By Howard Riell, Associate Editor
As sales continue to lead the other-tobacco-products (OTP) category ahead of cigars and e-cigarettes, smokeless tobacco represents a major opportunity for convenience stores going forward.
With cigarette volume declining in c-stores and vape shops stealing business with electronic nicotine devices, the smokeless shopper is growing in importance to a c-store’s overall business, according to the latest data from the National Association of Convenience Stores (NACS).
This is especially true in the face of declining cigarette sales.
Sales volume for the convenience store cigarette category dropped 2.8% during the four-week period ended April 12, according to Bank of America Merrill Lynch. The decrease comes in the wake of a 2.2% dip during the prior four-week period. At the same time, volume for smokeless tobacco products—moist smokeless tobacco (MST), chew and all other related smokeless items—jumped 6.4% this past April, below year-to-date trends of 7.3% growth and lapping a 5.7% increase a year ago.
Not only does the smokeless dollar ring high, but the smokeless shopper visits c-stores almost nine times per month, according to Swedish Match, a manufacturer in Stockholm that makes snus and moist snuff.
In addition, the majority of smokeless consumers also smoke cigarettes, so the last thing a c-store wants to do is alienate a cigarette shopper who also uses smokeless tobacco.
Top brands like Grizzly, Copenhagen, Skoal and Longhorn continue to drive traffic, and savvy operators are working to maximize those sales.
The single most powerful thing a convenience store operator can do to build and maintain its smokeless business is keep the brands customers are looking for in stock at all times, said Tariq Khan, CEO of Sentar Oil Inc., a four-store chain based in Rockville Centre, N.Y.
“Having available the brands of their choice, that’s No. 1,” Khan said. “If you want to be in that business, and the category is strong, then you need to make sure that you carry all the popular brands and have them in stock.”
Second, on smokeless customers’ priority lists is freshness, Khan noted.
“The key thing in that business is making sure of the product’s code, because for all the consumers who buy that product, the top consideration for them is the code,” Kahn said. “They do not like it at all when they find that product has been sitting for two months on a shelf. The shorter the code, the fresher the product, the better it is. If that is taken care of then, most likely, the customer will come back.”
A potential obstacle to sales is ineffective merchandising.
“It’s very difficult,” Khan said. “Quite frankly, most of us don’t have enough space. While the merchandiser unit can contain 12-, 16-, 18- even 24-sleeves on the counter or the back bar, it’s an odd piece. It’s not like it’s something you can simply put where the cigarettes are.”
Indeed, freshness often trumps promotions in patrons’ minds, Kahn said.
“The freshness, again, is the No. 1 issue,” Kahn said. “Whatever the price that is being offered, I haven’t seen too many people walk away from it here in New York, if it’s their brand and it’s fresh.”
Only rarely, Khan continued, do promotions push product out the door.
“Maybe some old timer is looking for Copenhagen in Wintergreen or something,” Kahn said. “But promotion or not, it all has to do with your brand. If the customer is looking for one particular brand and your convenience store has it, then he will come to you again and again and patronize your store.”
The optimal number of SKUs of smokeless that a c-store should carry depends on the store’s weekly volume, said Matthew Paduano, vice president of category management for Nice N Easy Grocery Shoppes Inc., based in Canastota, N.Y.
“If a store is at 50 cans per week, then the SKU count should be less than a store doing 200 cans per week,” Paduano said. “Smokeless does follow the 80/20 rule, so I believe a minimum of 18 SKUs should be carried, and up to 30 SKUs for higher-volume locations.”
A vertical MST section of at least two feet in width set on the counter, containing at least eight shelves, has proven an effective merchandiser. While many convenience store operators agree to manufacturer programs that tie up space, others get creative with the category. Some offer a daily, two-can deal; a discount on five-can roll sales; and using point-of-sale (POS) pieces that call out both everyday promotions.
Others group all pouch MST products together, highlighted with a POS that lets shoppers view the whole selection.
The pouch segment is driving about one-third of total category growth, but products at times get lost in the MST section because they look like the “loose” versions of the products. Helping cigarette smokers find these products can also boost sales.
Still others believe that 48 is the absolute minimum number of SKUs that a convenience store should carry. Any less than that and the store risks sending a signal to the smokeless shopper that they are not serious about being in the smokeless business.
In New York State, smokeless products have to reside behind the counter, so merchandising is restricted, Paduano explained.
“That said, they should be merchandised in the OTP section above the cigars, and clearly priced and in stock.” Insufficient rotation is a big error, Paduano said. “Customers are very sensitive to dates on snuff.”
Out of stocks happen sometimes, he added, because the section is an afterthought when ordering.
“Make it visible, price aggressively,” said Paduano. Manufacturer cents-off promotions, he added, always work. He also recommended instituting two-can and sleeve pricing to boost sales, but does not suggest training employees to disseminate information to consumers.
“We are in the business of selling legal products, not to become advocates for any health groups,” Paduano concluded.
Demographically, the smokeless customer often belongs to one of two groups: older, married males who have been using “loose” MST products for many years, and the younger, college educated, more ethnically and racially diverse adult male who enjoys the nicotine experience and uses multiple types of tobacco products.
Cigarette smokers have, of course, been migrating to smokeless tobacco for years, to the point where the majority of smokeless users also smoke cigarettes.
Pouch products tend to be the point of entry for smokers due to the cleaner and easier use of these products.
Khan, however, believes retailers are wasting time and opportunity by trying to turn cigarette customers into smokeless customers, as some have advised.
“No, the smokeless tobacco customer is his own customer.” Kahn said. “They are not migrating to smokeless tobacco. If they are, in fact, migrating anywhere they are migrating to electronic cigarettes.”
While some suggest transitioning customers in this way may help salvage some part of declining cigarette sales, Khan disagreed. “Very rarely, in my experience in my own stores, will a customer come in and say, ‘Instead of trying Marlboro Light let me try Copenhagen or Skoal,’” he said.
The migration of cigarette smokers to smokeless happened several years ago, Paduano recalled. “That was when the ‘no smoking in company vehicles’ policies were instituted. We saw many smokers switch/supplement with snuff.”
The category has, for years, contributed consistent 5%-plus can volume growth, which most agree should continue. “I see this category continuing to grow unless we get hit with another tax increase,” Paduano said.
Khan agreed, saying he sees no significant alteration in sales patterns ahead in the smokeless category.
“It has been and should remain pretty consistent,” Kahn said. “I think smokeless tobacco has a strong position, and regardless of what the economy is like—if anything canimpact it, it’s a down economy—I don’t foresee there being much in the way of change.”