5 Highlights From CSP’s Tobacco/OTP + CBD Forum

ORLANDO, Fla. — There’s no understating the importance of a tobacco category manager’s job.

“For the most part the tobacco consumer is the person driving the rest of the store’s business, and you guys are responsible for that,” Tom Newbould, senior principal consultant of Lexington, Ky.-based Impact 21, said at CSP’s 2022 Tobacco/OTP + CBD Forum, held Nov. 2 to 4 in Orlando, Fla.

Newbould and others spoke about tobacco category management strategies, forthcoming regulation, cannabis consumer trends and more and this year’s forum. Click through for highlights from the speakers and look out for further coverage in CSP magazine’s February issue.

Cigarettes are down nearly 9% when looking at wholesale shipments to retail for the 13 weeks ending in the third quarter of 2022 compared to the same quarter in 2021. But there’s one price tier in cigarettes showing growth: deep discount, Don Burke, senior vice president of Pittsburgh-based Management Science Associates Inc. (MSA), said.

Premium cigarettes, though, still had by far the highest consumer units shipped.

Moist smokeless tobacco (MST) is seeing similar trends. While overall the segment was down 5.2% in for the third quarter, deep discount is up 3.6% compared to third-quarter 2021. Deep discount is a much smaller portion of units shipped to retail, though, compared to premium and discount MST.

“If you are not carrying enough product in the lower-price segments of each of these categories, you may be missing the boat,” Burke said. “They have really picked up over the past three to six months, really growing quite considerably strong given the economic conditions, which aren’t going to be changing in the very short term.”

There are a handful of regulation issues that retailers who sell tobacco need to watch out for, from the corrective statements lawsuit to premarket tobacco product application (PMTA) reviews to the U.S. Food and Drug Administration’s proposed ban on menthol cigarettes and flavored cigars.

Thomas Briant, Minneapolis-based National Association of Tobacco Outlets (NATO) executive director, gave a rundown of these issues and more at the Tobacco/OTP + CBD Forum, including details on NATO’s meeting with new Center for Tobacco Products (CTP) Director Brian King.

King shared his four priorities with NATO, Briant said, which were:

• Base regulatory decisions on sound science.
• Maintain stakeholder relations/engagement.
• Foster regular communications with industry.
• Focus on health equity tobacco use issues.

Legal cannabis sales in the United States will amount to about $35 billion by the end of 2022, said Gary Allen, CEO of New Frontier Data. And in 2021, Frontier Data reported an estimated $97 billion in total U.S. legal and illicit sales.

“So if you add [legal and illicit U.S. cannabis sales], this is bigger than alcohol and spirits combined. This is about 80% of tobacco. This is a serious market,” Allen said. “The biggest concern, or the biggest hurdle, is obviously the federal illegality.”

Washington-based New Frontier Data is a market research firm that aims to inform policy and commercial activity for the global legal cannabis industry. The company interviews almost 50,000 consumers every year for the last four years to better understand the cannabis consumer and operates in 64 countries.

Allen showed where cannabis consumers overlap with tobacco and cannabis consumers.

Tobacco consumers who use tobacco every day and report drinking alcohol at least one time a week are typically males between the ages of 33 and 54, live in a market where adult-use cannabis is legal and identify as recreational consumers, he said.

“It’s important information as we start to look forward and we start to think about how the convenience-store world can interact with these consumers,” Allen said.

Also, 61% of cannabis consumers who also drink alcohol prefer cannabis over alcohol, he said. This means alcohol demand may bleed off as more states legalize cannabis.

President Joe Biden said on Oct. 6 that in addition to pardoning all prior federal offenses of simple possession of marijuana, and asking states to do the same, he was also asking the secretary of health and human services and the attorney general to initiate the administrative process to review how marijuana is scheduled under federal law. But the question remains on how quickly this will be reviewed, said Jonathan Havens, partner at Saul Ewing Arnstein and Lehr LLP.

Marijuana is currently classified in Schedule 1 of the Controlled Substances Act, the classification meant for the most dangerous substances, Biden said. The schedule is the same for heroin and LSD, and higher than the classification of fentanyl and methamphetamine.

Havens said that the medical use of cannabis is already established federally. However, the real question is if the federal government thinks cannabis is subject to abuse.

“My guess is we eventually move out of scheduled one, whether its two, three, four or five--or if they create a schedule six as some of my colleagues suggested they should—time will tell,” Havens said.

Newbould of Impact 21 gave four tips on what tobacco category managers should be paying attention to:

• Brand: Think about what the company’s brand is known for, and where tobacco fits into that, he said. Is the company known for the fastest gas dispensers? Cokes and smokes? The best-tasting coffee? “The best-in-class companies understand that, and they communicate that to their employees to make sure that your goals and their goals are aligned,” Newbould said.
• Frictionless: Retailers should aim to be as “frictionless as possible,” Newbould said, meaning allowing customers to both pay and show their ID for age-verified products through the store’s app. Those that verify customers’ age externally each time are likely to cause the customer to drop out or go to the competitor, he said.
• Loyalty: There’s one factor that Newbould said he sees set retailers apart when it comes to cigarette sales: Loyalty. Retailers without a loyalty program may have cigarette sales down 10% compared to retailers with one experiencing cigarettes sales growth of 5% to 6%, Newbould said. To keep that loyal customer returning, these retailers with loyalty programs are also doing two things, he said. One, they’re tied to a cigarette manufacturers loyalty program and feeding them data back. And two, they’re using their data to target customers based on their buying habits—not just for tobacco products, but for whatever else their customer is buying.  
• Two Strikes Rule: A very loyal tobacco customer will forgive a store if it is out of stock on the customer’s brand the first time, but the second time, they will leave the retailer, Newbould said. Retailer’s goal should be to be in stock 100% of the time on its top 75 tobacco SKUs.