MST Offers Hope for Traditional Tobacco

smokelesscanMST sales remain strong, and analysts are calling for another solid year in 2014 despite regulatory efforts.

By Howard Riell, Associate Editor

While moist smokeless tobacco (MST) sales are projected to enjoy a strong 2014, possible government legislation and public health campaigns could converge to slow its momentum.

To maximize sales now, industry proponents insist convenience store operators must pay attention to proposed health regulations to educate their adult customers about trends impacting MST.

Others, however, question just how effectively c-stores can educate their customers, or if they should even try. Some observers believe educational campaigns should be undertaken outside the confines of retail establishments.

“We are in the business of selling legal products to adult consumers,” said Matthew Paduano, vice president of category management for Nice N Easy Grocery Shoppes Inc., based in Canastota, N.Y. “I don’t believe that we should be involved with any public health campaigns as retailers.” Paduano and his colleagues rely on the New York Association of Convenience Stores (NYACS) to keep them informed of any impending MST legislation.

Nice N Easy, which operates 78 stores in upstate New York, views that participation as being as important as knowledge about the MST issues.

“We are big supporters of the state association for convenience stores,” said Paduano. “We will get involved when asked to write or call legislators over impending laws that would adversely affect our business.”

Throughout 2013, MST sales at Nice N Easy stores rose in the mid-single digits, Paduano said. “Grizzly has been a top brand for the past number of years, with Grizzly Long Cut Wintergreen out-selling the No. 2 SKU by a 4-1 ratio.”

Some MST industry players challenge the notion that consumers are blind when it comes to purchasing and using tobacco products. “As far as the public health campaign, at the end of the day, adult consumers are choosing their vices, whether it’s alcohol or now in Colorado marijuana, or their chew, cigarettes or e-cigarettes,” said Michael Zielinski, executive director of the Royal Buying Group Inc. in Lisle, Ill., which represents over 5,500 retail locations nationwide.

Under the Radar
According to Paduano, moist smokeless tobacco appears to be successfully evading the legislative radar thus far. “Really, I haven’t seen any public health campaigns against moist. If anything, it seems that e-cigs are number two behind cigarettes, as far as scrutiny by the various government entities,” Paduano said.
As most retailers have found, different legislation has adversely affected c-stores like Nice N Easy Grocery Shoppes.

“Regular tax increases, the push to increase minimum wage, off-counter display requirements, the unbalanced competitive landscape—Native American locations not paying taxes—as well as border states with little or no taxes on moist tobacco all adversely affect our business,” Paduano said.

Still, MST sales are holding their own. “The trend is that (MST) is doing okay,” Zielinski said. “The big brands, the Copenhagens and Skoals, still have their loyal customer bases, and Grizzly continues to do well for Reynolds because of price. Obviously, all the public health campaigns are going to impact sales, so we’re not going to see the explosive growth we have seen over the past five years.”

Also holding back growth has been proliferation of alternative products, such as e-cigarettes and snus, Zielinski said. “Everyone is fighting for market share.”
Still the question of whether c-stores should be educating MST consumers about the bigger issues hovers.

“There is not enough time really, so it is going to require merchandising on behalf of the brands,” Zielinski said. “We’re trying to get people in and out as fast as possible, so I don’t think it should be our role. Our role should be just to be an efficient transaction engine for purchase.”

Tracking Regulations
One way for retailers to monitor smokeless tobacco regulations is to follow the National Association of Tobacco Outlets (NATO), representing 2,000 tobacco stores and some 26,000 convenience stores.

According to Executive Director Thomas Briant, the U.S. Food and Drug Administration (FDA) is planning a new multi-media campaign involving smokeless tobacco and underage youth. “If it is anything like the agency’s current television commercials that falsely depict c-store clerks accepting body parts from a young male and a young female as part of a ‘payment’ for a pack of cigarettes, then retailers need to be concerned,” he said.

NATO is insisting that the FDA remove the “offensive and inaccurate” ads.

Beyond that, Briant said, some states are also seeking to increase the other tobacco tax on smokeless tobacco products. “Retailers need to be aware of these proposed tax increases, and let their lawmakers know that further increases are unfair and unacceptable.”

Zielinski said the best way for retailers to track regulations is to join a group like NATO. “It does a good job on what types of regulations are going on throughout the tobacco industry. It’s too hard to read every trade magazine. It’s better if they could get more in-depth knowledge on just one category through NATO than having to research through all the different media in order to find what they’re looking for.”

Zielinski added that he and the operators with whom he works depend heavily on suppliers to help them keep abreast of the changes taking place. “Not only the tobacco companies themselves, but also our distributors like Eby-Brown and McLane help with what we can and cannot do regarding certain products from time to time,” he said.

The need for that kind of real-time information is critical. “Obviously every legislation affects our business, and always in a negative fashion. Even though we know some of it is needed, less is better for us; more is bad,” Zielinski said.

Future Focus
For the balance of 2014, Nice N Easy’s executive team expects to continue to see cents-off promotions from the major vendors as a major means of keeping their share of market propped up.

“I think we can also expect to see a few more flavored SKUs get introduced,” Paduano said, adding that he expects to see continued growth in this subcategory throughout the remainder of this year, but not at the rate of previous years. “The two big players account for 96% of my business, so I don’t see any new competitors making any inroads into this market. I also hope that we don’t see any tax increases on moist.”

Still, Zielinski predicts solid MST sales in the coming months. “There is still going to be brand loyalty, and those who like to chew will continue to chew,” he said.

“Hopefully there won’t be too much (consumer movement) into other tobacco products, but you know that could even be changing based on what promotions, education and other things come up. Tobacco is such an ever-changing category today. It’s kind of hard for me to say what changes will occur until they occur.”

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