Negotiating the electronic-cigarette revolution can be challenging for a category manager facing about 400 labels on the market.
For c-stores, determining the right mix might come down to focusing on e-cigarette evolution, suggests John Mayer, product director for cigarettes and tobacco for Temple, Texas-based McLane Co.
“The important aspect to consider is which manufacturers are the market leaders, present themselves as being good stewards of the category and are in the position to advance in the category,” Mayer says. “Technology will be one of the leading reasons for manufacturers to continue to do well and evolve as the category continues to grow.
“E-cigarettes are by far the most positive addition to the cigarette/tobacco category in decades,” he continues, pointing out that e-cig sales continue to show month-over-month growth.
Some of that growth has come at the cost of traditional cigarettes. E-cig sales may be cannibalizing traditional cigarette sales by as much as 1%, Mayer says.
According to Nielsen, three e-cigarette brands accounted for nearly 75% of c-store sales last year: Lorillard-owned blu, Logic Technologies and NJOY. Last year also saw the entrance of Reynolds American’s Vuse and Altria’s MarkTen e-cigs in test markets.
Cigarettes: Up on Premium
Total industry carton volume of traditional cigarettes declined 4% through September 2013 compared with the previous year, according to data from Lorillard’s Excel Retail Database for the total industry. Annual declines of 3.5% to 4.5% are expected “for the foreseeable future,” in part because of pressure from e-cigarettes, Mayer says.
On the positive side, the cigarette category continues to show a healthy premium/price-value mix, he says. Industrywide, premium had a 73.5% market share through September 2013, according to the Lorillard figures. “This is actually a slight improvement over the previous year,” Mayer says, crediting the boost to promotional activity by major manufacturers.
“Not all manufacturers are experiencing the same results,” he continues. “Lorillard, for example, is one of two major companies that have continued to experience growth in both share and cartons, or at the very least not reflect the decline common with most of the other manufacturers.”
Lorillard’s success stems largely from the continued performance of the Newport and Maverick brands, he says. Santa Fe also has shown positive share and carton growth on the strength of American Spirit sales. The brand saw volume growth of 16.5% through September 2013, with an industry share of 1.33%, according to Lorillard data.
OTP’s Continued Strength
Sales of OTP grew through 2014, says Greg Tradup, category manager of tobacco for McLane, citing NACS’ CSX Industry Database.
C-store margins for OTP are expected to hover around 30%.
“OTP shoppers continue to have the second-highest c-store visit frequency of all category shoppers,” Tradup says.
Moist snuff has grown at a rate of at least 4% since 2009, according to Nielsen figures, and is showing no sign of slackening its pace, he says. It accounts for almost 44% of total OTP units sold and more than 61% of dollars, he says.
“Low-priced-pouch sales have recognized the largest gains—as high as 28%—as smokers continue entering this segment,” he says. “About 80% of moist users also smoke cigarettes.”
Snus unit sales grew by 3.7% in 2013, propelled largely by Camel and General sales, according to Nielsen. Unit sales in cigars continued their upward trend, growing by 10% in 2013.
Cigars accounted for 49% of units sold and 28.8% of dollars in the OTP segment, not including e-cigs and little cigars.
Foil pouches now account for 48% of market share, followed by single stick at 31%, according to Nielsen. The expansion of pre-priced and buy-some-get- some offers drove unit growth in single-stick sales last year, Tradup says.
The downside? Sticks sales climbed, he says, “while eroding total cigar dollar sales and margins.”
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