NACS SHOW REWIND: Pivoting on the Backbar
LAS VEGAS — It's no secret that the regulatory changes create challenges for tobacco retailers, but rather than fold, convenience store operators are finding ways to overcome those challenges.
Moderating a 2024 NACS Show education session, "Backbar Pivots Amidst Flavor Prohibitions," Melissa Vonder Haar, marketing director at iSee Store Innovations, noted that convenience stores provide consumers with a convenient location to purchase a variety of consumer products and services — or more pointedly, they sell what consumers want where and when they want it.
"But what happens when those products that consumers want are suddenly banned?" she asked. "I actually want to reframe this. It's not banned, it's prohibition and it didn't work with alcohol. It's not working with cannabis and it's definitely not going to work with products that have been legal in this country for hundreds of years."
Ticking off some numbers to date, Vonder Haar said that 300-plus cities and states have enacted flavor bans and more than 180 localities and states have banned the sale of menthol tobacco products. Additionally, the U.S. Food and Drug Administration (FDA) is proposing a federal ban on menthol tobacco products and flavored cigars.
[Read more: Biden Administration Indefinitely Postpones Menthol Ban]
Navigating Flavor Bans
In 2020, California moved to become the second state to ban the sale of flavored tobacco products (Massachusetts was the first state). However, after some legal back and forth — which included a voter referendum and court challenges — the legislation did not go into effect until December 2022.
Robert Wade, category and supply chain manager at ExtraMile Convenience Stores LLC, said "it was a long process," and the ban ultimately was "a really big hit to all retailers in California." ExtraMile Convenience Stores operates more than 800 c-stores.
Regardless of the statewide ban, different cities and counties across California have enacted their own local tobacco ordinances, he added. "So, a certain county will say no paper products, a certain county will put minimum price restrictions, no couponing, things like that," Wade explained. "As a tobacco retailer in California, we're constantly reading any state city local ordinance that goes on and I spend a lot of my time reading different city and county laws."
Lonnie McQuirter, director of operations of 36 Lyn Refuel Station in Minneapolis, knows all about the effects of the legislation at the local level. The city enacted a ban on flavored tobacco products in 2017 that only targeted mass retailers and not adult-only stores. The result? 36 Lyn Refuel Station cannot sell flavored tobacco products, but other Minneapolis retailers can, creating an uneven playing field.
"C-stores had a high compliance rate with tobacco regulations, higher than liquor stores, yet liquor stores can sell menthol cigarettes," he said.
On the topic of an uneven playing field, Wade pointed out that California's legislation created a loophole for online retailers. "That was one of the biggest challenges initially; you couldn't purchase those products in a traditional brick-and-mortar store; however, you could go online and order them and have them delivered," he explained. "And then there wasn't clear delineation in terms of if you ordered it online, does it have to come from out of state or can you order it online and then go pick it up in the store. There was a lot of that stuff going on."
Navigating the Fallout
Citing NACS data, Vonder Haar said convenience stores check more IDs than Transportation Security Administration. However, that fact isn't considered by lawmakers, which often use youth access as an argument for flavor bans.
Additionally, California saw $341 million in lost revenue — not taxes, just revenue — following the flavor ban. And it's not lost tobacco revenue; the economic impact extends to other items in a tobacco customer's basket, she added.
"If there are less items we can sell then we have to charge more for the items we can sell," McQuirter said, adding it no surprise that stores are closing and there is consolidating across the industry.
"The tobacco customer is not just a tobacco customer. They engage with every area of your store in every category," Wade said. "You end up pushing that customer to other retail channels or online."
Navigating the Backbar Changes
So, what did retailers do in the face of the changes? According to Wade, operators in California began applying for licenses to sell spirits to make up any revenue dip. As for ExtraMile Convenience Stores, one of the biggest shifts the organization made was to continue its focus as a food destination to drive customers into the store.
Looking at the backbar specifically, he said the company is exploring other segments and categories that are driving the growth in the nicotine category, "making sure that we're planning for the future," Wade said. Additionally, ExtarMile Convenience Stores plans to reduce its backbar cigarette space by about a foot to make room for those new nicotine items.
At 36 Lyn Refuel Station, the tobacco space looks a lot different than it did in 2016 and 2017, according to McQuirter. "In 2023, we did $192,000 in total tobacco sales," he said. "We are effectively no longer in the tobacco business.
"Consumers have expectations when they come to a convenience store, and age-restricted items are one of them," he pointed out. "It will be interesting to see what younger generations will expect with all the bans."
The 2024 NACS Show took place Oct. 7-10 at the Las Vegas Convention Center. The 2025 NACS Show will be hosted at Chicago's McCormick Place Convention Center from Oct. 14-17.
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