The tobacco category is always evolving—and challenging—but that’s what keeps it exciting, according to the 2023 CSP Category Manager of the Year (CMOY) finalists.
“This evolution opens the door to new types of products and programs. Where this can create a lot of work, I find it very exciting and enjoyable. I would much rather it be like this than being stagnant and never changing,” says Kraig Knudsen, senior category manager of tobacco for Circle K’s Heartland Division, based in Lisle, Illinois.
The growth of modern oral nicotine products (MON) gives convenience-store tobacco category managers hope as products like e-cigarettes and cigarettes struggle amid shifting consumer habits, rising prices and increased regulation.
Total tobacco sales in c-stores in 2022 were down 1.4% in dollar sales and 5.3% in unit sales, according to Chicago-based market research firm IRI. Bright spots were a 33.9% increase in dollar sales and 31.6% increase in unit sales of spitless tobacco, which includes MON products, and a 9.3% dollar sales increase in e-cigarettes—although their unit sales fell more than 4%.
The growth of MON is what’s exciting to Michael Tirey in tobacco. The segment grew 47% last year, according to the Tampa, Florida-based marketing manager for U.S. Franchise at Circle K.
His stores sell Swedish Match’s Zyn, Altria’s On, Swisher’s Rogue and R.J. Reynolds Vapor Co.’s Velo. Most of those are being merchandised in the vacant e-cigarette sections, as many had to be pulled off shelves after the U.S. Food and Drug Administration issued marketing denial orders (MDOs) for their premarket tobacco product applications (PMTAs).
“[MON sales are] definitely much slower in flavor-ban states, but the benefit with MON products is almost half of the consumers are poly users with another tobacco product,” Tirey says, meaning they’re purchasing multiple types of tobacco products at the same time.
Tirey plans to expand his MON set in 2023. He’s also looking at moving the location of MON on the backbar to put it in front of the customers’ line of sight and bringing on more SKUs with higher nicotine levels.
“People are looking for higher nicotine levels in MON products, specifically. Some companies are coming out with a 12- and 15-milligram pouch. There are a lot of MON users currently who use [multiple] 2- to 6-milligram pouches at a time,” Tirey says.
MON is performing well for Knudsen, too. “As the PMTA process unfolds, I expect to see more product entries into this subcategory,” he says.
His merchandising strategy remains the same. “Try to present consumers with the products that they want in an organized manner,” Knudsen says. “Quite often, however, this is more difficult than it sounds.”
It’s exciting to see innovation that helps consumers move beyond combustible cigarettes, says Alex Kupper, senior category specialist for bp-owned Thorntons, Louisville, Kentucky, and this year’s Behind the Counter CMOY winner.
Kupper says Thorntons has adjusted its backbars in the past year to boost the capacity for moist smokeless tobacco (MST) and cigarettes, while also to make more space for vapor and MON. They also changed to 2-foot increments instead of 3-foot increments on shelving to make it more flexible and better be able to segment products out.
“Making sure you have the right amount of space and right amount of flexibility to create opportunities for yourself as a retailer in the future was a big, big project that we undertook last year,” to give the category a promising future, he says.
“People are looking for higher nicotine levels in MON products.”
While category managers make more room on the backbar for MON, e-cigarettes and other flavored tobacco products are coming off shelves as the FDA and states consider additional bans on flavored tobacco sales.
While there is much going on at a federal level, from a proposed menthol cigarette ban and a flavored cigar sales ban to a potential reduction in the nicotine levels allowed in cigarettes, Tirey is most concerned about local flavor bans, such as the one in California that took effect in December.
“The FDA is trying to ban all flavored e-cigs, and there are even more states trying to pass legislation for the same and not waiting for FDA (see Connecticut),” he says. “[It’s] too early to tell about [California] yet, but we estimate 20% of cigarette consumers were menthol [users], and 50% [use] flavored cigars. About 75% of menthol consumers are switching back to tobacco flavor. We estimate 10% will quit or try to. The other is the unknown.”
There is much fragmentation and chaos right now when it comes to regulation, Kupper says, noting the “shock waves” that went through the industry when the FDA ordered San Francisco-based Juul’s e-cigarettes off the market, only to stay the decision shortly after the MDO was issued.
Kupper says some Thorntons customers who would normally buy Juul were coming in the store and leaving without it, thinking the product was illegal even though it is still legal to sell amid the FDA’s continuing review.
“So that kind of social friction and confusion has still set in on the category,” he says, adding there needs to be clear, defined lines from regulators on what’s allowed to avoid “chaos and confusion.”
“So now we’re all kind of waiting on pins and needles, which is uncomfortable, but we just have to have confidence that the science and those folks who are making rules that everything will find its level and we’ll be able to do business moving forward,” Kupper says.
The FDA has promised some improvements to its transparency in reviewing e-cigarettes, its enforcement of illegal vapor products and more following a review from the Reagan-Udall Foundation. The foundation report, which was commissioned by FDA Commissioner Robert Califf, criticized the FDA’s Center for Tobacco Products for not having a clear framework for PMTA reviews, among other points.
Despite the uncertainty, particularly with flavored e-cigarettes, Knudsen says he’s looking forward to seeing how some recent acquisitions in the space play out. In November, Philip Morris International, New York, took a majority stake in Swedish Match, Richmond, Virginia. Then in March, Richmond, Virginia-based Altria said it was buying Njoy, whose vapor product Njoy Ace is the only pod-based e-vapor product with marketing-granted orders from the FDA.
Looking ahead, 2023 has the potential to see significant changes in the tobacco landscape based on the timelines being communicated by the FDA, Knudsen says.
The agency says it needs until the end of the year to finish reviewing covered applications under the PMTA process from e-cigarette makers, including Juul, Vuse, Njoy, Blu, Smok, Suorin and Puff Bar. The FDA said 53% of covered applications are expected to be acted on by June 30, 55% by Sept. 30 and 100% by Dec. 31—but it has pushed back its expected deadlines before.
The FDA also has said final rules on banning menthol as a characterizing flavor in cigarettes and banning flavors in cigars should be published by August. However, the earliest those rules could take effect would be August 2024.
“These changes could affect not only what we sell, but how we sell it,” he says. “My goal will be to adapt to the changing regulatory environment in a way that I can still satisfy my customers. I will need to make sure that I have the best assortment of available products and merchandise them effectively.”
Being vigilant with regulation is key, Tirey says on his advice to other category managers.
“Stay on top of regulations, even if it is just a mention of something coming,” he says. “Those rumors or a small article could turn into something big quickly, and you need to have a plan. Never just have one plan, but several, as rarely will the first work. Be able to change quickly by market on hot products and do your own research. Know and understand the contract options from each manufacturer to make the best decision on a by-store basis.”
Knudsen’s advice is to not take a back seat: “Stay informed and educated to what is going on with the category. Don’t just let things happen; be part of the discussion.”