Purchasing Power

Increased foot traffic, uptrading to premium brands and bigger basket purchases per trip were all ways the c-store tobacco business benefitted in 2015 from the lower prices at the pump.

Cigarettes in particular enjoyed solid momentum. Coming off two years of declining per-store sales (down 1.5 percent in 2014 and 1.2 percent in 2013), the category found itself back on the positive side last year, growing by 2.7 percent in sales per store.

“Cigarettes’ performance in 2015 was driven by increased consumer purchasing power and consumer demand returning to the category,” explained David Bishop, managing partner of Barrington, Ill.-based Balvor LLC, a sales and marketing firm. “Lower fuel prices and unemployment rates drove the purchasing power, while dissatisfaction with the electronic nicotine devices experience shifted spending back to cigarettes.”

In addition, c-store retailers are reporting steady and rational promotional activity, promoting a healthy competitive environment, according to Bonnie Herzog, managing director of tobacco, beverage and convenience store research at New York-based Wells Fargo Securities LLC.

Cigarettes, however, is not the only compelling story at the backbar. On the negative side, the electronic cigarette and vapor segment of the other tobacco products (OTP) category is causing some concern. The segment did register 4.2-percent growth in average sales per store last year, but this was a sizeable slowdown compared to 14-percent growth in 2014.

Factors at play, according to Herzog, are an evolving competitive landscape, an over-proliferation of brands and consumer dissatisfaction with the products.

Sentiment on the segment’s growth “has turned more cautious,” Herzog noted.

Looking to the current year and beyond, Bishop believes cigarettes will likely move back toward its longer-term trend; however, a lot of variables can impact year-over-year trends. “State-level initiatives like the movement to increase the legal [purchasing] age to 21 could create headwinds for cigarettes, whereas merging OTP regulations could provide a tailwind,” he said.

“Lower fuel prices and unemployment rates drove the purchasing power, while dissatisfaction with the electronic nicotine devices experience shifted spending back to cigarettes.”
— David Bishop, Balvor LLC