CHICAGO — Tobacco is holding its own in 2022, said Mary Sonatore, marketing manager at Speedy Stop Food Stores. That’s not to say it doesn’t have challenges to overcome, from federal regulation threats to inflation.
CSP surveyed convenience-store tobacco category managers this spring to gauge how the category was faring midway through the year. Nearly 40 retailers responded, sharing what’s working well for them, what’s struggling and what federal or local regulations they’re most affected by and why.
CSP spoke to Sonatore and Michael Tirey, Circle K marketing manager for U.S. franchise, New Port Richey, Fla., to elaborate on some of the trends that stood out from the survey. ...
How Consumers Buy Tobacco
One change to tobacco in c-stores during the first half of the year is how consumers are purchasing it.
At the 23 Speedy Stop Food Stores owned by Victoria, Texas-based C.L. Thomas that Sonatore manages, customers are moving away from buying cartons of cigarettes and increasingly purchasing more single packs. She attributes this to being out of the COVID-19 pantry-loading phase and loyalty programs driving two-pack purchases.
Tirey is seeing the same. Instead of pantry stocking, customers are stopping by the store multiple times a day, whether it’s while stopping in to get their morning cup of coffee or on their way home from work, to buy a pack.
And while premium cigarette sales are dominating, retailers expect that could change if inflation continues.
“I am seeing some of the discount [cigarette] brands start to sell a little more than they normally would,” Sonatore said. At this point, she adds, “I can’t say who these brands might be taking market share from or anything; it’s not substantial enough.”
She thinks this is due to high fuel prices and inflation in other products.
“We’re seeing cost increase on tobacco every quarter now where we used to see it twice a year,” Sonatore said. “And these are substantial increases; it’s not like they’re less of an increase because they’re more frequent.”
Like Tirey, she’s also seeing customers make more trips to pick up cigarettes, likely tied to fuel prices. Sonatore said the retailer has seen people put $15 to $25 of fuel into their tanks, instead of the typical $40 to $50 worth of fuel at a time.
“I think people are coming more and getting less because of budgetary reasons,” she said.
Tirey said he’s waiting to see what that tipping point is for consumers when it comes to price.
“As inflation goes up and the price of everything that is necessary goes up, there’s less discretionary income,” Tirey told CSP in May when inflation hit 8%. “So therefore, they’re going to eventually either slow down smoking or go to cheaper brands. … How high do necessities have to come in order for them to change? We probably just started crossing that at this point.”
Modern Oral Nicotine Grows
One segment of tobacco that nearly half of survey respondents mentioned when asked what was performing well in tobacco for the first half of 2022 was modern oral nicotine (MON).
“Zyn, On and other oral nicotine are selling well due to vendor-sponsored offers and promotions,” one respondent wrote, noting the MON brands from Swedish Match and Altria, both based in Richmond, Va.
Another respondent mentioned strong performance by Rogue nicotine pouches, from Jacksonville, Fla.-based Swisher.
“The modern oral category continues to take off. That’s easily the fastest mover across the entire board of anything on the back bar,” Tirey said.
Overall, Zyn is his best seller, he said, and what brand comes in second—On or Rogue—varies by state. The stores Tirey oversees span 35 states. MON is taking share from chew and moist smokeless tobacco (MST), which is down about 5%.
There is some poly-usage with MON, too, Tirey said. Customers, for example, might buy cigarettes and MON to use for different occasions, such as those back in an office who can’t smoke combustible cigarettes during the day as easily as if they were at home.
Sonatore has seen some of the same. “Modern oral nicotine is taking customers from both combustible and moist, but there’s still a little gray area there,” she said. “When I look at sales and not units, the prices are a little cheaper on the modern oral nicotine, so that could be eroding some of the topline number. But we make good margin on MON, so at the end of the day, we’re happy it’s selling.”
Sonatore is remodeling her backbars to add a linear vertical foot of MON, which stands out on the shelves, she said. Previously, MON was merchandised next to MST, which didn’t differentiate itself visually.
Electronic Cigarettes Struggle
When it comes to e-cigarettes, the segment is struggling, mostly due to regulation, Tirey said. The premarket tobacco product application (PMTA) process is ongoing as the FDA works to release information on what new tobacco products can remain on the market and what cannot. The applications are largely for flavored electronic nicotine delivery system (ENDS) products.
“Nobody can figure out what’s going on because the FDA releases only a section of what’s approved, even though it’s the same brand but they’re still looking at other versions of the same brands,” Tirey said.
For example, the FDA authorized four NJOY Ace e-cigarette products—NJOY Ace Device, NJOY Ace Pod Classic Tobacco 2.4%, NJOY Ace Pod Classic Tobacco 5% and NJOY Ace Pod Rich Tobacco 5%—in April, but it wasn’t until June that it authorized the brand’s tobacco-flavored disposable e-cigarettes.
Similarly, the agency issued marketing-granted orders for R.J. Reynolds Vapor Co.’s Vuse Solo closed ENDS and accompanying tobacco-flavored e-liquid pods in October but didn’t release information on its applications for Vuse Vibe and Vuse Ciro e-cigarette brands until May. Only tobacco-flavored pods were authorized for those products, while menthol flavors remain pending.
Tirey said he has decided to remove most disposable e-cigarettes from the back bar, even in tobacco flavors, because he didn’t think many of them would pass PMTA regulations.
“We’re really limiting ourselves to just the big companies,” he said.
Synthetic Nicotine’s Outlook
The FDA also recently gained control over synthetic nicotine products.
When President Joe Biden signed the Consolidated Appropriations Act 2022 into law on March 15, it included a provision that changed the Federal Food, Drug and Cosmetic Act’s definition of a tobacco product to “any product made or derived from tobacco or containing nicotine from any source, that is intended for human consumption.”
As a result, manufacturers marketing a tobacco product with synthetic nicotine had to file a PMTA with the FDA by May 14, to remain on the market until a decision is made on their application.
The process was frustrating to Sonatore, who was in the process of adding flavored synthetic nicotine pods to her set before the new rule was made.
The FDA is also moving forward with its proposals to ban menthol as a characterizing flavor in cigarettes and all flavors in cigars. While the rules would take years to implement, if ultimately approved, they have some retailers worried.
“They’ve talked about the menthol ban for years, but now, with the way the flavor bans are really ratcheting up, I’m worried that menthol could be next, for real this time,” Sonatore said.
On top of that, the Biden Administration in June announced it is working with the FDA to create a policy that would require tobacco companies to reduce the nicotine in all cigarettes sold in the United States to minimal or nonaddictive levels. Such a rule would take several years to take effect.
Tirey’s concerns regarding regulation are focused more on the near-term, though. California, where he estimates there are more than 350 Circle K franchise stores, is facing a referendum in November that could determine the fate of the state’s flavored tobacco sales.
“It’s a great unknown,” he said. “And that’s probably the biggest worry because we have so many stores in California.”