For years, William Baine tried to increase razor-thin tobacco profits by creating efficiencies and electronically tracking the category at the item level to spot errors and better manage his sets.
Last year’s efforts were different. Baine, CEO of the four-store Git ’N Go Markets, Clinton, Tenn., says work with his local trade association on a seemingly innocuous bill made a huge difference, potentially doubling his tobacco margins.
In pushing pro-business initiatives concerning tobacco, Baine and other retailers like him face a cacophony of opposition from health and child-welfare groups. Add to that the limited resources of a small-business owner. But every so often the planets align.
In Baine’s case, that alignment came when Tennessee raised the minimum markup for cigarettes last year from 8% to 15%, which Gov. Bill Haslam signed into law in spring 2015. A coalition that brought together c-store retailers and local healthcare advocacy groups supported the measure as a way to combat what Baine described as a “near monopoly” from two out-of-state companies.
These companies “force retailers to sell near state minimums,” Baine said. As a result, an increase in the markup was seen as a way for retailers to achieve better margins while increasing what the state receives in sales taxes (as a result of potentially higher retail prices).
Key elements helped the measure pass:
- It was a simply worded measure.
- It benefited a disparate array of parties, resulting in an unlikely alliance between retailers, anti-smoking advocacy groups and state lawmakers.
- It included a tenacious education process involving all stakeholders, with the entire process taking three years.
It was a “simple deal, just one sentence,” says Emily LeRoy, executive director of the Tennessee Fuel and Convenience Store Association (TFCA). The strategy came from board members of the Nashville-based group.
“Any apparent deviation on message will send a cautious lawmaker running for the door.”
The first thrust came with education, LeRoy says. Members taught lawmakers how the tobacco markets work and the importance of the category to Tennessee retailers, and then linked those ideas to jobs.
The association’s toughest obstacle came when the state initially gave the measure a “negative fiscal note,” meaning it would cost the state money in lost tax revenue and could not go further unless lawmakers allocated funds to cover the loss. It took two years to attain budget coverage and make the measure “revenue neutral.”
In the meantime, health organizations began to back the bill because higher prices could dampen tobacco sales—something they could get behind, LeRoy says. While raising prices did not sit well with retailers, LeRoy says the overarching stance was keeping age-sensitive products from being loss leaders. She said contracts from major tobacco manufacturers were pushing retailers to sell at the lowest possible price—something members were ultimately against.
Retailers also appreciated how customers, not retailers, would bear the cost of an increased markup. While unfortunate for the public, retailers felt more compelled to raise prices to achieve parity with their costs, LeRoy says. What would actually happen, she says, is prices would move back up to what consumers were used to paying before the contracts came into play a few years ago.
Finally, retailers had to convince legislators that an increase in retail prices would generate more revenue at the retail level and result in a higher yield in taxes despite a potential fall in demand. And it worked.
“Tennessee is an exceptionally conservative state,” LeRoy says. “Our general assembly reflects that and wants to help free enterprise.”
The new markups are a year into a two-year implementation process.
LeRoy commends the grassroots action of the retailers involved: “They’re active in their local communities and know their legislators, who see the impact retailers have on their home districts.”
For its part, NACS, Alexandria, Va., says it is continuously vigilant against restrictive legislation and will fight for new laws that can help retailers thrive.
NACS is developing a grass-roots effort of its own to inform retailers and the vaping community about the U.S. Food and Drug Administration’s (FDA) new deeming rules and their disruptive effects on the vaping industry. Essentially, the new rules would create a complex application process for any new tobacco product not on the market before February 2007. A measure at the federal level called the Cole-Bishop Amendment to the Agricultural Appropriations Bill is under discussion this fall.
NACS’ effort will employ social media and the website StoptheVapingBan.com to educate the public and all stakeholders about the importance of the amendment, which would push up the 2007 grandfather date to possibly sometime in 2016. That move would shield most vaping products currently on the market from the complicated, expensive application and review process.
Because almost 100% of vaping products were launched into the U.S. market after 2007, the FDA rules as they stand could virtually wipe out the industry, says Lyle Beckwith, senior vice president of government relations for NACS. He hopes the social-media campaign will encourage retailers and consumers to contact their Congress members.
When asked how retailers can help shape legislation in general, Beckwith says, “The closer to the action you are, the more you need to be involved. Chances are a local ordinance is not on a state or national association’s radar … so the retailer must represent him or herself at most local hearings.”
He also stresses the importance of crafting a cohesive stance across the industry.
“Any apparent deviation on message will send a cautious lawmaker running for the door,” Beckwith says. “Once on message, retailers must unite and show broad support for, or opposition to, a specific issue.”
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