CHICAGO — Convenience-store retailers may have to give up a significant portion of their cigarette sales if the U.S. Food and Drug Administration (FDA) succeeds in prohibiting menthol as a characterizing flavor in cigarettes, retailers say.
Menthol cigarettes make up about 25% of cigarette sales at Yesway, said Kevin Harder, tobacco category manager. Fort Worth, Texas-based BW Gas & Convenience Holdings owns and operates more than 400 convenience stores in the Midwest and Southwest. “Nobody wants to give up even 5% of their business, let alone 20-plus percent,” Harder told CSP Daily News.
But c-stores and other tobacco retailers might have to if the FDA succeeds in prohibiting menthol as a characterizing flavor in cigarettes. Prompted by a 2013 citizens' petition asking the agency to ban menthol cigarettes and a subsequent lawsuit, the Silver Spring, Md.-based agency announced Thursday that banning menthol cigarettes was one of its highest priorities.
The FDA also said it intends to ban flavored cigars, including menthol. If implemented, the FDA’s enforcement of any ban on flavored cigars or menthol cigarettes would only address manufacturers, distributors, wholesalers, importers and retailers, it said, and not be enforced against individual consumer possession.
The decision is based on clear science and evidence establishing the addictiveness and harm of these products, the FDA said. Banning menthol cigarettes and flavored cigars will significantly reduce disease and death from using combustible tobacco products, it said.
Tobacco companies disagree, however.
“Reynolds will evaluate any proposed regulation and will participate in any consultation and the rulemaking process by submitting robust, science-based evidence,” Kaelan Hollon, spokesperson for R.J. Reynolds Tobacco Co., Winston Salem, N.C., said. “The scientific evidence neither shows a difference in health risks between a menthol and a non-menthol cigarette, nor does it support that menthol cigarettes adversely affect initiation, dependence or cessation.”
Travis Welsh, senior category manager for tobacco at Des Moines, Iowa-based Kum & Go, told CSP Daily News his first reaction to the news on menthol cigarettes was to not overreact. “There’s a pretty lengthy process that this has to go through in order to be fully put into place,” Welsh said. “And that lengthy process is going to make sure that the science is listened to, make sure the right steps are taken [and] make sure that those of us in the industry have the time to react or make changes to what needs to be done in order to support our consumers.”
Welsh said that while a ban would affect cigarette sales, he’s hopeful consumers would shift to other categories.
Shifting to Alternatives
When it comes to the U.S. cigarette market, New York-based Goldman Sachs Managing Director Bonnie Herzog said menthol is about 33% to 34% of total cigarette category volume.
While there is some risk a federal ban on menthol cigarettes could reduce smoker initiation and prompt smokers to quit, menthol cigarette users may also convert to non-menthol cigarette products or reduced-risk products with a menthol variant like e-cigarettes or heat-not-burn device IQOS, she said in a research note.
It’s too early to change c-store tobacco sets now in reaction to the menthol ban, Welsh said. But Kum & Go has already made steps to highlight modern oral nicotine (MON) and other non-combustible products that customers can switch to, he said.
Yesway has made similar efforts. “We’re supporters of people transitioning to alternative or non-combustible forms of tobacco in general anyways, so there’s a potential if the e-cigarette side is left open with flavors, or at least menthol, from a vapor standpoint, we could see the speeding up of transition to adopt e-cigarettes or other products,” Harder said.
If a menthol cigarette ban were to be implemented in several years, Herzog said she would expect a minimal negative impact on the total nicotine pool if smoker conversion to reduced-risk products accelerates.
“Importantly, the FDA’s guidelines require that, for this menthol ban on cigarettes to be implemented, it needs to be proven that it is science-based and does not have any unintended consequences, and this makes for a lengthy process and uncertain outcome,” Herzog said.
The lengthy process is why Chris Li, analyst with Desjardins Securities, Montreal, said in a research note that a menthol cigarette and flavored cigar ban could affect Laval. Quebec-based c-store retailer Alimentation Couche-Tard Inc.’s business long term, but would be limited for the short term. Li estimated a ban on menthol cigarettes and flavored cigars would affect the owner of Circle K c-stores by 2% to 3% earnings per share long term.
While the FDA has yet to say anything on speculated intentions for the Biden administration to also consider lowering nicotine levels in cigarettes to non-addictive levels, Herzog said there is still a possibility that something could be announced in the coming months ahead as the premarket tobacco product application (PMTA) process unfolds.
FDA Rulemaking Process
The FDA’s rulemaking process for a menthol cigarette ban would follow similar steps to a proposed nicotine standard, Herzog said. Here’s a brief look at those steps:
- The FDA issues a notice of proposed rulemaking.
- The Office of Management and Budget (OMB) would assess the economic consequences of any proposed rule.
- Once the FDA issues a proposed rule, the comment period starts.
- Before issuing a final rule, the FDA must address all comments received and consider and resolve a range of issues.
- If a final rule is ultimately issued, there is a mandatory one- to two-year delay before it can be legally implemented.
- A final rule could face legal challenges.