Category Management Handbook

Tobacco Update: Taking a Page for Premium

Despite its longer-term decline, the industry’s largest in-store category—cigarettes—was able to post respectable dollar growth for the first half of 2016.

“In general, c-stores continue to benefit from improved consumer spending driven by still-low prices at the pump and stronger foot traffic, uptrading by consumers to premium merchandise, and bigger basket purchases per trip,” said Bonnie Herzog, managing director of beverage, tobacco and convenience-store research for Wells Fargo Securities LLC, New York, in a recent research note.

According to IRI, cigarettes’ dollar sales rose 2.7% in the 24 weeks ending June 12, 2016, a refl ection of consumers’ trade-up to higher-tiered brands thanks to the extra savings from low gasoline prices. In fact, in a second-quarter 2016 Wells Fargo “Tobacco Talk” survey of c-store retailers, 63% believed that low pump prices were having a “modest” to “strong” effect on customers’ willingness to trade up to more premium brands.

Viamari believes c-stores are also reaping the benefits of some drug stores stepping away from tobacco.

Dollar sales of smokeless rose nearly 7% in the 24 weeks ending June 12, with units up 2.4%, according to IRI. But the greatest growth in the tobacco aisle is in cigars. C-store dollar sales rose 7.5% in the 24 weeks ending June 12, with units up more than 11%, according to IRI.

11.3%

Increase in c-store unit sales of cigars in fi rst half of 2016, according to IRI


Tobacco Sales

C-store sales, 24 weeks ending June 12, 2016

Source: IRI | * Percent change from a year ago


“With the so-called ‘deeming’ regulations offering both stability and restriction, convenience-store retailers now play a waiting game to see how the rules granting the FDA authority over many OTP products—mainly e-cigarettes and vaping will affect manufacturers and the products they sell.

“Those tracking the industry believe the new rules will ultimately make it harder for suppliers with limited resources to introduce new products, giving the biggest tobacco companies an edge. That said, opportunities still exist for proven innovators and growth in areas such as premium products, new nicotine delivery methods and legalized marijuana.”

—Angel Abcede, CSP Tobacco editor

View the full 2016 Category Management Handbook

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