Opportunities Abound for Tobacco Retailing in 2014
LAS VEGAS -- A little more spare change in consumers' pockets could spell good news for tobacco retailers, including convenience stores, this year.
Speaking at Tobacco Plus Convenience Expo 2014 , David Bishop, managing partner at Balvor LLC, pointed out that U.S. consumers have seen sequential declines in the price of fuel per gallon for three quarters now. The lower pump prices have helped take some pressure off consumers, which in turn leads to an uptick in discretionary spending.
The long-term trends still put fuel prices higher than they were a few years ago, with consumers having $8 to $10 less in their wallets to spend inside the store. Coupled with flat wage growth, Bishop explained that the core consumer for tobacco retailers is more financially challenged and looking for discounts and lower-priced alternatives to stretch their dollar.
Things may soon be looking up, though, as several states increased their minimum wage rates as of Jan. 1 and President Barack Obama is proposing a hike in the minimum wage for federal workers. While this could result in higher operating costs for retailers and manufacturers, higher disposable income among consumers will lead to higher product demand, according to Bishop.
When it comes to tobacco retailing, the growth opportunity this year lies in other tobacco products (OTP) and what Bishop calls electronic nicotine devices (END), which includes electronic cigarettes, e-hookahs and e-liquids.
Cigarettes still rein supreme in the tobacco category, capturing 90 percent of sales, while OTP accounts for roughly 10 percent of sales, according to research Bishop presented at the expo. Of OTP sales, electronic nicotine devices rank third behind smokeless and cigars. That point is notable, he said, because most retailers did not get into the electronic cigarette business until 2010 when an appellate court ruled for the Food and Drug Administration to regulate e-cigarettes under its tobacco regulation powers. The segment then "exploded," Bishop said.
Specifically, he noted that electronic nicotine devices are seeing about 65-percent growth annually, and convenience stores are among the retailers trying to capture that growth. On average, tobacco outlets carry six brands of electronic cigarettes, vs. convenience stores that carry three to four brands. Where c-stores really fall behind tobacco outlets is in the area of other END products. According to Bishop, only a quarter or less of c-stores carry e-cigars, e-hookahs and e-liquids. He sees this as a major opportunity for the convenience channel in 2014.
"Availability and assortment are driving near-term trends, and availability and assortment will continue expansion," he noted.
The Tobacco Plus Convenience Expo is taking place at the Las Vegas Convention Center through tomorrow. Approximately 1,000 attendees pre-registered for the annual event, with more registering on-premise.