Tobacco: Setting the Tone

PMTA decisions, modern oral nicotine’s rise will shape category moving forward

CHICAGO — Two segments are setting the tone in the tobacco category: vapor and modern oral nicotine (MON).

What will happen in vapor will be largely determined by what the U.S. Food and Drug Administration (FDA) authorizes as part of its premarket tobacco product application (PMTA) process. Meanwhile, MON is causing some category managers to reorganize their backbars to give it more play as they await PMTA decisions.

In 2022, the main goal for Kraig Knudsen, tobacco category manager for Circle K’s Heartland, a division of Laval, Quebec-based Alimentation Couche-Tard Inc., is to identify the next big thing, whether it’s in vapor, MON or elsewhere.

“Innovation is happening faster now than it ever has,” says Knudsen, a 35-year industry veteran. “Consumers are open to trying new products. There has never been a more exciting time in this category. I will have my eyes and ears open.”

CSP spoke to Category Manager of the Year (CMOY) finalists Knudsen and Aubrey Thornock—category manager for cigarettes, tobacco, kratom and CBD for Maverik Inc.—and this year’s CMOY winner Victoria Sheppard, category manager for Love’s Travel Stops & Country Stores Inc., to find out more about what it takes to manage the tobacco category.

One of the toughest parts about managing tobacco is what Knudsen loves about the category: that it is always changing.

“It keeps you on your toes,” he says. “To be successful, you must stay in tune with what the manufacturers, regulators and consumers are thinking and planning.”

What the FDA is thinking on the remaining PMTAs, though, is unclear. The agency has already reviewed applications covering more than 6.7 million deemed tobacco products, acting on about 99% of these products, Center for Tobacco Products (CTP) Director Mitch Zeller has said. It has also issued nearly 300 marketing denial orders (MDOs), meaning those products must be removed from store shelves.

The FDA issued its first marketing-granted order for e-cigarettes under the PMTA pathway to R.J. Reynolds Vapor Co.’s Vuse Solo electronic nicotine delivery system (ENDS) device and accompanying tobacco-flavored e-liquid pods. However, there are about 55,000 products still under review, including from Juul and R.J. Reynold’s Vuse Alto.

“Like everyone in this industry, I am watching and waiting for the FDA to put some conclusion to the PMTA process,” Knudsen says. “Depending on what products get approved will determine what options consumers will have going forward. It will be interesting to see how consumers will react to this.”

While category managers await the FDA’s decision, they need to decide what new products they may want to bring in and if the reward is worth the potential risk of those products later getting pulled due to the FDA’s restrictions, Sheppard says. Despite this, she’s still seeing double-digit growth in vapor product sales.

Total vapor shipments to c-stores in the fourth quarter of 2021 were down by nearly 6% compared to the year prior, McLane distribution data shows. Kits and accessories, though, grew about 7%.

“We have no new items but are still seeing large increases on the core lines we carry,” Sheppard says.

When Thornock started her position about a year ago, she also made the decision to not bring anything new in vapor until PMTA market orders are given. This is mainly because of the effect it would have on employees and customers if the FDA didn’t approve a product and it had to be pulled off shelves, she says.

“That customer experience is a negative experience, ultimately, unless we immediately have something else that would at least resemble or replace the set item that would be discontinued,” Thornock says.

Aside from the PMTA process, category managers also must manage changes brought on by the pandemic.

Working with limited production schedules, some manufacturers had a hard time keeping up with demand—particularly in cigars, Knudsen says. When product was available, manufacturers still had problems moving it around the globe and getting it to their consumers, he says.

“Even when products made it to the distributors’ warehouses, the battle was not over. Distributors are still contending with their own labor challenges as they pick and ship orders to retail,” Knudsen says.

Despite looming inventory concerns in the segment, cigars still were up 3.3% in c-store dollar sales for the 52 weeks ending Dec. 26, 2021, according to Chicago-based IRI. They were down 3.1% in unit sales, though.

For Love’s, sales were up despite supply constraints, Sheppard says.

“I had never seen boxes of cigars being purchased in our locations before the pandemic, and now it is the new normal,” Sheppard says.

While out-of-stock cigars were a challenge, cigars have shown improvement at Maverik, too, Thornock says. She changed cigar assortment when she came to the chain when the products she needed weren’t in stock and is finally starting to see results.

“We optimized our cigar assortment to capture 80% of the business that we had been selling, vs. relying on if and when we would get an item that wasn’t being produced as often as something else,” she says. “That really played a role in a growth in my cigar category.”

Cigarettes also performed surprisingly well the past year, Knudsen says.

“I don’t think that anyone could have predicted the strength of the category the first 12 months following the COVID shutdowns,” he says.

There have been some hits to the segment, though. Sheppard says that because COVID-19 affects the lungs, Love’s has seen some users have quit smoking.

Cigarette sales were up 0.8% in c-stores for the 52 weeks ending Dec. 26, 2021, according to IRI. Unit sales were down 5.2%, though. Cigarette sales were stronger in c-stores than other channels—both multioutlet, food and drug stores saw declines in both unit and dollar sales for 2021, IRI data shows.

One of the top products to watch, though, is MON.

“Oral pouches while still not touching most other categories in sales yet has seen tremendous growth and does not seem to be slowing down,” Sheppard says. “I see this category increasing more once the products are better understood with nicotine users.”

While MON only makes up about 1.6% share of total nicotine, their share grew by 0.8% this year, according to Management Sciences Associates (MSA) data on wholesale shipments to retail for the 52 weeks ending in fourth-quarter 2021. The largest category, cigarettes, lost 1.7% share. Smokeless tobacco dollar and unit sales were up in c-stores in 2021, growing 5.9% and 2%, respectively, according to IRI.

Thornock carries Zyn from Richmond, Va.-based Swedish Match; Rogue from Jacksonville, Fla.-based Swisher; On from Richmond, Va.-based Altria; and Velo, from Winston-Salem, N.C.-based R.J. Reynolds Vapor Co., at Maverik.

“I don’t want to say it’s carrying the tobacco segment, but it’s a huge player for us,” Thornock says of MON.

Thornock says she’s rearranging her backbars to create more of a modern oral space. Maverik’s most common backbar set is a 16-foot low-profile set, divided evenly among cigarettes, vapor, MST and cigars, with MON fitting in where it can. However, the new plan will include a 2-foot vapor section and 2 feet for MON.

MON has earned its following over the past two years, Knudsen says: “It will be interesting to see where this group of products will top out.”

Click here to view the complete Category Management Handbook report.

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