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OTP Sales Solid Despite Regulations, Taxation

Despite the rollercoaster of regulations, increased taxation and restrictions on both the state and federal level endured by the other tobacco products (OTP) category in 2009, it remained a positive aspect of convenience stores' 2009 results. In total, the average convenience store sold $50,417 in OTP products in 2009, a 9.4-percent increase over 2008 and outpacing that year's 8.0-percent growth rate.

Per-store sales of smokeless tobacco were up slightly in 2009, and reached $28,737. This segment retained its leading place in terms of sales, making up 57.0 percent of the OTP category sales.

Cigars, meanwhile, saw a huge sales increase of 24.6 percent to $18,567 per store in 2009. Following the 2009 federal excise tax (FET) increase on cigarettes and tobacco products, retailers reported seeing cigar sales jump — especially for the little cigars subsegment — as cigarette smokers turned to a cheaper alternative. And among OTP segments, cigars hold the largest share on the basis of unit volume, at 49.6 percent — nearly half of the OTP category.

Fig. 31

Category Analysis — Other Tobacco Products

(4.12 percent of in-store sales, 3.61 percent of in-store gross margin dollar contribution

Fig. 32

Percent of Other Tobacco Products $ Sales and Unit Volume

And while cigars' flavor wave of years' past has subsided, retailers report the plethora of new flavors and variants in the cigar category have been reduced to three core flavors — wine, grape and strawberry.

The FET increase also benefited the papers and pipe/cigarette tobacco segments of OTP in average store sales for 2009, increasing 7.3 percent and 31.8 percent, respectively. Although the roll-your-own (RYO) tobacco segment saw a massive increase in its federal tax rate in 2009, retailers also attributed its sales increase to a consumer shift as smokers turned to RYO tobacco to escape the increased price of cigarettes. Meanwhile, consumers also found that pipe tobacco, which was not taxed to the same astronomical degree as RYO tobacco, could be used as a less-expensive alternative to make their own cigarettes.

There were some changes in share of sales among OTP segments from 2008 to 2009. Smokeless tobacco lost nearly 5 percentage points of share, which were picked up by cigars (up 4.5 percentage points) and pipe/cigarette tobacco (up 0.5 percentage points).

Fig. 33

Other Tobacco Products Competitive Channel Market Share

And in terms of competitive channel market share, convenience stores continue to lead the way by a far margin, gaining a few percentage points in 2009 and now boasting 89.16 percent of the OTP market on a dollar basis. When compared in terms of unit volume, c-stores lead by an even further margin at 92.35 percent.

Following c-stores are supermarkets at 7.62 percent of the market on a dollar basis, down from 8.05 percent in 2008. Share by unit volume for this channel totals 5.52 percent. The continued decline of supermarkets' share of tobacco products is due to increased pressure by health organizations and consumer groups, which is causing some retailers in this channel to remove the product from their shelves.

Lastly, the drug channel holds 3.22 percent of the OTP market on a dollar basis, a slight increase from the 3.17 percent share in 2008. Share by units, however, is 2.13 percent, down from the 2.28 percent seen in 2008.


  • OTP saw a 9.4-percent increase in average stores sales in 2009.
  • Roll-your-own and pipe tobacco saw huge increases in dollar sales.
  • C-stores remain the place to buy OTP products.

"Smokeless tobacco retained its leading place in terms of sales, making up 57.0 percent of the OTP category sales."

The average convenience store sold $50,417 worth of OTP products in 2009, a 9.4-percent increase.

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