C-Stores Grab Market Share In Cigarettes, OTP Race


Few things are surprising in the cigarette world: taxes go up, cigarette prices go up and the two prompt some adult smokers to call it quits. But if the first six months of 2011 were any indication, the category caught some people off guard.

True to form, the manufacturer list cost per carton was expected to rise from $32.14 in 2010 to $33.14 in 2011 (based on data from the first half of the year), with another $l-per-carton increase forecasted for 2012. Cigarette taxes were predicted to remain flat through 2011 at $20.32 per carton, mainly due to the lack of a federal tax increase. That figure, though, is predicted to inch up 20 cents in 2012 to $20.52, Maureen Maguire, president of ThinkResearch, reported during this year's Forecast Council.

Fig. 4

Cigarettes Forecast

Fig. 5

Other Tobacco Products Forecast (% change)

What did jump out at Maguire was the unit volume of cartons expected to be sold per store in 2011. That figure rose from 9,049 in 2010 to a projected 9,208 by year-end 2011. Things are expected to right themselves in 2012, with a forecast of 9,044 cartons per store.

"Since we started getting data from [The Nielsen Co.], it has never been a real positive forecast for cigarettes. Part of that could be the black market, which we have never been able to measure," Maguire explained. "But I have to say, I was surprised when I saw that increase for 2011 and that it was pretty strong. For me, that is a significant change."

Taking market share away from other retail outlets in 2011, like grocers, drugstores and even gas stations, could be the answer to the mystery.

"We are seeing unit growth." said John Schaninger of Quick Chek. "It's expensive to carry cigarettes. In New Jersey, it's difficult for a single operator to afford the inventory. When the gas price went up, it hurt small gas guys. They can't afford to buy gas and cigarettes. But that has been good for us."

Putting cigarettes aside, the rest of the tobacco category seems to be smooth sailing as usual. "OTP (other tobacco products) is still a really strong category in terms of growth," Maguire said.

Specifically, OTP registered $44,538 in sales per store and 16,413 units in 2010. Based on the first half of 2011, the year was expected to see sales per store increase to $47,918 and 16,881 units. The research indicates that 2012 will be even better: $51,752 in sales per store and 17,049 units.

"It has always been a category that has performed well and we expect it to perform well through 2012," Maguire added. "There is no reason why we should expect anything other than that."

For their part, cigars did not wow the industry in 2011, as they did in previous years. But the category still pulled impressive market share for convenience stores. In 2010, cigar unit volume per store rose 9.7 percent. However, cigars were on track to only increase 1.5 percent in 2011. The 2012 forecast calls for a similar uptick of 1.4 percent in unit volume per store.

"Cigar sales are a little puzzling because cigars have performed well," Maguire said. "If I were to go back to 2009 numbers, cigar sales were really strong. We had the phenomenon in 2007 and 2008 of flavored cigars and some of them did well in the South. But 2011 was pretty flat. It is usually a higher-priced product; the economy obviously has something to do with that."

Fig. 6

Cigars Forecast (% change)

Mike Triantafellou of Handee Marts agreed that the flavor trend may be playing a role in the cigar statistics. "A couple of years ago, cigars — and OTP — really took hold with flavors. The industry went a little crazy and buyers overloaded. Instead of sticking with big sellers, all of a sudden, we had green apple and jasmine," he said. "We had a lot of dead inventory. It may have swung too far."

In an overall competitive view, convenience stores cannot be caught when it comes to OTP. According to Nielsen numbers, c-stores captured 90.4 percent of overall sales dollars in 2010, and a projected 91.3 percent in 2011. Drugstores held 2.9 percent share in 2010, while supermarkets held 6 percent.


Once again, Convenience Store News partnered with ThinkResearch to produce the 10th annual Industry Forecast Study. Data for the Forecast was gathered from a variety of sources.

The Nielsen Co. provided sales and unit data for c-stores, as well as for total food, drug and mass (excluding Walmart) for in-store categories. Nielsen TDLinx provided monthly store counts, which were used to forecast the annual average number of stores. Government data sources include the Department of Energy for gasoline price and volume; the Bureau of Economic Analysis, National Income and Product Accounts for data on disposable income, and the Bureau of Labor Statistics for unemployment rates and CPI (Consumer Price Index) data.

The Industry Forecast Study is supervised by Convenience Store News Research Director Debra Chanil. Forecast models are developed by looking at past monthly sales and unit performance, along with outside economic factors such as disposable income, employment, etc. Final models are selected for each category and then aggregated to obtain total industry and per-store figures for dollar sales and unit volume.

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