Smokeless Rises

Long a favorite of OTP users, moist snuff's popularity grows as smoking bans take hold across the country

There was a time in the not-so-distant past when airline passengers zigzagging across the country could light up while in flight. Even more recently, ashtrays were a common sight at any bar in any town in any state. But, as they say, that was then and this is now.

Today, employees catching 10-minute smoke breaks outside must stand in designated smoking areas away from the revolving doors of thousands of office buildings in just about every U.S. city. Want to enjoy a legal alcoholic beverage with a legal tobacco product? Forget about it. Unless you are home, of course, but even there, smoking is no longer sacred. Radio ads tout the dangers of secondhand smoke through apartment walls, and the issue has pitted neighbor against neighbor in a New York City courtroom.

While some health advocates and legislators point to the myriad of rules and regulations as the leading factor in the drop seen in cigarette smoking, these same rules and regulations may also be driving adult tobacco consumers to other tobacco products (OTP).

The numbers seem to back this up. Research indicates that OTP will have a banner year in 2012, with per-store projections reaching $51,752 in sales and 17,049 units, according to the 10th annual Convenience Store News Industry Forecast Study. And a major player in OTP is moist snuff.

"It is the lion's share of our OTP," said Dave Williamson, retail vice president at Jubilee Food Stores, the Louisiana-based division of Hill City Oil Co. "[Moist snuff] was my top-selling item [in OTP] last year. I have to go down nine spots before hitting something else in that category."

This is not surprising to Reynolds American's American Snuff Co., the makers of Grizzly moist snuff.

Company spokesman Richard J. Smith said growing awareness and considerations coming from adult smokers, who are exploring their options, are probably driving some of the growth in moist snuff.

"Moist snuff has always been the primary product in the smokeless category and is, by far, the largest product in the category by volume," Smith said. "Given the external environment — more smoking restrictions, higher taxes and other factors — what you're seeing is more adult tobacco consumers consider their options."

That doesn't mean smokers are giving up cigarettes all together. Some adult consumers are using both products. "As trends in the marketplace and society continue, you are likely to see more use of moist snuff by adult tobacco consumers who choose to enjoy the product at time when they cannot smoke," Smith noted.

Bottom Line

• Smokeless tobacco has grown 6 to 8 percent annually, while cigarette volumes decreased.
• Moist snuff is proving popular as smoking restrictions get tighter and more widespread.
• Moist snuff accounts for nine of the 10 top-selling OTP products at Jubilee Food Stores.

American Snuff's Grizzly brand holds a 26.7-percent share of the moist snuff category. Smith said Grizzly accounted for more than 70 percent of the total moist snuff volume growth in 2011.

Grizzly has proven popular at Jubilee Food Stores. "My No. 1 seller in both quantity and dollars is Grizzly Long Cut Wintergreen. It is price driven," Williamson said, adding that Copenhagen used to hold the No. 1 spot in his stores.

Despite its change in position at Jubilee Food Stores, Copenhagen still ranks overall at the top of all moist snuff SKUs, according to Convenience Store News' Tobacco Industry Handbook. Skoal, Grizzly and Kodiak round out the Top 10 SKUs. Copenhagen and Skoal are both made by U.S. Smokeless Tobacco Co., a division of The Altria Group.

"Growth overall in the smokeless tobacco category has been increasing, driven by moist snuff ... The entire [smokeless] category itself has continued to grow at 6 to 8 percent annually for the past several years. This is happening as cigarette volumes continue to decline," said Smith.

The growth is still holding steady with moist snuff's main consumer: adult males.

"Down here, we are in the industrial belt — shipyards, off-shore oil workers. That is our typical [consumer], blue-collar guys, factory guys. And some outdoorsmen," Williamson said. "In southwest Louisiana, hunting and fishing skews very high on what you do when you are not working."

Jubilee Food Stores may just very well be in the right place for moist snuff.

"Historically speaking, moist snuff has seen the highest numbers, for the most part, in the U.S. South and Southeast," Smith explained. "While moist snuff does have appeal nationwide, the strongest areas primarily run from Pennsylvania to Texas and all states in between."

Retailers should take note of the category's growth, according to Smith. "Retailers should be well aware of this and plan their category management accordingly, being sure to stock the right brands and the right styles for their adult tobacco consumers," he said. "As we've said in the past, retailers would be well-served to give the tobacco category its due and this certainly includes smokeless."

Most Jubilee Food Stores locations give the moist snuff segment a two-foot-wide rack with four or five shelves. But Williamson said pricing, not spacing, may be the biggest obstacle facing moist snuff — and the tobacco category as a whole.

"Moist snuff has been steady over the past few years, but the complexion has changed with all the discounting tobacco companies do," he said. "I used to do a lot higher retail for the product, but now with the buy-downs, I am moving the same amount of units at a lower retail."

And the problem is not limited to tobacco, he observed. "It used to be a profitable category, but most people in the retail world — whether it is me or the tobacco companies or Pepsi — are trying to manage a shrinking entity," Williamson noted. "Less people smoke [and] less people drink CSDs, so what is the best strategy to weather that? Do you drop your price to try to incentivize people?

"You hope that will be the net effect, but every time those companies do that, you can't grow your volume to surpass where your profit levels were."

For comments, please contact Melissa Kress, Associate Editor, at [email protected].

"Given the external environment — more smoking restrictions, higher taxes and other factors — what you're seeing is more adult tobacco consumers consider their options."

— Richard J. Smith, American Snuff Co.