Convenience Stores Find Opportunity in Oral Nicotine
NATIONAL REPORT — Oral nicotine has become the darling of the backbar.
Goldman Sachs reports that retailers are allocating the most incremental space on the backbar this year to oral nicotine pouch brands, increasing it by 4.9% on average as of the second quarter of 2024. Top brands include ZYN, on!, Velo, Rogue and ZoneX.
"Oral nicotine is the fastest-growing category of the three we cover globally — nicotine pouches, heated tobacco and vape," said Tim Phillips, managing director of market research firm Tamarind Intelligence. "In the U.S., it is currently growing at five times the rate of vape. I think it has a big headroom to continue to grow in the U.S."
Rapid growth in the oral nicotine pouch segment is likewise confirmed by Lillian Ortega, regulatory consultant with Chemular Inc., a Hudson, Mich.-based consulting firm founded by experts in nicotine and U.S. Food and Drug Administration (FDA) regulatory compliance.
"Over the last few years, these products have secured a prominent place in retail outlets," she told Convenience Store News. "This shift is supported by data showing increased sales, and a growing adult consumer base looking for smokefree alternatives, and reduction in traditional smokeless tobacco products."
Ortega believes this trend will continue as more adult consumers become educated about the reduced risk of oral nicotine pouches compared to combustible tobacco products, and as regulatory frameworks become clearer and more supportive of harm reduction strategies.
[Read more: Reduced-Risk Tobacco Products Face Perception Issue]
Phillips noted that the category is currently being utilized by adult vapers in circumstances where they cannot vape, such as at work or while using public transportation. "At first, we saw this category converting adult consumers who were using traditional oral tobacco products — chew/dip in the U.S., snus in Europe — but we have seen many new adult customers now who have no previous experience with oral products," he said.
Consumer research conducted by Black Buffalo, a modern oral nicotine product that mimics moist smokeless tobacco but without the tobacco leaf, indicates that "we are at the front end of what is seemingly a generational shift by adult consumers into the modern oral nicotine category," according to Matthew Hanson, the Chicago-based company's chief financial officer/chief growth officer. "These adult consumers are primarily seeking convenience, discretion, affordability and potential harm reduction."
Hanson added that adult consumer preferences are driving category innovation, including various product forms (such as alternative long cut, pouches, lozenges and gum), flavors (primarily replicating traditional product flavors such as wintergreen, mint and straight), and nicotine strengths (again, primarily replicating traditional product strengths).
Mitigating Misconception
Despite the good news on growth, industry experts like Ortega believe there is a perception issue that oral nicotine products must overcome to reach a new acceptance level.
"Many adult consumers associate nicotine products with the same negative health impacts of cigarette tobacco use," she explained. "This confusion can be mitigated by regulatory agencies and through public education campaigns focusing on the reduced risk of oral nicotine products using evidence-based research."
Her expectation is that once the FDA completes its review of the premarket tobacco product applications (PMTAs) for the category and determines that an oral nicotine pouch is appropriate for the protection of public health, consumers will have confidence the product has successfully met the FDA public health standard.
Chris Howard, executive vice president, External Affairs & New Product Compliance at Swisher, the parent company of Rogue Holdings, agrees that the perception issue is a result of adult consumers not receiving objective, accurate information regarding the benefits of reduced-risk products from regulatory authorities and other groups. "The industry is limited in its ability to make marketing claims that any nicotine products are reduced risk," he said, encouraging that "manufacturers should continue to advocate with FDA and other regulatory authorities to increase public education campaigns on this topic."
Along the same lines, Hanson believes there are three action pillars for addressing the category's perception issue:
- Education/regulatory advocacy/collaboration
- Product quality/standards
- Consumer transparency
"From an educational perspective, we can ensure that campaigns inform adult consumers about the differences between traditional tobacco products and alternatives," said Hanson. "While health messaging is not permissible per the FDA, encouraging advocacy and proactive collaboration with regulators demonstrates good corporate citizenship and can build consumer confidence and trust."
Encouraging high-quality manufacturing standards and rigorous production discipline with certification from reputable third-party organizations can validate product safety and increase standards, according to Hanson.
And in regard to consumer transparency, he said engaging and actively cultivating transparent communication with adult consumers in areas such as product ingredients will foster trust.
"No one wants 'bathtub gin,' especially in this market where we see unscrupulous manufacturers importing illegal products with alarming frequency. Implementing these three strategies can lessen confusion and improve perceptions," he concluded.
More Pain Points
Hanson worries that certain oral nicotine "bad actors" will taint the industry for adult consumers and for regulators by not abiding by the FDA's strict regulations around marketing, nicotine warnings, packaging and PMTA application status.
Taking that concern a step further, Phillips fears a ban — or "an effective ban" — if the FDA does not approve PMTAs and start to ramp up enforcement.
He also sees a potential threat coming from outside the U.S. "There is a risk that the European Union will ban nicotine pouches because they will include it in a ban currently in place for snus. This may have repercussions for the U.S. market," he added.
At the local level, Howard is bothered by "arbitrary state flavor bans," which limit adult smokers' access to oral nicotine and new nicotine products. "These bans are detrimental to adult smokers seeking alternatives to cigarettes," he stated.
The Future Is Now
Tamarind Intelligence reports that the entire "new nicotine" product market — made up mostly of modern oral nicotine currently — is worth $65 billion globally.
"This has grown from almost zero when we started our data business 10 years ago," stated Phillips. "So, despite very tough regulatory barriers, the sector has continued to grow, and our belief is that it will exceed combustible tobacco eventually."
Market trends show that the adoption of modern oral nicotine and smokeless tobacco alternative categories are "single-handedly leading the growth of the top 20 brand families in tobacco and nicotine," Hanson cited.
"The future is now," he declared.
To be effective in continuing to grow the category responsibly, he urges both manufacturers and retailers to work to provide: trade and staff education; trial offers to active adult consumers of tobacco products; competitive prices; and informative signage. He also recommends digital integration to provide dynamic content that can enhance engagement and awareness among adult consumers.
Positioning and merchandising modern oral nicotine brands together is key to driving incremental sales and adult consumer engagement with the category, Howard advises.
"We know that modern oral nicotine consumers are driving trips to c-stores, so ensuring the category and the top three to four brands are visible to them as they approach the backbar will enhance the adult consumer experience and drive sales," he said. "Merchandising the category in a prominent way and making it clear that it is separate from moist smokeless tobacco is also key to increasing shopability and general awareness among adult consumers."