Powering Up

Tobacco products have always been an important component of Country Fair Inc.?s inventory, but the move to add electronic cigarettes to its lineup was not an easy one to make for the Erie, Pa.-based company that operates 71 convenience stores in Pennsylvania, New York and Ohio.

?The decision to carry e-cigs was not, as they say, a ?no brainer? because cigarette sales at Country Fair had been trending positively when the rest of the market had experienced declines,? recalled Jaime Pukylo, Country Fair?s sales manager. ?But looking at the future and realizing that our growth in cigarette sales was unsustainable in the long run, we determined that we would enter this category and look to be proactive and leaders in our market area.?

The company dipped its toe into the category in early 2012, adding the NJOY brand as a test in seven stores. That November, Country Fair added e-cigarettes in all of its stores and has never looked back. The blu eCigs brand joined the lineup at all locations in January 2013, followed by FIN and 21st Century Smoke e-cigarettes and Jazz e-cigars in August.

?Sales were slow to begin with, but have grown each and every month since,? Pukylo reported. ?We are actively looking at adding two more brands in the next quarter to bring our e-cigs to six brands, plus the e-cigars, which have been a pleasant surprise.?

MERCHANDISING THE CATEGORY

Cigarettes, along with smokeless and other tobacco items, remain important players in Country Fair?s profit picture. According to Pukylo, tobacco contributes more than 50 percent of retail sales, not including fuel, and more than 35 percent of gross margin to the bottom line.

While the e-cigarette portion of the tobacco inventory is increasing, it still represents just a fraction of the overall category?s sales, he noted.

?The average space allocated to tobacco ranges from 10 feet to 16 feet, with the average being 12 feet. Most stores have three or four 4-foot shelves dedicated to e-cigs,? Pukylo said. The e-cigarettes are merchandised on the back-bar area under smokeless tobacco, while NJOY Kings also enjoy prominent placement on the front counters in a locking spinner display.

To boost awareness of its e-cigarette offerings, Country Fair added door graphics showcasing the brands it carries, and has done some newspaper and web advertising. The company?s website also features a rotating ?We Now Carry E-Cigarettes? message, complete with the logos of the brands that its stores stock.

While sales differ from store to store, those with associates able to engage customers ?sell quite a bit more product,? Pukylo explained. Recognizing the benefit of an educated sales staff, Country Fair created a one-page handout, ?In The Know,? that provides answers to questions customers typically have about e-cigarettes and e-cigars. Among the facts employees are equipped with: electronic products contain no nicotine, no tobacco and no tar.

?Hopefully, this will result in continued growth,? Pukylo said.

Because Country Fair prices its e-cigarettes competitively and enjoys margins on the electronic products ranging from 35 percent to 40 percent, the company hasn?t turned to deep discounting to drive sales. Prices for a single disposable e-cigarette range from $7.99 to $9.99, while five-packs of cartridges sell for $15.99 to $19.99.

?We have done only one promotion and that was a buy-one-get-one (BOGO) NJOY deal,? Pukylo said. ?We had a solid sell-through and it seemed to give the NJOY Kings a lift after the deal was offered.?

So far, e-cigarettes have not put a dent in Country Fair?s traditional cigarette sales, Pukylo said, but it wouldn?t necessarily be a problem if they eventually do.

?If margins were to stay, it would not be a terrible tradeoff, as one e-cig is equivalent to two packs of cigarettes but three times the margin,? he explained. ?In my travels, I have taken the opportunity to engage e-cig users and have found that most only use them when they are unable to light a cigarette in places such as bars and sporting events. Less than one in 10 mentioned using them as a means to stop smoking.?

THE FUTURE OF E-CIGARETTES

Much about e-cigarettes? future appears bright. The demographics of e-cigarette users, for example, ?seem to be younger but evenly split between the sexes, which bodes well for future sales,? according to Pukylo.

But that future depends in large part on what happens at the federal level where regulations are concerned. In early March, the Los Angeles City Council unanimously voted to prohibit the use of e-cigarettes wherever regular tobacco products are banned. Chicago, Boston and New York City, along with more than 100 other municipalities nationwide, also currently regulate e-cigarette use. The jury is still out, however, on whether or not the Food and Drug Administration (FDA) will be able to regulate e-cigarettes in the same way it is authorized to regulate cigarettes, smokeless tobacco and roll-your-own tobacco at the national level.

In October, the FDA sent a proposed rule that would bring e-cigarettes under FDA jurisdiction to the White House?s Office of Management and Budget. The proposed rule would require companies to register and pay fees, list the ingredients in their products, obtain prior approval for new products, and restrict online sales and marketing to children, according to media reports.

Country Fair ? like all retailers that sell e-cigarettes ? is waiting and bracing for the FDA?s move.

?Overall, Country Fair is pleased with sales and profits from the e-cig line and expects growth in the future, but not necessarily at the double digits we see presently. The true unknown in this category is what the fallout will be once the FDA makes decisions regarding the line. I am sure that it will challenge us to continue to grow the category,? Pukylo said. ?We have taken measures such as no sales to those under 18 years of age and no self-serve access to products. The big hit will be if they disallow flavors, as that is a decent portion of present sales.?