US: Smokeless Tobacco Still Dominates OTP

Source from:  Convenience Store Decisions  03/24/2014

The smokeless tobacco category continued its upward trajectory in 2013 thanks to ongoing manufacturer promotions and a growing customer interest in alternative tobacco products to supplement their smoking habits. Manufacturers are capitalizing on the strong sales demand by introducing more products in an array of flavors.

For the 52 weeks ended Jan. 20, 2014, the smokeless tobacco category rang up $5.16 billion in sales at U.S. c-stores, according to Information Resources Inc. (IRI). That's a solid 7.71% increase over the previous 12 months. Unit volume also jumped 3.99% to 1.27 billion. The majority of sales in the smokeless tobacco category come from the moist smokeless (MST) segment. MST sales increased 7.85% for the reporting period to $4.98 billion. Unit volume jumped 4.06% to 1.21 billion. Spitless tobacco, such as snus, also fared well accounting for $179.87 million in sales for the 12 months ending Jan. 20. That amounts to a strong 3.79% increase over the previous year.

Will the Good Times Roll?

While the prospect for increased sales are good, retailers in several states could be in for a rude awakening if proposed tax measures go into effect. "A number of state legislatures are considering bills that would raise the tax on other tobacco products, which would include smokeless tobacco," noted Tom Briant, executive director of the National Association of Tobacco Outlets (NATO). "Retailers in these states should be vigilant and contact their elected officials and urge them to oppose the unfair tax increases."

While legislation is bad for sales, there is an opportunity to drive new business.

"There is, by all means, more crossover for the tobacco consumer," said Robert Perkins, vice president of marketing for Rutter's Farm Stores, which operates 59 stores in York, Pa. "Nicotine delivery is taking on many forms, as we have seen over the last couple of years, and marketing to satisfy the craving, as you would say, is much more apparent these days. Moist snuff has continued to increase in volume over the past years as combustibles have declined."

"In smokeless tobacco, stores are buying in, but just not yet understanding how to push and merchandise," said Tom Pirko, president of BEVMARK LLC, a retail consulting firm in Buellton, Calif. "I think we will have something of an experience curve—likely 1-3 years—before retailers correlate how cigarettes and smokeless relate, and in some instances compete."

Ultimately, Pirko said he believes that category cannibalization will occur. "Inducing trial for smokers who are hesitant to try smokeless will remain the objective. As coffee and energy drinks are caffeine delivery systems, one shouldn't forget that both cigarettes and smokeless are still nicotine delivery systems. There is an interesting psychology at work here."

While giving up on cigarettes may be a counterintuitive concept to convenience stores, it may be necessary to help them focus on the future.

"You've got to realize that c-store operators don't want to lose that cigarette smoker," said Lou Maiellano, president of Taz Marketing & Consulting Group based in Sevierville, Tenn. "But they need to start letting customers know that when they cannot smoke—at work or on a plane—there are products out there for them."

Moist Smokeless Leads OTP

Convenience stores have a significant opportunity to target consumers in overlapping tobacco segments, such as  converting cigarette smokers over to moist snuff. MST sales surged 7.85% to $4.98 billion for the 52 weeks ended Jan. 20. Enditem