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Tobacco

Murphy Hints at Tobacco Pricing Tactics

Slight margin increases seen in second quarter as vapor performs well, officials say

EL DORADO, Ark. -- An increase in margin dollars and a strong showing in the electronic-vapor segment were two tobacco-specific updates that executives of Murphy USA provided during a recent earnings call. They also offered general pricing strategy hints.

Overall, merchandise contribution dollars were higher by nearly $5 million in the second quarter, led by nontobacco, same-store sales growth of 4.1% and margin growth of 2.2%, said Andrew Clyde, president and CEO of El Dorado, Ark.-based Murphy USA.

Providing some details on tobacco, Clyde said the category grew in margin dollars by 1.9%, leading to total unit margins of 16.6%, a new record for the company.

During the Aug. 1 call, Clyde said other tobacco products (OTP) and some of the electronic vapor products “performed very strongly” in the quarter. “[It] really helped to offset the normal decline we see on the cigarette side,” Clyde said. “Although we got some better cigarette, promotional-manufacturing dollars on some of the products there as well.”

Providing further insight into their pricing philosophies, Clyde said the company's strategy looks through two lenses: a customer-facing lens and competitor-facing one. “So where you have categories like fuel and tobacco, we have got to always be positioned in the consumer’s mind as that everyday, low-price offer,” he said. “And so we have to look at those two hand in hand to maintain that position.”

With 2018 posing a “higher-price environment” in terms of overall fuel prices and inflation, Clyde said “the weaker players tend to price up more quickly and create the environment where the bottom-of-market [competitors] can increase pricing and preserve margin there. But we’re always going to be focused on maintaining that distinct positioning.”

Murphy USA Inc. is a marketer of retail motor fuel products and convenience merchandise. It operates more than 1,400 retail stations in 26 states under the Murphy USA and Murphy Express brands. The company ranked No. 5 on CSP's 2018 Top 202 list of c-store chains by number of retail outlets.

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