the FDA has an intention to expand the regulations to smokeless tobacco,” said Thomas Briant, executive director for the National Association of Tobacco Outlets (NATO). “However, that doesn’t mean it will be left alone in the future. They do have the ability under the law to expand to cigars and smokeless tobacco at anytime in the future. So it’s anyone’s guess right now.”
What can and should convenience store operators be doing while waiting for the other shoe to drop? “I don’t think they can really do anything at this point in time,” Briant confessed. “It’s a matter of waiting and seeing if and when the FDA would consider regulating smokeless tobacco products.”

Taking any action at present would be at best premature. “The FDA has in its authority, its sole discretion, whether or not to extend tobacco regulations to smokeless tobacco products. It would not require additional Congressional action to do so. But I don’t think there is any preemptive action that convenience stores can take at this point in time to try and change that,” Briant said. “Again, we haven’t heard whether FDA is even going to consider regulating smokeless tobacco.”

Less Harmful?
The key issue here is that the FDA first needs to answer the big question: is it possible that smokeless is less harmful than cigarettes? said Frank Davoli, director of purchasing for South Bend, Ind.-based Richmond-Master Distributors Inc., a supplier that owns and operates 10 Bonkers c-stores and 37 Low Bob’s Discount Tobacco stores, plus has another 85-plus Low Bob’s Discount Tobacco licensee sites.

“This is a very controversial topic. If the FDA’s main objective is to protect the public health, the harm reduction issue has to be addressed,” Davoli said. “Keep in mind that all tobacco products showed a huge federal tax increase when SCHIP was passed, so it is still on the radar for additional tax increases at a federal, state and local level.”

Davoli believes that smokeless will, indeed, become the next target of legislators. “Just look at the FDA attempt to control e-cigarettes. Let’s learn a lesson here that anything even remotely connected with tobacco/cigarettes can be targeted,” he said.

While down some, tobacco continues to post solid sales gains and smokeless sales are advancing year after year. “With smoking bans in place in many states and communities, smokeless products are probably one of the last ways for the adult tobacco consumer to enjoy tobacco in public,” Davoli said.

Both, he pointed out, are “clean and discreet” ways to enjoy the pleasure of tobacco. “When we look at the Swedish market over the years, we can count on seeing the same trends here in the U.S.: when cigarette sales decline, snus use increases,” Davoli said.

Many operators, including Davoli, study usage in these foreign markets all the time to try to gain some sort of an edge on the situation here in the U.S. “When you look at Sweden, for example, as cigarettes declined and reached all-time lows, the innovative products, such as the snus, went up exponentially,” he said. “I believe that, per capita, they have one of the lowest consumption rates of cigarettes in the world.”

Richmond-Master plans to continue to responsibly market products to the adult consumer. “These are legal products that we are licensed to sell by the federal, state and local governments,” Davoli said. “Adults have the right to choose. It should be the government’s role to inform, educate and even persuade citizens against use, but not limit their freedom to choose.”

What operators should be doing now to get ready for what some feel it an inevitable attack on smokeless tobacco is, according to Davoli, a loaded question. “This is such a growing category that convenience store retailers really can’t afford to ignore, especially when it pertains to new innovations out there, like Camel snus and the Camel dissolvables,” he said. “The bottom line is if they aren’t selling these products, their competitors will.”

A Light Ahead
Despite the uncertainty, smokeless remains a bright light in the darkening tobacco segment. “There is no question that with all of the various smoking restrictions, consumers are looking for alternatives to enjoy tobacco products that they don’t have to smoke,” Briant said.

Briant identified the snus category as both highly popular and growing. “In fact, that’s one of the biggest growth areas of products.” Beyond snus, he added, there are some new dissolvable products that have emerged. “But those are fairly new to the market. I think the snus category is the growing category right now.”

Davoli isn’t as worried about potential smokeless regulations as others. “When I first got into this business people talked about how cigarettes would no longer exist one of these days and that hasn’t happened,” he said. “People get pleasure from tobacco, so I don’t see tobacco going away.”

In fact, retailers that dedicate themselves to selling these legal products responsibly will find there is a nice market for it.

“It is absolutely a viable category with a very good gross profit for a small footprint,” Davoli concluded. “The adult consumer is going to be in looking for the product so continue to sell it just as you would any other profitable product.”

In fact, he warned that not having some of the more popular products could have a cascading effect. “Smokeless tobacco users tend to be extremely loyal to their favourite stores, so you’ve got to capitalize on it. If you don’t carry their products, they’re going to go somewhere else, and when they go somewhere else for their tobacco products, they’re going to be purchasing their milk, their bread and their gasoline from the retailer that fills their tobacco needs.”

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