It’s no easy job managing the ever-evolvingcategories merchandised behind the convenience-store counter. NACS State of the Industry numbers showcase just one of the reasons why behind-the-counter category managers have one of the most important and difficult jobs in the industry: In 2022, cigarettes and other tobacco products (OTP) accounted for just over 30% of in-store sales … but only 15.5% of in-store gross profit margins.
That’s just the challenge of sales and margins.
Tobacco category managers also face the daily struggles of age-verification requirements, limits on what products—or even what brands—are legal to sell on a given day in a given state, city or county, and a changing definition of what belongs in this space.
These challenges make it more valuable to hear from behind-the-counter category manager leaders. CSP spoke to past CSP Category Manager of the Year nominees to share their more than 50 years of expertise in a virtual roundtable. Here are the insights these retail leaders had to share.
The Expert Panel
Sean Carroll: Director of marketing and merchandising, G&M Oil Co., and 2021 Behind the Counter CMOY finalist
Kraig Knudsen: Senior category manager for tobacco, Circle K Heartland Division, and 2018 and 2020 Behind the Counter CMOY winner (and a nominee several times over)
Victoria Sheppard: Category manager of tobacco and CBD, Love’s Travel Stops & Country Stores, and 2022 Behind the Counter CMOY winner
Michael Tirey: Marketing manager, U.S. franchise, cigarettes and OTP, CBD, HBC, GM, lottery, InComm, ATM, air/water, Circle K, and 2022 CBD CMOY winner and a 2023 Behind the Counter CMOY nominee
Inflation has been a major pain point for consumers over the past year. How has that affected tobacco and nicotine shoppers in your stores?
Sheppard: Promotional items are more prevalent, as these items are the most productive merchandise promotions on the (mobile) app. The units in the customer’s basket are not adjusting, so they are not buying fewer items—but they are transitioning to a cheaper version.
Tirey: Consumers are looking for more deals and downtrading to cheaper brands.
Carroll: The largest shift has to do with the number of trips tobacco consumers are making. There are no noticeable shifts in purchasing patterns to lower-tiered cigarettes due to inflation in our market.
Knudsen: Even during higher inflation periods, tobacco consumers tend to be relatively resilient. Inflation will always, however, have an impact on consumption levels and product selection. Luckily consumers have many different options—not just on how much they consume, but what types of products they choose to consume. These choices are different for everyone. Some might choose to trade down on price points, where others might choose to adjust intake, or become more regular “poly users.”
We can’t talk about tobacco and nicotine without talking about regulations: What kinds of regulations keep you up at night and why?
Tirey: Flavor ban introductions by state and any possible state excise tax increases.
Carroll: In California, flavors have been banned already. There is a significant impact to sales for the cigar segment, [though] Juul and Alto have made positive strides in vape sales.
Sheppard: Menthol and flavor bans have a huge impact to the overall business. The premarket tobacco applications remove top-selling items at the drop of a hat. What if the [proposed] low-nicotine [cigarette rule] becomes mandatory tomorrow? The worst part is that none of these or any other regulation is a blanket: They are all determined at a federal, state, city or county level. While we operate in 42 states, this is a lot of legislation to keep on top of.
While regulations present a number of challenges, there are other hurdles to behind-the-counter success. What are some of your biggest non-regulatory challenges in the tobacco and nicotine category?
Knudsen: Proper, effective merchandising is always a challenge. Almost always, there are physical, space restrictions in a store. There is never enough room to carry all the products that you would like to.
Sheppard: Making sure that we understand the compliance and can make a foolproof plan to implement at all our locations. Something that seems so easy to a veteran in this category—like verifying an ID—is completely foreign to a new hire. In an ever-changing and complex department, how do we communicate all these nuances by state to each cashier? We are now several years out from the start of the COVID-19 pandemic, and things have mostly normalized. What category goals do you have for 2023?
Sheppard: To be the most innovative stop on the highway. We are continuing the exploration of digital signage, lighting and electronic shelf labels.
Tirey: My goals for this year are to maintain category sales and to grow customer awareness on deals.
Sheppard: Making it easier for the store employees by reduction of inventory that is not on the plans in our locations. Creating a more efficient return process, not just for tobacco but for the whole store—again, to make my first customers’ (the cashiers) job easier.
CSP has now categorized this space as “behind the counter,” acknowledging products like CBD, other cannabinoids, kratom and other new products. Are you seeing that shift in your stores? And how are those alternative-product customers different from your traditional tobacco customers?
Sheppard: Love’s has not seen a shift at this time because we are currently not carrying any of [these] items. While it has a place in the industry, we are waiting for more direction from the FDA before we bring these into our locations. Lots of states have strict regulations on these items, and our customers travel in all 50 states.
Tirey: Roughly one-third of CBD users also use some kind of nicotine product. Kratom users are less and a different consumer. It’s easy to get buoyed down by all the regulations and challenges. But there’s also innovation and evolution happening. What makes you most excited when it comes to the future of this category?
Carroll: There has been a continued shift on the backbar toward OTP items over the past five to eight years. Segment carve-outs for additional vape products, modern oral items and nontobacco, non-nicotine items (such as Black Buffalo and/or Grinds) have occurred. Nontobacco, non-nicotine item presence will continue to expand in states with flavor bans.
Knudsen: Product innovation is always exciting. I love to see new types of products come into the market and offer consumers additional options. It is fun to predict what products will resonate with consumers and where the opportunities will present themselves.
Carroll: I’m also particularly intrigued by the very low-nicotine cigarettes and their eventual impact relating to the combustible segment.
Sheppard: Evolution. We know from the major manufactures that we will see a ton of change in this segment. What new items will the customer shift drive? What innovation is there that has not been released yet? Even more important, how “reduced risk” can nicotine products become?
What’s one of the most important things you’ve learned during your time managing behind-the-counter products?
Knudsen: From an industry perspective, I learned early on that I needed to be knowledgeable and informed on much more than just my products. I needed to study the industry and educate myself on consumer behavior, competitive strategies and regulatory discussions.
Sheppard: The most important thing I have learned in my career is that you cannot do this alone. You need to have a group of supportive and challenging individuals, including mentors, managers, team/peers and vendor partners.
Knudsen: From a more personal perspective, I had to learn a higher level of patience, get a little thick-skinned. Most importantly, [I learned] how to listen better to the people around me. I have had the great benefit of working with and around some very talented and highly respected individuals. I only hope that I have been able to also pass on some of this learning to the newer, younger members of the industry.