Casey’s Talks E-Cigs, State Taxes

Midwest chain elaborates on trends, new category initiatives
Photograph: Shutterstock

ANKENY, Iowa — Casey’s General Stores, one of the convenience channel’s largest chains, weighed in on the tobacco category during its recent earnings call, touching on multiple topics, including its e-cigarette business and the new tobacco tax in Illinois.

Officials with the Ankeny, Iowa-based chain also said it would soon integrate the tobacco category into its new price-optimization technology, which began an internal rollout several months ago with center store products, said Darren Rebelez, president and CEO of Casey’s, during the Dec. 10 earnings call.

Regarding the vape category, Rebelez said the company hasn't “seen a lot of erosion in Juul,” after the dominant e-cigarette player made marketing decisions such as pulling its flavored pods from retail. The San Francisco-based vape manufacturer removed four flavors from retail and then online earlier in the year, and it subsequently pulled its mint-flavored pods both online and at retail.

“If you look at the cigarette category, people are smoking less combustible cigarettes and moving over to the electronic cigarettes, which have higher margins,” Rebelez said. “So you’re seeing those behaviors with the consumer where they’re shifting away not because of pricing pressures, but they’re shifting away out of preference to the products that are naturally higher-margin.”

Rebelez was also quick to note the context that e-cigarettes fall under. “While it has been a growth category for us, [vape] is a relatively small part of our overall mix,” Rebelez said. “It’s about a 1.8% of our grocery and other merchandise sales, about 1.2% of our overall merchandise sales. So while it has shown positive growth, it’s really not as large a category or large an impact as one might expect.”

The topic of the new Illinois tax on cigarettes also came up. William Walljasper, senior vice president and CFO for Casey’s, said that when the $1-per-pack tax increase (to $2.98) took effect earlier in 2019, it did not include inventory on hand. The result is a “benefit to the margin that’s running … about 30 basis points.”

Regarding the chain’s price-optimization technology, Rebelez said it would expand the program into tobacco in the coming months. He said price optimization was about finding a balance between volume and margin, “so depending on the category and depending on the geography, that may cause us to move up or down on those prices, but we’re trying to strike that right balance.”

Contrary to assumptions that optimization means raising prices, Rebelez said, “it will be more of a rightsizing of the prices to optimize gross profit dollars.”

Overall, Rebelez said total sales in the grocery and other merchandise category were up 6.8% to $660.6 million in the second quarter. Same-store sales were up 3.2% during the quarter, in line with the company’s annual guidance. For the first six months, same-store sales were up 3.1%, with an average margin of 32.3%, he said.

Casey’s is No. 4 on CSP’s 2019 Top 202 ranking of convenience-store chains by total number of retail outlets, with 2,097 stores.

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