Seizing Control of Smokeless Sales

Convenience store retailers are still concerned over the FDA’s involvement in smokeless tobacco, but many expressed optimism that the category can continue to thrive.

By Howard Riell, Associate Editor.

While taxes and regulations haven’t impacted sales of smokeless tobacco products as much as some had predicted, it remains up to retailers to continue aggressively marketing the category.

In fact, some see Food and Drug Administration (FDA) regulation of tobacco products as an opportunity.

“I’m not worried because we’re the leading purveyor of smokeless tobacco in the markets we serve,” said Leo Vercollone, CEO of Verc  Enterprises, an independent convenience store, gas station and car wash operation with 23 locations throughout eastern Massachusetts and New Hampshire. In fact, he added, the FDA’s intervention in the tobacco category is only going to help him sell more smokeless.

“If you think about it, when you’re the No. 1 player in a market that means you have a big market share,” Vercollone said. “If the FDA is going to do things to limit how people get into the marketplace, or how people sell in the marketplace, usually the strong get stronger and the weak get weaker.”

Thus, he believes, Verc finds itself in an enviable position. “If the FDA says, ‘We are eliminating smokeless tobacco; then I think we’ve got a problem. But assuming they don’t and only focus on restricting sales procedures, all smokeless tobacco customers will know where they can go to get fresh products and their favorite brands. They will go to convenience stores because that’s what they have always done. I think we will see pharmacies, supermarkets and the Walmarts of the world eventually get out of the tobacco business as a result of this behavior.”

Lack of Faith
Of course, not everyone is that upbeat about smokeless.

“I am very concerned about the future of smokeless tobacco,” admitted Amer Hawatmeh, president and CEO of St. George Oil, which operates Coast to Coast convenience stores in Tampa, Fla. “Chews seem to have some staying power because they have been around forever and ever, and appear to be a generational niche. But all this new stuff that’s come out, I don’t know if it’s ever going to go anywhere in my markets. I’d like it to be extremely successful, but right now it’s taking up a lot of inventory and not generating much of a return.”

That said, it is little surprise to find that Hawatmeh has no plans to notch up the aggressiveness with which he merchandises the category. “I think there are too many other things to focus on to make money right now, like foodservice,” he said.

One approach Hawatmeh does favor is being cautious about allocating shelf space and inventory dollars. “There are a lot of SKUs to choose from,” he said. “If you were to bring in every smokeless tobacco product that’s out there you would literally eat up your entire back-counter area. That’s how many there are. In order to be successful, I think you have to limit the number of SKUs and focus on the top sellers. That has to be the first step toward managing this aspect of the business.”

Expansion Opportunities Exist
On the other hand, Lyle Beckwith, senior vice president of government relations for NACS in Alexandria, Va., disagrees with those who suggest that smokeless is too small a product category to expend effort on. “I’m a smokeless tobacco customer, and I want all convenience stores to carry it,” he said. “I’m hard pressed to find a convenience store that doesn’t carry smokeless.”

Beckwith pointed to differences among operators in different types of markets when it comes to stocking smokeless products. “I live in Alexandria, Va., a suburban area, and I have a farm down on the northern neck of Virginia, a very rural area. What I’ve found is that it’s harder to find smokeless tobacco in the rural areas than in the suburban areas, which is sort of counter-intuitive,” he said. “I think the reason is that the typical rural convenience store has far less foot traffic than suburban stores. So shelf life becomes an issue. Sometimes some of the rural or less-traveled stores have an issue with that.”

For example, Beckwith noted, when he goes into any 7-Eleven in Alexandria he always finds fresh Copenhagen. “But there is a little bodega across the street from me that doesn’t carry anything.” Those differences, however, don’t mitigate what smokeless has come to mean to c-store operators. Industrywide, he said, it has become integral, accounting for 4% of inside sales.

Sellers of smokeless who worry about what Congress is going to do next shouldn’t. “Congress has already done what it’s going to do: they passed the FDA Tobacco Control bill,” Beckwith explained. “Now it’s up to the FDA to decide how they’re going to handle smokeless.”

FDA, however, is not a legislative body. “They are a federal agency that is presumably trying to do a good job,” said Beckwith, who spoke at an Aug. 24 FDA stakeholders meeting in Dallas about issues involving regulation of tobacco from a retailer perspective.

Meeting Customer Demand
The shape of the economy continues to make the times challenging for all product categories, pushing more consumers than ever to look for value.

Still, not everyone is willing to migrate from their favorite products.

“Even in the cigarette category, if you’re a Marlboro smoker, or a premium smoker, you’re not going to trade down from that,” Vercollone said. “I think people who are loyal Skoal and Copenhagen users are probably not trading down.”

Those who have only recently entered the market, however, are probably more than willing to opt for medium- or lower-priced brands, he added. “I think there is a growing market of people getting into that. That’s the challenge.”

Verc does fairly well with snus compared to others in its market area.

Vercollone sees it as a bright spot in the months and years ahead. “It’s got real upward potential,” he said. “We’re still looking at it as a product that is going to continue to grow and develop in our stores as the consumer puts more demand into it.”

While he isn’t certain that government involvement in other tobacco segments will automatically drive more Americans to smokeless, Vercollone does believe the FDA is going to get involved in all aspects of tobacco.

“The reality is, it’s not a bad thing. Let’s be honest, you don’t want your kids doing it, and I don’t either. It’s not bad that we’re regulating it. It’s an adult product. If adults want to take that risk, then let adults take the risk,” Vercollone said. “The government is out there to say basically, ‘We want to communicate that risk. We want to communicate the liability. We may be a little bit on the harsh end, but this can damage your body. But if you’re an adult and you want to try it, go ahead.’”

That, Vercollone said, it not a message he opposes. “I think it’s a good message. It’s a message I tell my own children. We are not on the opposite side of the government in that regard,” he said. “People like to do a lot of things—they like to play the lottery, they like to drink alcohol, they like to race cars, they like to parachute. People are going to take risks whatever they do. We’re not here to stop them. But I think what we need to do as an industry is say, ‘Hey, if you want to do it, we’ll be the purveyors of that product line for you.’”

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