"People are cutting down. They're trying to make a pack last longer," Sue Burbar, owner of Gas & Shop Food Mart in Cape Coral, Fla., told the Southwest Florida News-Press. "One of my employees goes outside, smokes a half of a cigarette, puts it out and then finishes the [image-nocss] rest later." Burbar said sales are down 30% to 40%.
Similarly, The Pantry counted a drop in tobacco sales volume since the federal excise tax increased in April and the state tax increased in Florida, among other states, as a key reason for merchandise revenues being down in the third quarter.
"Our merchandise results were significantly impacted by the 62-cent-per-pack increase in federal cigarette taxes," CFO Frank Paci said on an earnings conference call Tuesday. "For the quarter, our cigarette unit sales were down in the low double digits as we expected, and this was offset by an increase in average revenue per unit of more than 25%. We are continuing to fine tune our strategy in cigarettes to determine the right competitive positioning in this key category."
As for state cigarette taxes, Paci said the worst is yet to come. "Our results were slightly affected during the [third] quarter and will be to a much greater extent going forward by increases in state tobacco taxes. Kentucky increased its cigarette tax by 30 cents per pack in April, Mississippi by 50 cents in May and Florida, which has 26% of our stores, raised the cigarette tax by $1 per pack on July 1.
Jim Smith, president of the Florida Petroleum Marketers Association, which represents 5,300 of the state's 9,200 convenience stores and gas stations, told the newspaper that the state tax is hurting small businesses.
"All we have right now is anecdotal evidence and what our members along the northern border of the state are telling us is that sales here are down 10% to 15%," Smith said, adding that tobacco products account for 34% of a convenience store's sales outside of gasoline. "That's a third of their profitgone."
The reason for the decline doesn't have much to do with people quitting smoking, Smith suspects.
"Certainly some people have chosen not to smoke," he said. Others, however, are driving across the Florida border to Alabama and Georgia and stocking up, the newspaper reports. Others are finding Internet sites that offer cartons for as low as $16 compared to the $46 price tag of a store-bought carton, Smith said.
The state collected $279 million in taxes on all tobacco products last year and generated between $18 million to $22 million per month from taxes on cigarettes alone. State officials estimate the state could see about $900 million in cigarette taxes in 2009.
Feres John, a clerk at Subco, a gas station/convenience store in San Carlos Park, Fla., told the newspaper people are doing whatever they can to feed their habit.
"They're trying to quit, but they can't," he said. "They're buying cheaper cigarettes (including generic brands and new shorter cigarettes), and we're stocking more cheap cigarettes and the small Marlboros." Marlboro is promoting its "72s" cigarettes, shorter than regular smokes and usually offered at about $1 less.
People are also using more coupons and looking for deals, such as $2.50 off for smokers who buy two packs at once, he said.
Cigarette sales at Subco are down about 30%, John said.
Paci of The Pantry agreed consumers have changed the way they shop and what they shop for.
"You see people, ...instead of buying cartons, buying singles or buying two packs. So, yes, there is certainly a lot of what I'll call trading down going on in the business," he said. "You actually get a margin benefit as you trade down from a carton, but you lose volume sales. So you do have a period of adjustment as you comp against that, in terms of what I'll call delaying the pipeline."
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