For Ann Flint, it’s a good time to be a tobacco category manager, given the attention-grabbing product and packaging innovations recently filling the category pipeline.
Flint, senior category manager of tobacco/OTP, for Framingham, Mass.-based Cumberland Farms, sees a lot of upside in the snus, e-cigarette and cigar segments as manufacturers appear to be stepping up their efforts to capitalize on the growing number of consumers migrating from cigarettes to OTP.
Experimentation with new offers is the good news; how to right-size the category in the face of a plethora of options is the challenge for Flint and other retailers as she perfects a proper mix for Cumberland Farms’ 600 stores in 11 East Coast states.
Snu Stability
On the MST front, Camel Snus is now available in a nonrefrigerated tin, which provides distribution and merchandising flexibility while still maintaining freshness. “This product was very well received because Camel Snus no longer has to be shipped with perishables,” says Flint.
“Non-refrigerated snus was a sound business decision,” says Richard J. Smith, spokesperson for Winston-Salem, N.C.-based RAI Services Co./Reynolds American Inc. “It’s the same product it’s always been, just without the requirement of refrigeration.”
The shift toward nonrefrigerated product coincides with the introduction of a thinner tin, which contains 15 pouches each. “The thinner, sleeker tin creates a seal from top to bottom to lock in freshness, and it’s also easier to carry,” says Smith.
One tobacco consultant views nonrefrigerated snus as a trend some consumers will have to get used to. “I’m sure there are snus purists that may struggle with the concept of a nonrefrigerated product,” says Lou Maiellano, president of TAZ Marketing & Consulting Group, Sevierville, Tenn.
While not all snus have the luxury of living outside refrigeration, “there are those who maintain that refrigeration is not as critical—just as long as the product is kept in a constant cool temperature,” Maiellano says. “Retailers should be aware that this product is one that will lose its quality if exposed to heat, whether from the sun, through a store window or any equipment that generates heat or significant change in temperature.”
Cigars Locked and Loaded
On the cigar front, a number of manufacturers have rolled out packaging that keeps moisture locked in for a fresher product. The pouches serve as a bona fide humidor, promising the retailer longer shelf life and the ability to merchandise higher-ticket cigars.
Premium cigar manufacturer General Cigar Co. began offering Locked-In Humidity packaging for select sizes of its top-selling Macanudo, Partagas, Punch and Excalibur brands. The protective, airtight packaging provides fresh-from-the-factory flavor in nonhumidified environments.
One of the early adopters of the new packaging, Swedish Match first introduced its trademarked FoilFresh pouches in 2007.
The new cigar pouches “are a positive for both the retailers and the consumers, as product life and freshness are extended,” Maiellano says. “These introductions also have enabled many new product offerings to come to market on a broader scale.
Cigar consumers enjoy fresh products, and that is a plus for all.”
E-Cigs Evolve
Not surprising, the electronic-cigarette category is loaded with new product and packaging innovations, maintaining the buzz felt by the industry since the segment’s arrival. Recent product tweaks include soft tips for a more natural feel—launched by suppliers such as Swisher and 21st Century Smoke—and flip-top packs for better hand feel and what one manufacturer calls the “fiddle factor.”
NJOY, Scottsdale, Ariz., recently introduced a five-pack of its disposable e-cig. The pack is $10 cheaper than buying the e-cigs individually, according to Roy Anise, executive vice president of NJOY. A five-pack retails for about $30, with a base price of $5.99 per pack; buying five single packs would run a customer about $40, with a base price of about $7.99.
“The five-pack is the same width as a pack of factory-produced [tobacco] cigarettes, and it has a nicer feel than an actual pack of smokes,” Anise says. He recommends retailers work with front-line employees to ensure they communicate the five-pack value to consumers.
NJOY’s new flip-top box looks more like a traditional cigarette pack. Anise says the inspiration for the package emanated from “people in our organization that have deep experience in this category.” He calls the consumer experience with a flip-top “the ‘fiddle factor,’ ” because users can open and close it, and it actually feels good in their hands.
“The flip-top box also helps protect the product better,” says Anise. “Users can plop the pack down on a table in a restaurant or bar. It’s on display in public, and people tend to ask about it.”
Headlines wrote themselves this summer when Reynolds announced it was getting into the e-cig game. Smith says Reynolds mulled making acquisitions for an e-cig brand “but at the end of the day, we realized we can do this and do it better.”
Enter Vuse. Powered by what R.J. Reynolds Vapor Co. calls “smart digital technology,” Vuse made its debut in Colorado markets over the summer.
Vuse incorporates automated manufacturing to ensure a consistently reliable cartridge, and it will be sold in a rechargeable format. The price for a Vuse Solo will be about $10; the Vuse System will likely cost around $30, and cartridges will be sold in two-packs for about $6.
Designed and assembled in the United States, the manufacturer is able to “meet economies of scale, and we also have a recycling program. [For] people who finish using the product, we will send a prepaid mailer that enables them to recycle for no charge,” Smith says.
Outside of product innovations, e-cig makers are generating buzz by stacking their teams with seasoned tobacco experts and deep-pocketed investors.
In late July, LOGIC Technology, Livingston, N.J., announced former Altria exec Miguel Martin was joining the company as president. With 18 years in the industry, Martin most recently served as senior vice president of field sales, running the largest tobacco sales and distribution organization in the United States, responsible for Philip Morris USA, UST and John Middleton’s tobacco products.
“This is a pivotal moment in the electronic cigarette industry, and I’m thrilled to be joining LOGIC’s team at a time of great opportunity for the industry as a whole and particularly for LOGIC and its trade partners,” Martin said at the time of the announcement.
No doubt the e-cig segment continues its role as the “wild West” category, and there will be no shortage of evolutions and innovations. Alluding to manufacturers’ focus on consistency, “focus groups I’m aware of fail to put ‘consistent puffs’ in the top five concerns that should be addressed,” says Maiellano. “I do believe there are other manufacturers working on potential breakthrough technologies but, again, time and consumer preference will ultimately determine success.”
Category Update
As product and packaging innovation continues, the tobacco category as a whole is experiencing a manic year, with sales varying from subcategory to subcategory.
According to Greg Tradup, category manager of tobacco for McLane, Temple, Texas, the cigarette category will be down 3% to 4% this year. “Promotional activity from the major manufacturers continues to be a major factor in the category, which plays a key role in the stability,” he says. “While several segments have had some loss, extreme price value or subgenerics are getting hit the hardest.” At the same time, premium price points from Lorillard and Santa Fe have showed continued growth, he says.
In OTP, there has been a large drop in flavored cigar growth vs. other segments as the FDA mulls how it will regulate this segment. Instead, McLane’s clients have been favoring natural leaf, sweet, unflavored and the pipe segments, Tradup says.
Changes in packaging and prepriced or promotional items have made the cigar category quite dynamic, with foil-pouch items now a segment leader in cigar sales, followed by single sticks and cardboard packs, according to Tradup. Nearly every major manufacturer offers a prepriced or special pack item, and Tradup and other industry analysts recommend that retailers continue to review their OTP sets, specifically cigars, as often as possible to allow for changes in packaging and new items.
And then there is perhaps the hottest subcategory in tobacco: e-cigarettes. According to data from Chicago-based research firm IRI, c-store sales of electronic cigarettes inched upward at the end of 2012; by the end of first-quarter 2013, the growth rate was outpacing the industry average. It’s a growth spurt that is finally beginning to hit conventional cigarettes, the channel’s biggest in-store sales generator.
“What you’re seeing early this year ... is that e-cigarettes have put some pressure on conventional cigarette volume,” says Bonnie Herzog, beverage, tobacco and c-store analyst for Wells Fargo Securities LLC, New York. “I call it ‘displaced consumers.’ ” The new subcategory is creating about a 1% drag on conventional cigarette volume, she says, as consumers switch to or try e-cigarettes.
Online sales are also shifting to retail stores. “E-cigs could actually see faster growth in this category for c-stores in the near term as that volume shifts from online to brick and mortar,” says Herzog.
Tradup points out that disposables are still the hottest trend in e-cigarettes as consumers are still on a trial basis, “but we are seeing strong growth in rechargeable kits as consumers gain more confidence and decide to stay with the category.” Many retailers are adding a location for e-cigarettes rather than sacrifice cigarette or OTP space behind the counter, and most major manufacturers have counter or shelf units available to accommodate them.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.