Tobacco Hopes & Obstacles

See how customers respond to tax hike before overhauling displays, consultant says

Mitch Morrison, Vice President of Retailer Relations

NEW ORLEANS -- Last month's sizeable increase of the federal excise tax continues to concern both tobacco manufacturers and retailers alike. But one industry consultant cautions tobacco merchants not to panic and jump ship. Other tobacco products (OTP), notably moist smokeless and cigars, remain hard-charging segments that continue to buoy the total tobacco category, Balvor Consulting head David Bishop said at the Tobacco Plus Expo 2009 in New Orleans.

Likewise, with supermarkets further downsizing if not pulling out tobacco altogether, there is reason to believe that convenience [image-nocss] stores and tobacco outlets could pick up market share.

"Retailers who adjust assortment and overreach will lose business to others," he said. He pointed to a New Jersey retailer who recently reported a 4% increase in tobacco sales.

Increase? Yes, that retailer, said Bishop, picked up sales from small independent operators who reduced SKUs to offset higher inventory costs.

Instead of drastically overhauling displays, Bishop suggested retailers take their time to see how customers will respond over the next few months to the federal tax that raised levies across all tobacco lines. He added that to control costs, merchants tighten up inventory, leverage value brands and be bearish on cigarette pricing to drive total basket sales.

While optimistic about the tobacco industry as a whole, Bishop said he is more concerned about the rash of local and state restrictions than he is on federal oversight. He pointed to a bill in New York state that would ban any retailer with a pharmacy from selling tobacco products. The city of Boston likewise is mulling similar restrictive legislation.

The anti-tobacco crowd, he said, has adopted a grassroots approach that is putting pressure on communities across much of the country to curb the availability of tobacco goods. "It's not a federal issue, so it doesn't happen swiftly or broadly," but tobacco restrictions are spreading, he warned. "The anti-[tobacco] groups don't like to fight in the court of law. They like to fight in the court of public opinion."

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