LAVAL, Quebec— The tobacco category garnered a lot of attention during the most recent Alimentation Couche-Tard earnings call, with both the rise of alternative tobacco products such as electronic cigarettes and the chain’s digital upsell platform helping the company’s bottom line, according to officials on the company’s fourth-quarter and fiscal year-end earnings call July 10.
Here are six insights into how tobacco played a pivotal role for Couche-Tard, parent company of the Circle K chain …
- Read more about Alimentation Couche-Tard and its No. 2-ranked Circle K chain on CSP’s 2019 list of Top 202 convenience-store companies.
The rise of e-cigarettes
Alternative tobacco products—specifically e-cigarettes—continued to be a “strong performer,” positively affecting Couche-Tard’s overall same-store sales result, with minimal impact from San Francisco-based Juul Labs pulling its flavored-vaping pods, said Brian Hannasch, president, CEO and director of Laval, Quebec-based Couche-Tard. Last fall, the U.S. Food and Drug Administration (FDA) persuaded San Francisco-based Juul to pull retail sales of its creme, cucumber, fruit and mango flavored pods as part of the agency’s efforts to stop minors from using e-cigarettes.
About the alternative-tobacco subcategory, Hannasch said, “We’re seeing a variety of innovation in this space both in terms of new products and improvements, and our backbar layout [is] bringing more visibility to these products.”
In the United States, the company saw an overall increase in same-store merchandise revenue of 3.4% compared with the same quarter last year, with “good performance” in all of Circle K’s business units. The chain operates through regional business units, creating a collection of divisions that operate with a degree of autonomy.
Volumes bucking larger trend
Commenting on the chain’s cigarette volumes, Hannasch said they are doing well relative to the industry. “We’re seeing flat to slightly positive sales in terms of dollars in the category, and our data shows we’re taking share from our competitors," he said. “We’re committed to the category.”
Couche-Tard has invested “significant amounts” this year in expanding the backbars not only to better display the tobacco cigarette category but to make room for new innovations, he said.
While delivering good news on the volume front, Hannasch also commented on the margins of other tobacco products (OTP). They continue to deliver very strong growth at a “much higher margin” than cigarettes, he said, with moist smokeless and vape products playing lead roles.
Reiterating the performance of Juul products, he said, “Certainly, I would have sat here two quarters ago being very concerned about the flavor removal by Juul,” Hannasch said. “Although I do support that effort, … we continue to see those products grow in real terms.”
Tobacco was also a key category for Couche-Tard’s Lift digital upsell platform, in which the customer sees a screen at the cashier that informs him or her about store specials. The content put before customers is tied to Circle K’s loyalty program. Hannasch said the digital program contributes to growing its market basket and delivers engaging content.
Couche-Tard has expanded the Lift program to more than 5,700 U.S. sites, and it has more than 7 million unique loyalty members. Speaking about two of its relatively recent acquisitions—CST Brands and Holiday Stationstores—Hannasch said half of the Holiday stores and all the CST sites have Lift.
“Our tactical loyalty clubs have grown beyond our adult tobacco consumers in the tobacco club to include beverage and snacking clubs,” Hannasch said. “We’re building a very large database of loyal store visitors to engage with in the future as we continue to make our customers’ lives a bit easier.”
When asked to comment on retailers such as Walmart, Bentonville, Ark., raising the minimum age for its customers to buy tobacco products to 21 vs. the federal minimum of 18, Hannasch said c-stores play an important role in tobacco distribution.
The convenience channel is the largest channel for tobacco and other nicotine-related products, he said. “I think as such, I believe our industry needs to play an active role in ensuring that proper controls are in place,” Hannasch said. “Overall, I think our industry does a great job and, based on the data I’ve seen, our track record is better than other channels. But, that said, we can always be better.”
Couche-Tard has refocused its efforts in training and with mystery shopping targeting its age-restricted products, he said. However, “quite honestly, we’ve probably gotten little relaxed in some areas," he said. "So with this … action of refocusing, I think, it’s been good for us, and we’ll continue to support the age 21 initiative[s] and will support legislation in this direction.”
Aftershock of San Francisco banning e-cigs?
Hannasch also responded to a question about the possible repercussions of San Francisco banning the sale of e-cigarettes until new products go through the FDA’s upcoming review and authorization processes. “I’ll start by saying we have very few stores in San Francisco, which is a city that has often taken stances on many issues that are not consistent with the rest of the country,” he said. “And I can’t speculate on whether that will spread through any other geographies. That said, our focus is on selling these products in a responsible manner, and we anticipate continued growth in these [lower]-risk innovations.”