CHICAGO — After two-plus years of dealing with COVID-19, 2022 marked something of a return to normalcy. As consumers slowly went back to offices (and the commuting that goes with it), many of the all-too-familiar challenges of the tobacco category also returned: rising gas—and cigarette—prices, fewer smoking occasions and regulations at virtually every level of government.
Yet those in the know also saw glimmers of hope in this post-pandemic world: new products such as oral nicotine bringing innovation and excitement to the backbar, consumers increasingly willing to use not one but multiple types of tobacco or nicotine-based products and a future that may one day see marijuana merchandised behind convenience-store counters.
To get a bird’s-eye view of how top retailers and their manufacturing partners are managing the ups and down of this category, CSP spoke with its three finalists for Behind the Counter Category Manager of the Year and a category analyst.
The Expert Panel
Kraig Knudsen: Tobacco category manager for Circle K, Heartland Division, Lisle, Ill., and a 2022 Behind the Counter Category Manager of the Year nominee
Victoria Sheppard: Category manager for tobacco and CBD at Love’s Travel Stops and Country Stores, Oklahoma City, Okla., and 2022’s Behind the Counter Category Manager of the Year
Aubrey Thornock: Category manager of cigarettes, tobacco, kratom and CBD at Salt Lake City-based Maverik, Inc. and a 2022 Behind the Counter Category Manager of the Year nominee
Greg Schmidt: Senior director of business intelligence and advanced analytics for Swisher, Jacksonville, Fla.
CSP: We are now in the third year of the COVID-19 pandemic. How has COVID changed the tobacco category—and how many of those changes do you expect to be permanent?
Knudsen: Like most categories, the supply channel had its issues. Working with limited production schedules, some manufacturers had a hard time keeping up with demand (this was particularly true with cigars). But even when the product was available, manufacturers still had the issue of moving it around the globe and getting it to their consumers. Logistics continue to be constrained—even when products made it to the distributors’ warehouses, the battle was not over. Distributors are still contending with their own labor challenges as they pick and ship orders to retail.
Consumers have altered their behavior: making fewer trips but purchasing more when they go. Like any change, this evolution has also brought with it new opportunities. Recognizing these opportunities and acting on them will put you in a better position going forward. Consumers are always adapting. Very little is ever “permanent.”
Sheppard: We have seen customers exit the cigarette industry altogether, with this pandemic effecting the lungs. Carton and pack mixes were changing, and we had to find creative ways to steer the customers towards the items we wanted them to purchase to make sure that our balance was aligned.
Thornock: We have certainly witnessed transition to larger basket rings. The consumers are purchasing a five-can roll of moist smokeless tobacco (MST) or modern oral—or even a carton of cigarettes. These are certainly habits I see sticking around and manufacturers have adjusted to that as well when planning out promotions.
Schmidt: As more and more individuals return to work, the overall category is returning to normalcy in terms of offerings, varieties and volumetric sales levels. Swisher expects to continue to grow and learn from the experiences realized in 2020, leveraging our knowledge to serve and support our customers.
CSP: Tobacco remains a volatile and challenging category: What goals do you have for this year?
Knudsen: Ideally, I would like to identify what could be the next new thing with large upside potential. Innovation is happening faster now than it ever has [and] consumers are open to trying new products. There has never been a more exciting time in this category. I will have my eyes and ears open.
Sheppard: A goal of mine [is] enhancing the backbar experience. All customers that purchase something at our stores see the tobacco space—I want to make this space pop, to help the overall appearance of the store and create the safe, well-maintained and lit experience to the counter for the customer. Along with these enhancements I have in mind, it will also create operational efficiencies as we drag ourselves out of the dinosaur era and into the digital age. A more touch-free backbar experience for our cashiers: other than stocking and counting the area they should not have to do anything else.
Knudsen: [It] has recently been one of the bright spots in tobacco. This is a whole new class of products that did not exist five years ago. More and more consumers are looking at these products every month. Although the volume rolls up into the smokeless category, these products attract a different consumer and really should be viewed as a standalone subcategory much like vapor, cigars, or RYO. They are one more example of the evolution of nicotine products.
Sheppard: Oral pouches, while still not touching most other categories in sales yet, has seen tremendous growth and does not seem to be slowing down. I see this category increasing more once the products are better understood with nicotine users.
Thornock: This subcategory makes up 70% of the tobacco category for Maverik. It has proven itself to need additional space. That is something big I am working on this year: in the fixtures where the space permits, I am creating a 2-foot modern oral space. Regulations are clearly the biggest challenge for this category. What else keeps you up at night?
Schmidt: The tobacco category continually faces new challenges posed by governmental restrictions, legislation and taxation, which in turn ultimately impacts the entire supply chain from seed to shelf. These constraints not only limit the category in its ability to meet true demand, but they also penalize and/or remove a consumers’ ability and right to make choices as a responsible adult.
Thornock: As we function today, we have worked through many kinks along the way that make business as usual for the majority of my category—[but] through the pandemic, we experienced some supply chain issues, largely in the cigar segment, and it pushed manufacturers to strengthen their portfolio with the 80/20 rule.
Sheppard: One of the additional challenges with my categories and Love’s is making sure we align with our company values and culture, [is] does this product fit with who we are and the image we want to put in front of our customers.
CSP: What are some of the biggest challenges to the current and future success of the Behind the Counter category?
Schmidt: As we exit COVID, supply chains are rejuvenating—but other issues are ever-present. Looming regulations and taxation by state and federal agencies alike are leaving retailers in an unexpected limbo as to what’s next. Some of these proposed sanctions would have serious financial impact to their bottom line as tobacco is a significant contributor to their margins and profits. It is critical that legislators and government officials realize the economic impact these decisions have on retailers and the communities at large.
Knudsen: It is no secret that the regulatory environment can be challenging. These are heavily regulated products. Keeping up with changes at the federal, state and local levels is a job in itself. Sometimes the rules change almost overnight, yet other times the uncertainty seems to drag on for years.
Thornock: I think the continuous of heavy legislation changes and U.S. Food and Drug Administration (FDA) regulation will continue to be our greatest challenges in the category. The legislation and regulation side of the business [is] largely out of our control—but we are the ones implementing it all.
CSP: What is one thing your tobacco partners have done—or should do—to help you tackle these challenges and boost the category?
Knudsen: The role of the supplier has changed. They can no longer be successful by just manufacturing products. Most of them have become more of a true partner to the retail trade. Suppliers need to continue to provide factual, unbiased data, and work with their retail customers to eliminate any potential obstacles or “pain points.”
Thornock: I meet weekly or biweekly with my key vendors to discuss market trends and data analysis. This greatly impacts my decision-making when factoring what is or isn’t working in the markets we operate in.
Schmidt: At the heart of it all is partnership and communication. This being said, in support of this endeavor is category management: it assists in optimizing one’s business within the retail environment, and it is incumbent on retailers to evaluate and include strong category management principles as they plan to maximize stock rates and meet adult consumer preferences and demands. More than ever fact-based decision-making will be critical.
CSP: What can we as the convenience industry do better to help this category to succeed on the long run?
Thornock: Staying ahead of legislation—or at least having an understanding to the impact of business many of those decisions have.
Schmidt: It is important to have the right product assortment and mix that meets your adult consumer demand, ensuring you are in stock at all times. Out of stocks equal lost sales, trips and potential store switching. Do not be afraid to try something new in your tobacco space. This commitment will not only allow you to participate in potentially a hugely successful venture, but it will also resonate with the adult consumer that you constantly have fresh new products they can try, which in turn enhances overall foot traffic.
Sheppard: Tobacco customers are more price sensitive in our “community stores.” When you have a competitor on each corner in a city, you must keep your pricing in line and make sure that you are first to market with the new trends so you can capture that new customer.
Knudsen: As technology continues to advance, and we have access to higher levels of meaningful data, we will further understand more about who our customers are, and how we can better satisfy their needs.
CSP: As we look to 2023 and beyond, what are you most excited about when it comes to what’s happening behind the counter?
Knudsen: I am looking forward to the FDA wrapping up the PMTA process. At that point, there will be regulatory clarity on what vapor products can be sold, and what are the rules associated with selling them.
Thornock: Continuing to see where modern oral products go, innovation that may come to market after the FDA issues market orders for many manufacturers, and overall growth.
Schmidt: Innovation is always at the heart of [tobacco’s] success and longevity. The category continually evolves and grows with new products, offerings and extensions to satisfy adult consumer demands.
Sheppard: I am aware of new product innovations that will be launching in the next couple years that can really help the industry and the consumers—although very dependent upon legislation. It is possible we will even have marijuana in convenience stores soon, which is very exciting new category for most retailers.