In Tobacco, It's About Survival
JERSEY CITY, N.J. — With increased competition facing the convenience channel — especially in tobacco retailing — it may seem like it is every man for himself, but convenience stores collectively do have some points in their favor.
The tobacco retailing battle was the topic of Wednesday's Convenience Store News webcast, "Tobacco: The Survival of the Fittest." The event was sponsored by Swedish Match.
Overall, the tobacco category is facing challenges — regardless of channel — because adult tobacco consumers are facing challenges. Income constraints, unemployment levels and the price of gas all factor in when consumers are deciding how to spend their dollars, according to David Bishop, managing partner of Balvor LLC, a sales and marketing firm.
"We are buying what we can afford, but unfortunately we are able to afford less than we did five years ago," he said, adding that smoking restrictions and rising tobacco prices also have consumers searching for value and alternatives.
On a positive note, CVS Caremark Corp.'s decision to exit tobacco sales — a decision aligned with the drugstore chain's strategic focus as a health center — means one less competitor for the adult tobacco consumer. However, dollar stores are still a worthy opponent.
Dollar stores have only been selling tobacco products for the past few years, with Family Dollar the first to enter the category in 2012 as a means to drive traffic. Dollar General followed suit in 2013. While dollar stores may hold an advantage, oddly enough, when it comes to convenience because of their sheer numbers, convenience stores win on availability and, oddly enough, price.
Dollar stores, according to Bishop, do not necessarily offer the best price, especially as more c-stores offer two-pack deals. In addition, dollar stores only carry about half or two-thirds of the tobacco assortment that convenience stores carry.
Joe Teller, director of category management for Swedish Match, pointed out that it's been hard for other channels aside from convenience to compete in the moist snuff tobacco segment. In fact, about 80 percent of all moist snuff tobacco volume is sold in convenience stores.
Putting aside the outside competition, c-store retailers are facing questions inside their own stores.
"Cleary, changes are underway on the back bar," Bishop remarked. For example, two-pack pricing is becoming a key way to give consumers value; subgeneric and import brands are seeing some growth; and then there is the acquisition activity surrounding the Reynolds American Inc. (RAI), Lorillard Inc. and Imperial Tobacco plc deal.
The electronic cigarette segment is also seeing some changes as The Altria Group Inc. brings MarkTen national and RAI takes VUSE across the country. These e-cigarette offerings are targeted toward the adult tobacco consumer, so the tobacco companies are "really introducing non-vapors to the category," Bishop noted.
Looking at the vapor category brings to light a new potential tobacco competitor for c-stores: vape shops. These retail outlets have been positioned by some as a threat to c-stores' electronic cigarette business. However, Bishop does not necessarily see it that way.
Vape shops typically offer open-end system products as opposed to the close-end systems (think disposable and rechargeable e-cigarettes) that consumers most often find in convenience stores. In their favor, since vape shops only carry vapor products, they have the ability to offer a bigger assortment, including more flavors of e-liquids, and they have employees who are well-educated on the products the shops sell, Bishop said.
But "vape shops do not see themselves as tobacco retailers; they see themselves as something different," he pointed out.
For the replay of the webcast, click here.