Since chains such as Dollar General and Family Dollar announced plans to start selling tobacco, many have become wary of the potential competitive threat represented by the value-driven dollar channel. Not surprisingly, most of the focus has been on the c-store staple of cigarettes—but retail shipment data from Management Science Associates (MSA) suggests value-driven retailers might be going after the profit-friendly OTP segment as well.
Although c-stores still reign supreme in all segments of the tobacco category, the mass-merchandise channel has been slowly increasing its share of volume distribution in segments such as large cigars, little cigars and e-vapor.
This rising volume share is almost entirely coming from dollar stores, according to Don Burke, senior vice president of Pittsburgh-based MSA. Perhaps more telling is the fact that the mass-merchandise channel has been drastically increasing the average number of OTP items carried on a per-store basis—a clear indication, Burke says, that these operators are looking to establish themselves as OTP power players.
Here’s a look at just some ways the dollar channel is going after OTP, and what that attack is doing to c-store volume share by subsegment.
Large Cigars
Burke credits the nearly doubling of large cigar SKUs to Family Dollar fully committing to the cigar business. Although c-stores managed to grow their share of total large-cigar volume (going from 78% in 2013 to 80% in 2014), Burke worries about the threat from dollar stores, especially given the impressive 8.4% cross-channel growth rate of the segment.
Little/Filtered Cigars
Yes, the mass-merchandise channel went from a non-player in the little/filtered cigar segment in 2013 to just a 1% volume share in 2014; however, that single point may have come directly from the c-store channel, which went from a 56% share in 2013 to a 55% share in 2014.
Smokeless
In a bit of good news, it appears as though the mass-merchandise channel is moving out of the moist-smokeless segment. The channel dropped both SKUs and volume share, going from 3% of volume share by trade class in 2013 to 2% in 2014.
E-Vapor
E-vapor is the most drastic example of dollar stores attacking (and succeeding) in the OTP world. In just one year, the mass-merchandise channel went from 1% share of total e-vapor (including e-liquid) volume to 11%. Dollar stores are certainly not the only operators going after this segment; mass-merchants such as Walmart are also on the trail of these products, Burke said.
The attention of less-traditional tobacco channels has come at the expense of c-stores. In 2013, 70% of e-vapor volume came through c-stores; that percentage has now fallen to 64%.
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