Murphy USA Reacts to FDA’s Low-Nicotine Stance

Executives hopeful agency’s new direction will play out in a ‘thoughtful way’

EL DORADO, Ark. -- With the Food and Drug Administration (FDA) pushing for a new, low-nicotine direction for tobacco products in the United States, executives with retailer Murphy USA Inc. recently chimed in, saying they expect the process will be a long-term one and play out in a “thoughtful way.”

Speaking during an Aug. 3 investor call, Donnie Smith, vice president and controller for El Dorado, Ark.-based Murphy USA, expressed confidence that the FDA would follow through on its promised review of “real science and understanding the unintended consequences of any regulation.”

Smith also said the FDA’s newfound recognition of a “risk continuum” is helpful, in that the agency now seems more amenable to the idea of moving people from combustible cigarettes to less harmful devices such as electronic cigarettes and other vaping products. Such a perspective is a positive step, “as you think about new products and the innovation that has been developed either here in the U.S. around the vapor products, or if you think about the heat-not-burn products and non-U.S. markets that are coming in,” Smith said.

Working with manufacturers, retailers like Murphy are “well positioned to participate in the new products, their introduction and work in the context of the regulations as they get developed and modified over time,” Smith said.

Nothing in the FDA’s July 28 announcement gave Murphy executives pause, Smith said.

Here are a few insights Murphy gave on the recent performance of its tobacco category:

  • Murphy’s newer, larger stores start with a bigger mix of merchandise and higher nontobacco sales than that of established kiosk locations, and then ramp up over time. For its newer stores, tobacco, a category that has essentially the same offer across all the chain’s formats, starts off lower than well-established kiosks but catches up in 12 to 18 months.
  • Tobacco margins were up 2.6% on a same-store-sales basis but down 0.3% on an average per-store, per-month basis.
  • On the merchandise side, Murphy continues to see competitive pressure on cigarettes and the traffic associated with fuel, which has seen pressure from competitors in key regions building new stores or renovating old ones.

El Dorado, Ark.-based Murphy USA is a retailer of gasoline and convenience-store merchandise with more than 1,400 locations in 26 states, primarily in the Southwest, Southeast and Midwest. Murphy USA was ranked No. 5 in CSP's 2017 Top 202 list of the largest c-store chains in the United States.

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