Change is Here

It's not just about cigarettes anymore.

Linda Abu-Shalback Zid, Senior Editor

LAS VEGAS -- Welcome to a tobacco manager's life after hours. Here are just a few of the questions he/she is pondering:

Do I accept one cigarette manufacturer's promotions over another? I need to expand my cigar space but how? A wave of innovation is flooding moist smokeless tobacco (MST), what should I carry and where do I fit it in? Snus seems promising but how do I train my folks to explain how it works?

Oh yeah, adds tobacco consultant Lou Maiellano, "one thing that is never discussed in these discussions is what is it that the consumer wants."

Profound in its challenges, [image-nocss] yet obvious in its thinking.

Maiellano, a former tobacco category manager at Sunoco and currently president of TAZ Marketing & Consulting Group, moderated a panel tackling dramatic changes in the tobacco world, from legislation to retail execution. On the panel were Steve Sandman of Republic Tobacco, Joe Teller of Swedish Match, and retailer Chris Beaulier of Cigaret Shopper.

The Q&A session coverered a wide range of subjects, but if there was a lingering theme it was this: Change.

"Face the reality," Maiellano said, during an opening presentation. "Change is upon us. What the tobacco industry is today is obviously not going to be that way in the future."

Fundamental to this transformation are evolving consumer tastes and demands driven, in large part, by ubiquitous smoking bans. Increased restrictions have propelled tobacco enthusiasts to explore alternatives, from the rapidly rising MST market to oral innovations like snus and other dissolvable products that are both smokeless and spitless. This said, cigarettes will continue to anchor any tobacco set, but over the next decade, will lose incremental share to MST, cigars, roll-your-own/make-your-own and possibly e-cigarettes.

It is this last category-- electronic cigarettes-- which captured great attention at the NATO Show expo, with more than 10 exhibitors touting the product that awaits determination on whether it will fall under FDA tobacco jurisdiction. While some are promoting e-cigarettes as a safe alternative to cigarettes and even, potentially, as a cessation product for some, others are more skeptical.

"There's a market for that type of product," said Sandman, vice president of sales and marketing at Republic Tobacco, who admits he's not a big fan of e-cigarettes. "That business is in a lull right now. They're very expensive and completely unreliable."

Nonetheless, Sandman noted, he expects the next generation of e-cigarettes to resolve such issues as breaks and leakage and to potentially deliver a disposable, more affordable product that will yield market acceptance. "If a better [e-cigarette] product comes along, I think it will take off."

In other matters:
MST: Teller, category management director at Swedish Match, said the category boasted double-digit growth for 10 consecutive months in the convenience channel. "This fast growth in this weak economy is an extraordinary thing." He attributed some of the success to traditional smokers who are crossing over, at least in part, due to smoking bans, communal pressure and climbing cigarette prices. FDA impact on other tobacco products (OTP): "Nobody knows" what the impact will be, Sandman said. "Once you know something, you can adjust. Don't wait on your hands, waiting for regulations to come down the pike." Planograms: Beaulier, retail operations director at 15-store Cigaret Shopper based in Lincoln, ME., said he works closely with manufacturers on sets, productivity and planograms. Underlying product assortment and placement, he said, are the following questions: "Where's the growth? Where's the business going in the future?" He also talked favorably about partnering with such suppliers as Swisher International and Swedish Match, without price contracts. "What we look for is guidance-- help us be a better retailer."