Making Hay With Cigarette Alternatives
Opening the door to new tobacco products and higher profits
Brought to you by Inter-Continental Trading Co.
At Winsight’s Total Nicotine Conference, held in August in Chicago, many attendees seemed interested in alternative tobacco products—and we’re not talking about vaping.
Challenged with low profit margins and rising taxes—putting a strain on the traditional tobacco set—convenience stores are among a growing number of retailers exploring other tobacco products as a way of boosting sagging numbers. Mass merchants, club and dollar stores, as well as a few chains, have found that these products offer a solution beyond the challenges of traditional cigarettes. And in most cases, for that same reason, they’re also more affordable for consumers. Still, these retailers continue to be few and far between, meaning the opportunity for OTP product sales in c-stores remains wide open.
Here’s a look at two alternatives that can lead to higher profit margins and increased store-traffic alongside traditional combustible and e-cigarettes.
At the Total Nicotine Conference, speakers pointed out the potential “over-SKUing” of products such as traditional cigars. According to Management Science Associates research cited at the conference, 57% of mass-market cigar SKUs account for 80% of that segment’s sales.
This means that as traditional cigars continue to outweigh supply over demand, there’s room for growth in the filtered cigar category. These products, which look like thin cigars, offer a smoke experience similar to that of cigarettes and the added advantage of a wide range of flavors. But the biggest benefit is their low cost, which translates to increased traffic and higher profit margins per sale.
The challenge with filtered cigars is that they are not as well known to the general consumer and are underpromoted by some retailers according to Tom Burns, sales and marketing executive for Inter-Continental Trading Co. “With a little education, smart promotion and marketing, though, there’s a huge opportunity for boosting sales,” he said.
Another OTP category gaining popularity at the mass-market level, but overlooked by c-stores, is pipe tobacco.
These retailers have found that in many cases, one bag of pipe tobacco actually brings in a higher return than multiple packs of cigarettes. And by adding rolling papers and tubes to the product selection, there is the additional bonus of increasing the average sale per visit.
But there is one thing mass-market retailers and smoke shops lack: fuel.
“If a customer is able to buy other tobacco products at the same place they are going for gas, and often at a cheaper price than a traditional smoke shop, it's a win-win for both the customer and the c-store,” Burns said.
And while this sounds like a no-brainer, the challenge at the c-store level with these alternative tobacco products is space and labor. First, the tobacco itself and corresponding paraphernalia often require a different display set that can be prominently and effectively presented to encourage sales.
Second, most c-stores do not have the kind of dedicated labor as in a smoke shop, where sales associates typically walk shoppers through the different products. Companies such as Inter-Continental Trading USA, however, offer c-stores solutions to the headache of rethinking the category. With effective point-of-sale marketing materials, alternative displays and customized in-store training, entry into the OTP segment can be much less daunting.
The tobacco world is changing. Declining margins, rising taxes and new FDA regulations on vape and e-cigarettes have c-stores scrambling to figure out ways to boost profit margins for a product consumers nonetheless expect. But with a little supplier partnership, innovation and smart marketing, revitalizing tobacco product sales can be a great opportunity for new, added sales and profits.