Tackling Texas Taxes

Susser unveils private-label cigarette brand to battle state tax increase

CORPUS CHRISTI, Texas -- With a new state tax adding $10 to the cost of a carton of cigarettes in Texas, Susser Holdings Corp. introduced a private-label cigarette line this month in an effort to offset a trend of shrinking cigarette profit margins. The cigarette brand was developed with Sandia Tobacco Manufacturers Inc., Moriarty, N.M.

Royal Cigarettes are a private-label brand [that] allows us to offer a high-quality product at a lower cost for our value-conscious customers while maintaining or hopefully increasing our gross profit per pack, Sam Susser, [image-nocss] CEO of Susser Holdings, said during the company's fourth-quarter conference call on Monday.

See a related story about the company's fourth-quarter results elsewhere in this issue of CSP Daily News.

Susser said the new tax, which took effect at the beginning of the year, has had a measurable effect on store sales.

We saw an upward spike in cigarette carton sales right at the end of the year in advance of a new $10-a-carton tax in Texas that took effect January 1, he said. In effect, this cannibalized some of our January sales into December. We are [also] seeing a meaningful change from buying cigarettes by the carton to by the pack. I think other retailers have reported that same behavioral change also.

He added that he expects the tax to affect cigarette sales for the full year.

The $10 excise tax increase and the price increases initiated by manufacturers will drive 2007 margin percentages down materially in the cigarette category even if we were able to maintain the same gross profit per pack, he said. We're still continuing to see above-average increases in restaurant, single-serve drinks and snacks, and this favorable change to the product mix has been offsetting cigarette pressures.

Susser said cigarettes represent about 17% of our merchandise sales, about half the industry average. Still he is hopeful the new Royal Cigarettes, which are available only in Susser's Stripes Convenience Stores, will help make up some of the difference, and thus he is aggressively advertising the new brand.

We are limited under the current law, but we have done some newspaper advertising and we are being as aggressive as we can with point-of-sale advertising because it is a tremendous value and it's a very high-quality product, he said. We're very enthusiastic about it helping us in this difficult category.

Susser added that the company is looking at other private-label opportunities but was not at the point where those could be discussed.

Corpus Christi, Texas-based Susser Holdings Corp. is a third-generation family-led business that operates 325 c-stores in Texas and Oklahoma under the Stripes banner and supplies branded motor fuel to 367 independent dealers through its wholesale fuel division. Susser owns and operates 146 Laredo Taco Co. restaurants inside the Stripes convenience stores that feature authentic made from scratch Mexican food.