OAK BROOK, Ill. -- The other tobacco product category isn't getting the space it deserves in convenience stores. That's the consensus of many retailers, OTP manufacturers, and an investment research note issued yesterday by stock analyst Nik Modi of UBS Securities, New York.
Moist smokeless tobacco (MST) brings in $53.43 true profit per square foot while only receiving 2.9 square feet of shelf space in the average c-store, according to the report. Similarly, cigars bring in $21.48 true profit per square foot while only earning 4.2 square feet of space [image-nocss] in a typical store.
Upon noting that cigarettes account for $44.87 true profit per square foot from its average 31.7 square feet of space, Modi notes that the vast discrepancy leads him to believe OTP will continue to gain incremental shelf space at retail. (Modi's data is sourced to the Convenience Superstudy by Willard Bishop Consulting.)
And that's also a trend CSP Daily News uncovered as it chatted with retailers focused on the tobacco category, particularly with cigars. We recently revised our plan-o-gram, said Joe Hamza, director of marketing for Tedeschi Food Shops and Lil Peach c-stores, based in Rockland, Mass. We wanted to take a new approach to the category, and that is to take at a look at our traditional [merchandising] for cigars and take [into consideration the flavored cigars] that are in and out.
The project, which is expected to be completed by the end of March, began with getting all the cigar manufacturers together in one room, said Hamza. [We] sat down, and came up with a plan-o-gram that satisfies basically the major OTP manufacturers and satisfies Tedeschi Food Shops, he said. Our goal was to look at the bestselling SKUs and look at what's happening in the market. So we attained some market information from A.C. Nielsen, as well as some suppliers' numbers, and we benchmarked our numbers to theirs. We found that there were some gaps within our mix. So we made those adjustments and came up with a plan-o-gram that we felt optimized our sales and margins.
Those changes include enlarging the space allowed for cigars. The traditional cigars are getting 3 feet by 4 feet. And the new cigars are getting 3 feet wide across 4 shelves, said Hamza, who primarily worked with Swedish Match North America and Altadis USA on the project.
While state laws prevent Hamza from moving tobacco product out from behind the counter, that's exactly what Danny Blackburn, vice president of Marsh Petroleum/Kwik Shop in Greenville, Tenn., is doing in his 20 stores.
Blackburn began the initiative with his previous employer, Appalachian Oil in Blountville, Tenn., and is now bringing the strategy to Marsh Petroleum. I put together[a multi-vendor] rack with the cigar companies. Where we could put an in-line [section], we did that, and wherever we could put an endcap in, we did that, he said. In the majority of stores [OTP is] behind the counter. And if a consumer's got to ask for it, they're less likely to buy it. So we brought every bit of it out on the floor and our sales were up about 70% in the OTP category. So I'm basically doing the same thing here.
Blackburn, who prefers to use the rack on an endcap for obvious reasons, uses a 40-inch rack and fills it top to bottom with OTP. We've put the loose-leaf [tobacco] at the bottom and then move up to cigars, he said. So we take all the cigar companies and we take all the top movers and do a plan-o-gram.
Blackburn primarily worked with Swedish Match and Swisher International on his plan-o-gram, and Swedish Match senior manager of category management Joseph Teller said he would encourage other retailers to make a similar move.
Our own research shows an opportunity for several growth points in OTP sales when the section is moved from behind the counter to a self-serve area, said Teller. Driving this would be a huge increase in visibility, since the consumer doesn't have to try to find his OTP product that is stacked behind boxes behind the counter. It also allows for the consumer to take his time shopping the section, since there is no one right behind them waiting. Lastly, it opens up more space for the category. Space is extremely constrained when OTP is behind the counter. Being out in the store offers up more potential to increase space.
As Hamza noted that many of the newer flavored cigars end up being in-and-out products, he said he anticipates updating the cigar plan-o-gram every three months, compared to every six months previously. While an added task, he is so encouraged by the process of getting several vendors from a single category together to develop a plan-o-gram that's right for the retailer, he intends to go through a similar process for the beverage and snacks categories. I felt if everybody pulled in a different direction, we'd get an equilibrium at the middle, he said. We did all the analysis and brought in all the numbers and data, and nobody can argue with that. But if somebody objected, they had to rationally explain why they wanted that SKU on the set.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.