CHICAGO — In recent months, I’ve been getting the lowdown from retailers on how business is doing and also reporting on a flurry of regulatory news from the U.S. Food and Drug Administration (FDA) and tobacco manufacturers.
One of the most striking talks I had recently was with a retailer—who spoke to me under condition of anonymity—facing a crazy number of state and local regulations that are crippling her business. Because of the limitations on flavors and all-out bans on certain products, many of her stores had cardboard covering several empty backbar shelves.
Unbelievable.
With tobacco generating one-third of c-store sales, according to NACS, it’s a wonder that retailers can stay afloat. If a flavor ban or a tax increase happens, it’s not just the lost sales of those tobacco products—it’s the lost coffee, doughnut and fuel purchases that typically follow.
Of course, regulations are just a part of the ongoing challenge that comes with tobacco.
Manufacturer price increases, operational issues, technology, age-verification requirements and space management are a constant struggle. The category can be a beast. One retailer told me she used to make fun of the colleague who preceded her as tobacco category manager because he had to make price changes on Christmas Eve. This year, she thinks she could be him.
The New Normal
The unfortunate moral of the story is that opportunities to maximize the category require action. In the past, urgency was never a prerequisite. The backbar had a slow, steady drumbeat. Today, everything from responding to limited-time offers to answering a panicked call when law enforcement is at a store questioning a hemp-based product has put an emergency button on everyone’s cellphone.
The main advice retailers have suggested is to rethink the category. Gone are the days of a single annual price increase from manufacturers. This year, retailers are expecting three. Today’s hot cigarillo may suddenly turn cold, leaving unsold inventory that’s now taking up space. And how will the store house that new, oddly shaped tobacco product with its existing shelving? All these scenarios are now monthly concerns for retailers, suggesting that change is the new norm. That means retailers are going with what works today, but they’re making sure plans B, C and D are viable and at the ready.
Now, before anyone panics: Analysts have highlighted promising growth in some segments of the tobacco category. One of these growth areas is in e-cigarettes. Despite San Francisco-based Juul pulling four flavored vaping pods from retail last fall, customers seem to want to follow the brand, opting for Juul’s tobacco and mint options. While volumes dropped after the initial pullout, they are recovering with the remaining pod assortment.
And flavors haven’t gone away. Depending on the market, multiple e-cigarette brands continue to sell flavors at retail, with owners reporting some degree of success.
Nicotine Alternatives
So-called “modern oral” nicotine alternatives—pouches, lozenges and even toothpicks—are also gaining traction. Supply issues are reportedly a concern, but retailers are starting to see significant increases in these nicotine-delivery methods. That’s more good news.
Finally, the growth of natural-leaf cigars appears to be continuing. Speakers at CSP’s recent tobacco webinars have noted this trend, but they also say barriers have kept those products from greater distribution. Again, this may be an untapped opportunity if retailers face those challenges.
At the end of the day, how retailers respond to the shifting tides of tobacco is totally up to the individual business. The hard truth is that tobacco is now an unruly beast. Just when you think you’ve pinned it down, it heads in a completely unexpected direction.
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