Cigarettes Continue to Draw Customers

cigarettes2Under fire now for more than a decade, cigarettes remain among the most important in-store categories in convenience stores.

Cigarettes, along with other tobacco products (OTP), combined to account for 40.7% of in-store sales, according to the 2013 NACS State of the Industry Report.
However, according to Information Resources Inc. (IRI), cigarette sales in the convenience channel dropped 1.3% to $51.72 billion for the 52 weeks ended Jan. 20, 2014. Unit volume was also down, falling 2.02% to 8.57 billion.

The biggest concern for the category is that the decline has accelerated over the past few years due to factors like smoking bans, health concerns, pricing and other government regulations, said Bonnie Herzog, managing director for beverage, tobacco and consumer research for Wells Fargo Securities. Premium brand share has dropped, Herzog added, from 91% of industry volume in 1984 to approximately 74% last year. Wells Fargo reported, cigarette volume was down about 3%, while smokeless tobacco volume increased by 5%.

Merchandising Matters
Despite the smoke swirling around the category, Leo Vercollone, president of VERC Enterprises with 26 convenience stores in Massachusetts and southern New Hampshire, said cigarette sales will remain viable in the c-store channel. But he does believe that sales of cigarettes in the U.S. overall will continue to decline. “Within our industry, cigarettes will continue to be a strong category. Is it going to decline 1% or 2%? Sure. But it’s not going to decline 10-15%, because we are the destination shop for cigarette smokers,” he said. “We’re who they come to and as supermarkets, pharmacies and big- box chains pull out, it’s just going to strengthen us.”
To Vercollone’s point, drug store chain CVS announced in February that it was pulling out of the tobacco business at its 7,600 stores by October.

Wells Fargo quickly declared that the chain’s decision, “will have no impact on tobacco manufacturers as smokers will still buy cigarettes and other tobacco products—they will simply go to other retailers, such as c-stores and tobacco shops.”

Buying habits of tobacco customers are also evolving, and its c-stores that must adjust. “Where a person used to buy two packs of cigarettes, now he’s buying one pack of traditional cigarettes, plus an electronic cigarette. Consumers like options, so we need to have them,” said Andrea Myers, president of Kocolene Marketing, which operates 11 c-stores and 18 tobacco stores in Indiana and Kentucky. A basic practice of good tobacco merchandising is keeping SKUs low. Trying to drive the business with 150 different packages just doesn’t work in today’s environment. Larry Hauck, vice president of marketing for Garb-Ko noted, “The emphasis needs to remain on top-sellers and the brands your customers want most.”  ◆  

Cigarette Customers Visits to C-stores
■ 2-3x per week: 34%
■ Once per week: 20%
■ 4-6x per week: 16%
■ Daily: 14%
■ Twice per month: 9%
■ Once per month: 4%
■ Less often than once per month: 4%
MSA/Paradigm Sample’s Convenience Consumer Insights Panel (cciPanel)

Cigarette Sales Still Strong
While the FDA has assailed the tobacco category, cigarette sales, while declining, continue to be an important revenue source for convenience stores. Unit sales declines slowed slightly from 2012 as the category registered more than $51 billion in sales.

                                Dollar Sales     Sales % Change    Unit Sales    Unit Sales % Change    Avg. Unit Price
Total Cigarettes    $51.72 Bil               (1.33)                  8.57 Bil                  (2.02)                          $6.04

Source: Information Resources Inc. (IRI), Total U.S. Convenience AllScan, 52 Weeks Ended Jan. 20, 2013

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