Could E-Cigarette Bans Drive Consumers Back to Combustible Cigarettes?

NEWARK, N.J. — One of the most significant categories in the convenience store industry, tobacco, is in a flux. Today's retailers are currently contending with legislation trends, such as the sweeping Tobacco 21 movement; flavor bans; new product innovation and the education it requires; and changing consumer preferences. As the always-changing landscape of tobacco continues to evolve, should c-store retailers start thinking of the backbar as more for nicotine products than for tobacco products?

This was just one of the questions posed during a virtual Retailer Roundtable recently hosted by Convenience Store News, which featured the latest industry and tobacco category data from CSNews' exclusive retailer and consumer research studies, followed by an open discussion of the top challenges and opportunities in the tobacco business.

Roundtable participants included:

• Don Burke, senior vice president, Management Science Associates;
• Anne Flint, director of category management, tobacco, Cumberland Farms Inc.;
• Terry Gallagher, president, Smoker Friendly International; and
• Laura White, category manager, tobacco, RaceTrac Petroleum Inc.

In the 52 weeks ended June 15, 2019, cigarette dollar sales took a slight downturn by 1.3 percent compared to a year ago, and unit sales were down more than 4 percent for the second consecutive year. Sales of other tobacco products (OTP) were up 17.9 percent. Of the seven segments that comprise the OTP category in c-stores, three major product types showed an increase, with vaping performing phenomenally well at 299.5 percent growth.

The retailers pointed to Juul and the introduction of similar alternative tobacco products as opportunities in the category.

"Other products and brands are making up the difference and are performing pretty well," Gallagher noted.

Last November, Juul Labs stopped selling its flavored Juul pods in more than 90,000 retail locations, including Cucumber, Mango, Crème and Fruit flavors, while it continued the sale of tobacco and menthol-based products, which consist of Virginia Tobacco, Classic Tobacco, Mint and Menthol. Although business initially declined somewhat after the pullout, Juul's business and the entire vapor category has come back strong.

"We surveyed consumers who used flavors and they switched to flavors like menthol, so the vapor category turned around rather quickly," Burke said. "This proves that consumers are willing to try another flavor within the same product."

While consumers are willing to switch to traditional tobacco flavors or similar products to stay within the vaping category, there are concerns of a potential fallout. For example, if flavor bans on e-cigarettes are enacted at the federal level by the Trump Administration, Gallagher believes that tobacco retailers will be faced with black market disruption and online sales hindering in-store sales.

Such disruption, though, could cause combustibles to be re-invigorated. "They may be declining, but they're still very viable," Flint of Cumberland Farms commented.

Similarly, RaceTrac Petroleum's White reported that the Southeast regional c-store retailer is seeing the national trend of cigarettes declining, but not at a rate that indicates combustible cigarettes will go away any time soon.

"We see negative connotations with innovation that’s occurring out there, but I don't think it'll drive people to quit. Instead, it will drive them back to the combustible category," the category manager predicted.

A particular area of opportunity for combustibles is dual usage by consumers. A recent survey by Management Science Associates revealed that the product most likely found in shoppers’ basket along with their vapor product is cigarettes.

"We call it 'poly-usage' across all categories. But in tobacco, we’re seeing consumers buy a vapor product as well as a combustible cigarette, or a new product like Zyn [oral nicotine pouches] that they're substituting for different usages," White said.

Other areas of opportunity for c-store retailers are:

• Product innovation, like nicotine pouches, vapor and deep-discount cigarettes;
• Private label cigarettes; and
• Loyalty programs.

An on-demand replay of "Retailer Roundtable: The State of Tobacco" is available here.