C-store Tobacco Sales Get an Infusion of Technology
NATIONAL REPORT — Selling tobacco and nicotine products is the antithesis of a simple task. Nobody out there is setting the price of a pack and calling it a day. You can't put a price tag on a cigarette, and advertising is extremely restricted and regulated.
What's more, convenience store operators must juggle manufacturer-imposed pricing rules, complex regulatory requirements, state and local minimums, shifting consumer trends and the need to maintain profitability.
"It's a balancing act and doing it manually can feel like trying to navigate a maze blindfolded," said Caitlin Orosz, senior director of marketing at Scottsdale, Ariz.-based ClearDemand, a provider of artificial intelligence (AI) driven price optimization and competitive intelligence solutions. "Tobacco category managers are the unsung heroes. They handle complex tasks while constantly facing the risk of fines and missing manufacturer buydowns. This is where technology can help them."
[Read more Tobacco coverage from CSNews here]
By integrating technology, Orosz explained that improvement can be realized in:
- Sales Optimization: AI-driven insights can reveal customer buying patterns, helping retailers optimize their pricing and promotions, such as cross-promoting complementary items.
- Pricing: Technology ensures that prices align with demand, regulatory requirements and manufacturer buydowns so that retailers don't leave money on the table. "Instead of scrambling to adjust prices manually, automation ensures retailers hit rebate targets effortlessly," Orosz noted.
- Marketing & Personalization: Data-driven promotions and personalized loyalty programs can influence brand perception and encourage repeat visits by customers.
- Regulatory Compliance: Automated compliance tracking helps retailers stay ahead of evolving regulations, avoiding costly fines and ensuring they meet all state and local requirements.
- Buydown Management: With technology, retailers can meet manufacturer buydown pricing terms, maximize funding and stay compliant without extra e ort.
- Automation & Efficiency: Advanced pricing technology can streamline the entire process, integrating manufacturer buydowns all the way to price execution to the store point-of-sale and in some cases, to the digital price tag.
Tracking the Consumer Transformation
Another top challenge in the tobacco category is the transformation of adult tobacco consumers who are switching from traditional cigarettes to other forms of nicotine.
"As traditional cigarette consumption continues to decline, without data it can appear that the retailer and tobacco companies are losing consumers. However, in many cases, using technology like a loyalty program can help understand and identify if the consumer has quit or just migrated brands or nicotine product types," explained Margaret Ogren, senior business director for Woodbury, Minn.-based Patron Points, which provides loyalty applications, scan data analytics, mobile app solutions and other customer retention tools.
This information can then be used by a convenience retailer to message a 21-plus consumer with a targeted deal to keep them visiting the location. "Personalized promotions improve the relationship with the retail location and/or brand and reduce the risk of the consumer looking to a competitor for a better price on their new product choice," Ogren said.
Last September, Patron Points formed an agreement with Laval, Quebec-based Alimentation Couche-Tard Inc. to offer loyalty and scan data services to legacy franchisees of Circle K and Kangaroo Express locations. The partnership offers tobacco loyalty promotions, as well as participation in digital trade programs offered by leading tobacco brands.
Patron Points gives c-store retailers the ability to offer and notify adult tobacco consumers of personalized coupons, discounts and deals, directly communicating to the consumer via email and mobile app notifications when they have discounts waiting for them at a specific retail location.
"We've seen through our data that consumers are no longer satisfied with 'surprise and delight' discounts," Ogren told Convenience Store News. "They want to know where to go to receive value and connect with their preferred brand or product."
Patron Points is also seeing a shift in consumer purchasing habits. For instance, instead of purchasing a carton of cigarettes, consumers are spreading out their purchases to two packs at a time, thus increasing trips. These shifting behaviors open retailers up to risk, but also opportunity, according to Ogren.
"If adult consumers know where they are getting value for their tobacco, it is shown that they will also more than likely purchase additional items during that transaction. In our data, the tobacco consumers who receive personalized offers purchase more items per transaction and visit, which equates to more profits," she said.
The Near-Future Picture
To create an even stronger customer experience, the near future for c-store retailers is not only about engaging the adult tobacco consumer when they're at your store, but also engaging them when they are thinking about lunch, trying to decide what to make for dinner, looking for a morning pick-me-up and so on, advised Ogren. Using mobile applications, retailers can communicate with consumers through timely notifications, personalized promotions and rewards.
"It will be about creating relationships that drive more repeat visits," she told CSNews. "Our data shows that retailers who integrate a mobile app into their loyalty program experience an 82% increase in loyalty participation. We believe that this is because with mobile apps, consumers are more aware of the value that is available and therefore, they seek to engage with those retailers who provide them with it."
The way ClearDemand's Orosz sees it, manufacturers are already using tobacco scan data to come up with more regional and localized prices and incentives to maximize their sales and margins, and they are expecting c-store retailers to follow suit.
AI and automation are changing everything for the tobacco category manager, and the improvements Orosz believes will stand out the most moving forward are:
- No more analyzing mountains of data to predict sales trends. AI will identify the right price points, best-selling SKUs and emerging product trends before tobacco category managers will think to ask. AI also will help optimize promotions on products that drive repeat purchases and build baskets.
- A competitor down the street that just dropped tobacco prices will be no problem for category managers moving forward. A pricing tool can automatically adjust based on competitor activity, demand fluctuations and compliance requirements.
- Pricing tailored to regional market dynamics, competitive pressures and consumer preferences — down to the individual store level — will become more prevalent soon.
- AI-powered analyses of consumer behaviors will refine loyalty programs and targeted promotions, resulting in relevant offers for the right people. More relevant offers mean stronger customer loyalty and higher overall sales.
- Automated compliance solutions will ensure up-to-date pricing and promotional compliance to prevent fines and lost rebates for retailers.
"At the end of the day, retailers who embrace technology aren't just keeping up, they're getting ahead," Orosz said. "They're making smarter pricing decisions, building customer loyalty and ensuring compliance without the daily stress."