The Loyal OTP Consumer
Exploiting a growing category to abate the loss of disposable income
OAK BROOK, Ill. -- Product and packaging innovation has sparked growth in the sale of other tobacco products (OTP) recently, vaulting the category into the top five of those sold in convenience stores. And now may be the perfect time for retailers to begin capitalizing on that, according to a panel of OTP experts and researchers gathered for a CSPNetwork CyberConference entitled Building Store Loyalty with OTP.
The [rising] gasoline price issue is a threat. It is contributing to a decline in customer traffic in the convenience channel, said David Portalatin, [image-nocss] senior industry analyst with the NPD Group, Houston. Retailers are going to have to engage intentional strategies to reverse that trend, and the OTP category makes a lot of sense as a category to leverage to reverse that [trend].
Click here to view a free on-demand rebroadcast of the cyberconference, which was sponsored by Swedish Match North America (retailers only).
After outlining the phenomenal sales growth OTP has seen in the past few years, the panel encouraged retailers to view the category as independent of cigarettes and apply category management standards to it, including allowing the appropriate amount of space to the products and knowing what OTP consumers are looking for.
Your display should tell me that you are in the [OTP] business within 10 feet of walking in the door, said John Mayer, national tobacco and cigarette manager for distributor McLane Co., Temple, Texas. A majority of OTP consumers say OTP is the primary reason they are in the store. [And] when they come into a store, they have a preferred brand that they're looking for. They know their flavors. They know their taste. They know what they're looking for, and in many cases, they're not going to substitute a different item for that [product].
Joe Teller, senior manager of category management for cigar and snuff manufacturer Swedish Match, Richmond, Va., said c-stores own 45% share of all OTP sales, or about $3.6 billion of the $8-billion industry. He also offered some statistics illustrating what drives sales of particular products.
For moist snuff, 51% of consumers said they look for a low price, while 12% prefer a portion pouch. He said Swedish Match data show losing a premium snuff consumer to value-priced products is not necessarily a bad thing. For every one can decline in premium [snuff], the industry gains 6.7 cans of value-priced snuff, he said.
For cigars, Teller said 54% of consumers look for flavored cigars and an additional 21% reported an interest in pipe-flavored cigars. He added that single cigars continue to show great growth, with sales up 25% in the past year, compared to 9.3% growth for packs.
Portalatin said OTP consumers shop in c-stores nearly twice as often (13 times a week) as the average c-store customer. He also noted that OTP customers are big-basket shoppers, spending an average $9.19 per c-store visit. Other products OTP consumers often purchase when visiting a c-store include single-serve, packaged sodas (43%), cigarettes (33%), beer (26%), fountain beverages (26%), candy/gum (20%) and coffee/hot drinks (18%).