CSP Magazine

CSP Tobacco: Roundtable Report

Ah, 2012. The good old days, when retailers wondered if new tech contraptions called electronic cigarettes had staying power. During that year’s Winsight Tobacco Roundtable, a plucky young analyst named Nik Modi (pictured at left) predicted that one day, the tobacco category would be rebranded as the total nicotine category.

That “one day” is today.

In August, retailers and manufacturers gathered not for the Winsight Tobacco Conference, but for the Total Nicotine Conference. For three days, attendees listened to presentations from industry experts such as Modi, Thomas Briant of NATO and Don Burke of Management Science Associates (MSA); participated in frank discussions; and tackled some of the biggest questions plaguing this crazy industry.

“Tobacco is like horse jumping,” said Andrea Myers, president of Kocolene Marketing LLC, Seymour, Ind. “As soon as you get over one hurdle, you see there are more jumps to clear.”

Today’s total nicotine category is a brave new world in which retailers are the pioneers—and often working off out-of-date maps. Lucky for you, this year’s roundtable provided a slew of information that makes navigating this new terrain as easy as five, four, three, two, one.

Table of Contents

Five Insights on Vape Shops

Four Tweetable Facts + Fodder for the Future

Three Inspiring Retail Ideas

Two Telling Stats

One Last Thought

Five Insights on Vape Shops

Retailers eager for knowledge about vape shops can fınally get some answers. In May and June of 2015, MSA completed one of the fırst studies of the emerging vape-shop channel. Respondents operated brick-and-mortar locations, online-only shops or a combination of brick and mortar and online, with 33 states and every major U.S. market represented.

“We think this is a pretty pioneering survey,” said Don Burke, senior vice president of Pittsburgh-based MSA, during a presentation of the study’s fındings. “[It’s] the fırst of its kind.”

1. Vape Shops Are Making Bank

Forty-four percent reported monthly revenues of $10,000 to $50,000 in brick-and-mortar sales. “Those are pretty crazy numbers,” Burke said.

2. They’re Not Using Traditional Distribution

Most of the operators are buying inventory online as opposed to through traditional wholesalers, especially when it comes to e-liquids: Forty percent get at least some e-liquids from other vape shops, and 57% get e-liquids from international online wholesalers.

3. They Carry Tons of SKUs

Respondents averaged 542 SKUs overall, with most locations carrying more than 300 e-liquid options alone.

4. Flavors Are Important … Except for Tobacco

Only 36% of vape-shop owners said tobacco flavors were very important to their business. Just 34% said menthol was important—a stark contrast to convenience stores, where MSA data shows tobacco and menthol account for more than half the vape flavors sold.

5. Convenience Stores Are Not Viewed as a Threat

When asked which channel posed the biggest threat, 60% said online retailers, 56% said other vape shops, 15% said tobacco shops and only 9% said c-stores.

“It’s interesting that they don’t see c-stores as competition,” Burke said, theorizing that it might have to do with the fact that education is a big draw for vape-shop consumers, and c-stores likely can’t compete in that arena.

Four Tweetable Facts

Here are four of the most retweeted facts from this year’s meeting. (For more tobacco tweets, follow @CSPMelissaV.)

  • “Sixty-six percent of adult smokers who left cigarettes for vape say that flavors were an important part of quitting.” --MIKE UNANGST, regional director for NJOY Electronic Cigarettes, Scottsdale, Ariz.
  • “Fun fact: According to NACS State of the Industry data, cigarette papers offer the best profıt margins in tobacco. At over 50%, it’s a higher margin than smokeless or e-cigs.” --STEVE SANDMAN, president of Republic Tobacco Co., Glenview, Ill.
  • “Innovation for innovation’s sake doesn’t work. For example, there’s now an e-cig with a Bluetooth to play music. Cool, but doesn’t exactly improve the experience.” --CHRIS MITCHELL, chief marketing offıcer of iSmoke LLC, New York
  • “The Wall Street Journal estimates a single Pre-Market Tobacco Application (PMTA) will cost $2 million to $10 million per product, per SKU.” --THOMAS BRIANT, executive director of NATO, Minneapolis

Fodder for the Future

  • “There’s nothing wrong with the vape category. It just needs to evolve. I really believe in the next two years there will be a product good enough to convert pack-a-day smokers. The question is: Will regulations allow it to come to market?” --NIK MODI, RBC Capital Markets
  • “This (vape) category is more than just nicotine—it’s about delivery systems. Longer term, we’re going to see vitamins, caffeine, medications even delivered through vapor. It’s part of that tech lifestyle.” --CHRIS MITCHELL, iSmoke
  • “We think we’re going to see pretty similar cigarette volume declines this year, compared to years past (3%-4%). Maybe a little less because of the positive first half of the year.” --DON BURKE, Management Science Associates

Three Inspiring Retail Ideas

For the first time, this year’s Total Nicotine Conference featured not one but multiple retailers telling their “story” of working in the tobacco category. They included Anna Bettencourt, a category specialist for VERC Enterprises, Duxbury, Mass.; Terry Gallagher Jr., president and CEO of Smoker Friendly, Boulder, Colo.; and Andrea Myers of Kocolene.

Some of the winning strategies these tobacco gurus shared:

1. Total Resets at Kocolene

At least once a year, the Kocolene team does a “total reset” of the stores, which Myers described as “a deep spring cleaning.”

Myers and others go through scan data for the entire store, pulling anything that’s not selling and creating extra space for products that warrant it. Manufacturers are invited to participate in the process. “Vendors can’t argue with you pulling their products when you have the scan data to support it,” Myers said.

2. Employee Rewards at VERC

Bettencourt quickly learned succeeding in e-vapor means to “go big or go home.” It uses signage and trial-sparking promotions, and VERC gets its store-level employees excited about the category through sales competitions. Winners have received trips to Florida and even a Bermuda cruise.

“The way to your employees’ hearts is contests,” said Bettencourt. “By giving a prize, it got our employees to tie into [e-vapor].”

3. Leveraging Legalization at Smoker Friendly

Although Smoker Friendly is legally not allowed to sell marijuana—retailers cannot sell cannabis with tobacco, alcohol or other products that are not associated with the use of cannabis—the organization has still found a way to capitalize on recreational and medicinal legalization. Smoker Friendly has cobranded several sites with 6-foot, 8-foot or even half-store Glass Werx sections in Colorado and Montana.

“We’ve taken marginal stores that might have closed and now have them doing $4,000 to $5,000 a day in glass and accessories that boast a 50% margin,” Gallagher said.

Two Telling Stats

RBC Capital Markets analyst Nik Modi has long been a favorite at tobacco-industry events, and for good reason: The man never shies away from telling it like it is. This year, he provided one statistic that hints at what the future may hold for one crucial tobacco segment, and another stat on a segment with the potential to turn the tobacco category on its head.

One Last Thought

Melissa Vonder Haar here, your friendly tobacco editor—or as those of you who regularly attend our events more commonly refer to me, “Hey you, that’s off the record!”

“Off-the-record Melissa” has become a term of endearment throughout the fıve Winsight tobacco/vaping roundtables I’ve attended. But it also speaks to the true goal of these events: to create an environment for retailers and vendors to discuss the many challenges and opportunities facing this ever-evolving category.

While my editorial role at these meetings isn’t much different from my role at larger events, if I’m being honest, I get much more out of a small group setting. It’s in part because I happen to be something of an introvert. (I was the nerdy kid who got yelled at not for passing notes or talking during class, but for reading a thick book of fıction.) Walking into the sea of people at the NACS Show opening party or even the group lunches at larger events such as CRU or Outlook still causes a knot of middle-school panic to form in my stomach. A crowd of 75 or fewer is much more conducive to easy conversation, even for the quietest among us.

But I think what really puts me at ease is the relaxed, honest attitude of the folks who attend. You know you’re in a space that’s safe for speaking your mind, venting your frustrations and sharing your successes. Even if I’m not always allowed to cover them, these insights provide a glimpse into the real-world environments in which retailers and manufacturers operate. I like to think it makes me a better editor, but I’m positive it strengthens a retailer’s or manufacturer’s ability to operate in today’s wacky world of nicotine sales.

I’ll stop before I dive too far into the PR deep end. But for those of you who attended our recent Total Nicotine Conference, I want to extend a great big “thank you” for your frank discussions and willingness to share. Keep it coming, and never hesitate to “off the record” this tobacco nerd.


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