Retailers React to Regulation
FDA control over tobacco brings mixed reactions from convenience retailers
WASHINGTON -- With the signing by President Barack Obama of the Family Smoking Prevention & Tobacco Control Act on Monday, the other shoe has dropped for convenience stores and other tobacco retailers who have been dealing with the State Children's Health Insurance Program (SCHIP)-driven increase in federal tobacco taxes that hit April 1. The new law puts tobacco under the authority of the federal Food & Drug Administration (FDA).The FDA will control what goes into cigarettes, how they are packaged and labeled and how they are marketed and sold, among other powers. (Click here for previous coverage and details of the act.) Although retailers do not all share the same level of concern for all aspects of the new tobacco reality, they all have concerns.
A recent Kraft/CSP Daily News poll asked, "What do you think is the worst thing that could realistically result from FDA oversight of tobacco products?" Of the nearly 160 respondents, nearly 22% said "uncompromising merchandising restrictions"; about 11.5% said "a general decrease in sales"; 11% said "a single manufacturer gaining overwhelming control of the industry"; 6.5% said "a national ban on tobacco sales"; almost 8% said "overly dramatic warning labels"; more than 3% said "local bans on tobacco sales"; 40% said "all of the above"; nearly 2% said "other;" and about 3% said "none."
CSP Daily News conducted a random sampling of a few retailers to get their reactions to FDA tobacco control. Here is what they said.
Terry Kailey, tobacco category manager, 7-Eleven Inc., Dallas:
"We likely won't see much impact for 12 to 18 months. It could be as long as 20 to 30 months for the FDA's first tobacco regulations to be promulgated. The FDA has to build an infrastructure for a new oversight, which involves creating buildings, an organization, etc. Tobacco manufacturers have to underwrite these new costs and will pass them on to the retailer and, ultimately, the consumer will pay more."
"Retailers and consumers could see approximately a 6-cent increase over the next three years as a result of the industry having to fund the FDA's new agency. Over the long run, it will accelerate the decline in smoking, it will be more expensive for a retailer to sell cigarettes and the sales rate will drop."
Mike Thornbrugh, spokesperson, QuikTrip Corp., Tulsa, Okla.:
"I really don't see a big impact for QuikTrip. What I do see is that everybody is going to be treated equally. And for QuikTrip and others, those who compete against the Indian smoke shops and the Internet, if the rules are the same, we can live in that environment. Instead of dealing with 50 different states and all those cities and counties and all the rules, when you have one that affects everybody."
"I think people are smart enough and resourceful enough that they know this has been coming a long time and hopefully have prepared for it. We figured out years ago that if you only rely upon tobacco sales to stay in business, you probably are not going to be around very long. So I don't think it's unusual; we saw years ago that it's a declining commodity and rules and regulations were going to get tougher."
Sam Odeh, president, Power Mart, Oak Brook, Ill.:
"It has been a rough month for me. I'm very used to Chicago politics and I know what's going to happen: the Obama administration went in, and unfortunately they're not looking at it from a business standpoint. That's just not their cup of soupthat's not how they make decisions. It's really no surprise. I'm surprised it was this late."
"It's an adult choice, it's an adult product. I agree, let's not market it to kids. Let's not make it easy to sell to kids. I'm all for that. I have kids of my own and that's not what I want. I think we've done a good job as an industry and I think tobacco manufacturers over the years scaling back and redefining the merchandising and promotions and marketing of it."
"My real concern is stirring up states again. It's one thing to fight those battles, but we don't want to go backwards. As soon as cities, municipalities and states start taking matters in to their own hands, that's the danger zone. But I don't think any of them will go that extreme [of banning cigarettes]. As much as they talk a good talk, they know what it means for their bottom line.This is the wrong time for them to mess around with anything that causes revenue to fall."
"[Another] concern is where does this stop? Today cigarettes, tomorrow salt in chips, there's too much sugar in candynow you're infringing on how I live. I might as well move to Russia."
"We as retailers have to be responsible; if we stay on that platform, I think the government will understand that we're not taking it lightly, but we're not just going to just roll over and die."
J.P. Jordan, merchandising manager, Texas Star Investments Inc., Corpus Christi, Texas:
"The cigarette industry is always going to be the cigarette industry--but now it's regulated by the government. Everybody knows that cigarettes are bad for you. So what's going to happen with all these regulations and increases on taxes is that there's a lot of smokeless tobacco coming out. There's going to be a big push for that. The cigarette business is declining every year and R.J. Reynolds and Philip Morris are on paths to coming up with alternatives to keep people indulging in tobacco, tar and nicotine, but it won't be with cigarettes like it used to."
"Cigarettes are such a driving force for the convenience store industry. If somebody wants a pack of smokes, they usually don't go in to a Wal-Mart or big grocery store. They want to go to a convenience store, so those people you'll still get. C-stores are just going to have to keep on top of it and change with the times. But people will always smoke."Jim Calvin, president, New York Association of Convenience Stores (NYACS):
"There's a high level of anxiety in the retail community. In New York, at a
minimum, it's going to mean a lot of unnecessary duplication of retail
enforcement."Terry Gallagher Jr., president, TCSC (Smoker Friendly and Gasamat), Boulder, Colo.:
"I think they've proven around the world that the graphic warning labels don't have much impact. Most consumers know what they're buying and the risks and choose to make that decision. There's nobody out there who uses tobacco products who aren't aware of the risks associated with it. "The impact to the consumer is going to be the continued escalation of cost of goods. They'll notice that."
"I think there will be some silver lining for us as it starts to unfold. What kind of input can we have as retailers in the rules-making? How do we play now that the game is changed? We don't really know until they start their rules-making. More government is never better."
Jim Smith, president and CEO of the Florida Petroleum Marketers & Convenience Store Association (FPMA):"Everyday I am more and more amazed at the intrusion by the federal government into the lives of small business owners. Though to early to tell what the full impact will be of FDA control of tobacco, I believe history is a great teacher. I can think of no government effort that does what it was intended to do except for our military. Every other program hits the bottom line of every retailer, and this will be no different."Mike Evans, executive vice president of business development, Atlas Oil, Co. Taylor, Mich.:
"No matter what has happened to price so far, people continue to smoke. It remains to be seen how it will impact sales at the retail level, something we're certainly concerned about. For a retail station in the Midwest, typically 40% to 60% of their sales are derived from tobacco sales, and that's a large portion of the operating income that a station makes."
"It may make smoking not as satisfying [if they limit nicotine or other ingredients] in cigarettes. Will that cause people to stop smoking? I don't think it will."
"As a citizen, I'm concerned how much the government is going to interfere with our lives and our livelihoods. Where do you draw the line? I don't know that some of the decisions this government is making that the majority of the population would say are in our best interest. They are reaching into all kinds of things they think they have expertise on. They are running the largest deficit in the world, out of control, yet they still think they can do things better. They haven't demonstrated anywhere where they can."
The Family Smoking Prevention & Tobacco Control Act does not currently have the power to ban nicotine or tobacco outright; however, in response to another Kraft/CSP Daily News poll asked, "Although the Family Smoking Prevention & Tobacco Control Act just signed by the President specifically prevents it, do think FDA regulation of tobacco will eventually result in the banning of tobacco?", of the nearly 150 respondents, about 43% said "no, most likely not"; almost 24% said "yes, for all practical purposes, at least as a viable retail category"; almost 22% said "no, it could never happen"; and more than 11.5% said "yes, it's inevitable."And for in-depth analysis and additional retailer reaction, watch for the July issue of CSP magazine.