Snus manufacturers would tell you it’s the little segment that could. A relative newcomer, the spit-free tobacco product has enjoyed solid growth since it first hit the United States around 2007. Last year was no exception, with Nielsen showing snus dollar sales in large convenience chains rising 7.2% in 2013, and volume up 4.8%.
“Looking at the percentages, this category is growing at a very healthy rate relative to its counterpart, moist smokeless,” says David Bishop, managing partner of Barrington, Ill.-based sales and marketing firm Balvor LLC. “That being said, snus is a fraction of the size. It’s a larger percentage of a smaller base.”
It’s a nice success story for those in the snus business to sell. But are those numbers actually translating into retailer profits?
For some, Nielsen paints an accurate picture.
“Nielsen’s 4% growth sounds about right for our c-stores,” says Andrea Myers, president of Kocolene Marketing LLC, Seymour, Ind., which runs convenience stores and tobacco shops. “It’s higher than that in our tobacco stores, where we’re averaging double-digit growth. We really push it.”
But Nielsen’s growth is definitely not indicative of all retailers, such as Framingham, Mass.-based Cumberland Farms. Anne Flint, the company’s senior manager of tobacco, says she “really has not seen snus take off” at Cumberland’s 574 locations.
Others are downright frustrated by their snus sales—or lack thereof.
“I am not sure this segment has validity based on our sales and, really, the lack of commitment from the manufacturers,” says Frank White, director of retail operations for Tri-State Petroleum, Wheeling, W.Va. “I’m not seeing that they’re that committed to it.”
Bishop agrees that snus has become somewhat of a forgotten segment, often overshadowed by the newer, glitzier sector of electronic cigarettes and vaporizers.
“We’re kind of in a position now where there’s still a healthy number of snus users,” he says, estimating a few million U.S. consumers of snus. “But in terms of buzz in the industry and focus from the consumers, there really isn’t a lot.”
That said, Bishop is still a believer in snus’ value within the modern tobacco set, provided retailers are willing to attack the challenges that come with it.
“If there’s any differences between what Nielsen’s large-chain numbers report and the broader industry performance, it’s likely due to a function of the execution,” Bishop says.
Here are some of the most pressing issues facing retailers when it comes to properly executing this segment, and how snus manufacturers can aid operators in facing these challenges.
NEXT PAGE: Sales Are Fragmented
Sales Are Fragmented
As is the case with many newer or alternative- tobacco products, snus sales are far from consistent.
“Is it selling? Yes,” says Myers. “But it’s not catching the world on fire. Some of our c-stores do pretty well with it, and others don’t.”
It’s a similar story at Cumberland Farms, where Flint describes sales as “fragmented” to the point that “in most stores, we cannot give it away.”
Not that fragmented sales are anything new. “We know there’s regionality within various consumer goods,” Bishop says. “That’s a complicating factor for those larger retailers who tend to go across multiple geographies.”
Any number of regional factors might make snus a more or less compelling option for consumers in different areas.
“If a city or a town has a lot of smoking bans, it will sell a little better because people have to use something else,” Myers says. “As more and more smoking bans are now including electronic cigarettes and vaping, this is another nicotine delivery option.”
Another important factor is a store’s proximity to lower-priced cigarette markets or outlets, such as untaxed Native American reservations or neighboring states. As Bishop points out, “It’s not simply a situation where New York state would have the highest snus consumption and Virginia would have the lowest.”
Many retailers find the best solution for combatting inconsistent snus sales is constantly reviewing their own data, offering a more robust snus selection in stores where it’s performing and scaling back in stores where it’s not.
Cumberland, for example, stocks the sales-leading Camel Snus in all of its stores, Marlboro in roughly 25% of its stores and General Snus at 34 locations. Flint says the placement decisions are loosely based on both demographics and in-store tests.
A store-to-store approach, however, is not always an option, because some of the larger tobacco companies require that retailers carry their snus products across the board. White says Tri-State is contractually obligated to carry Marlboro and Camel snus products in all of its locations.
“The thought process is that it is the cigarette customer using snus instead of smoking,” he says. “I am still not convinced we should carry it in all locations.”
Obviously, a major way snus manufacturers could help retailers deal with fragmented sales would be to eliminate such “all-or-nothing” requirements. Richmond, Va.-based Swedish Match already offers this flexibility, which is one of the reasons White is considering introducing Swedish Match’s General Snus into some of Tri-State’s locations.
NEXT PAGE: Where Should Snus Live?
Where Should Snus Live?
It’s an all-too-common dilemma for the modern tobacco retailer: too many OTP products, and nowhere to put them. The dilemma is heightened when it comes to a relatively new product, such as snus, prompting Bishop to list placement as snus’ primary challenge for retailers.
“The problem is there is no unified segment on the backbar,” he says. “It makes it very difficult for consumers who haven’t tried snus to learn about it.”
Unlike most OTP segments, snus placement varies greatly. Camel and Marlboro brands tend to be merchandised with their cigarette counterparts, while General has a stand-alone refrigeration unit that is typically placed within the OTP section.
Bishop says the issue isn’t so much whether snus is merchandised adjacent to cigarettes or OTP, but that retailers are not consistent with where the segment is placed from store to store.
“It’s especially difficult for the companies who feel their snus needs to be cold; we have to make sure we have a plug for it,” Flint says of why Cumberland’s snus placement sometimes varies.
Other times, the inconsistencies have to do with the space retailers have to work with. “I think when it’s merchandised correctly and people can see the options, it will sell,” says Myers. “But it’s hard to get that, especially if you’re not working with brand new stores. Most of our stores were built in the ’90s.”
Many retailers feel the best route would be to merchandise all snus products within the OTP section.
“Snus products have a standout look but still get lost in the cigarette rack,” White says. “I’d definitely like it in OTP or create a section for alternative nicotine products with snus, electronic cigarettes and vaping products.”
Even if retailers could easily fit cooler units into their OTP sets, and even if contracts did not restrict where products are merchandised, there’s still the very real issue of finding a prominent place for snus that will catch the consumer’s eye.
Most retailers, however, have a limited amount of visible real estate. “We are really struggling to find good, visible homes for these items,” says Myers, who is currently knee-deep in new OTP set plan-o-grams, attempting to create more room for snuff, snus, electronic cigarettes and e-liquids.
Clearly, the front counter offers maximum visibility. But in the retail real world, electronic cigarettes are the hot new product most worthy of this valuable real estate.
In lieu of placement on the counter, Bishop suggests retailers evaluate the sight lines of their backbars, giving snus a consistent home where consumers will notice it.
“If it’s not clearly visible, it is no different than having it below the counter,” he says. “There’s a problem with ‘out of sight, out of mind.’ Consumers aren’t looking for it and the cashiers aren’t promoting it.”
NEXT PAGE: Trial and Awareness
Trial and Awareness
“The biggest challenge is consumer education,” says Flint. “Not enough has been done to educate possible snus users as to what it is and the possibility of it being less of a cancer risk than cigarettes.”
Myers agrees: “Customers don’t understand what it is; you have to explain it to them. Especially in a convenience store, you don’t have that much time with customers. I will say that once people try it, most of our customers really like it and become return customers. But getting that first-time purchase is really hard.”
Because of their limited time with consumers and the abundance of other products in convenience stores, retailers are reliant on snus manufacturers to help tackle the trial-and-awareness hurdle.
“With all the different programs c-stores have, the burden needs to fall on manufacturers to educate the consumer,” Flint says.
Specifically, the retailers interviewed for this story with would like to see manufacturers:
▶ Up Snus Education Campaigns: “Manufacturers need to market snus to show differentiation from moist tobacco and cigarettes,” says White. “Is it snuff? Is it a nicotine mint? Right now there’s a lot of confusion.”
▶ Expand In-Store Advertising: Whether via POS, indoor signage or outdoor ads, retailers would like to drive home the point that they are carrying snus. Myers says Kocolene has successfully partnered with several manufacturers on an advertising program for its drive-thru locations that has helped get people asking about snus.
▶ Offer Price Breaks: “It’s important manufacturers support retailers with various direct-marketing opportunities using coupons or special deals,” Bishop says. It’s a tactic that already has been proven effective: Myers says Reynolds drove a lot of early trial by including snus coupons in Camel cigarette packs, and Cumberland Farms saw its General Snus sales more than double in March 2013, which Flint says was due to deep discounting by Swedish Match.
▶ Introduce Trial-Friendly Sizes: “A trial size would be a nice option so that you could get a really low price point,” says Myers. “People don’t want to pay the same price as a pack of cigarettes for something they’ve never tried before.”
As beneficial as these efforts on the part of snus manufacturers might be, there are also ways in which retailers can, and have, helped drive awareness.
For one, they can carry educational materials in their stores. “I can tell you, having just been in many stores, I didn’t see any literature, although each location had snus products,” Bishop says.
And though there may be limited time for c-store employees to interact with the consumer, Myers encourages her people to seize those opportunities.
“We have a million things to say when a customer complains about the price of cigarettes or that they can’t smoke somewhere,” she says. “That is like a customer opening the door. You have to offer consumers alternatives because, oftentimes, they don’t know.”
The strategy may seem better suited for Kocolene’s tobacco shops, but Myers says it’s worked in her c-store locations as well.
“Let’s face it: Customers love to complain about something, whether it’s the weather or the price of cigarettes,” she says. “You just turn it around and say, ‘Hey we’ve got this cool product that’s cheaper, doesn’t create smoke, you don’t have to spit and you can use it anywhere.’ ”
NEXT PAGE: Realistic Expectations
Realistic Expectations
The challenges of being successful with snus are very real, and the solutions are rarely simple. But most retailers feel it’s worth the investment.
“As long as customers are buying the product, we intend to continue carrying it,” says Flint. “I think snus is a long-term commitment and will continue to grow as consumers become more aware of what the product is.”
Bishop says it’s important for retailers to be realistic about this segment’s growth. Snus may not consistently double its sales year over year, but that doesn’t mean the product is not of value.
“We’ve continued to see a slow burn on the growth curve,” he says. “It’s not going to be the exponential curve we’re seeing with e-cigarettes, but I think we’re going to continue to see a slow and steady march upwards. These are very gradual shifts.”
Even White is intrigued by snus’ potential.
“I’d definitely like to invest in snus as a nicotine alternative, especially as e-cigarettes become more regulated,” he says. “As a retailer, the margins [of 20% to 30%] are pretty good. Anything I can do to boost margins is appreciated.”
Given Nielsen’s snus growth numbers of 4% to 7%, Myers takes an even more optimistic view of snus’ place in the modern c-store set.
“It’s all about the shifts,” she says. “You gotta shift with your customers and you have to offer alternative products, or that consumer will shift right out your door."
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