What’s Hot in Tobacco

Deb Austin, category manager at Rhodes convenience stores, added flavored disposable e-cigarettes to her back bar in December. At first, she was reluctant to sell them while the Food and Drug Administration reviews premarket tobacco product applications (PMTA) for flavored vapor products.  

“I didn’t want to bring them in and then the FDA make a ruling, and then we either get stuck with the product, or you get your customers used to stopping in and getting them, and then you can’t have then, and then they get agitated,” she said.

But now, Austin said the Esco Bar disposables have been selling well at the Cape Girardeau, Missouri-based chain of about 30 stores, owned by Pajco Inc.

• Pajco Inc. is No. 199 on CSP’s 2022 Top 202 ranking of U.S. convenience-store chains by total number of company-owned retail outlets.

Austin isn’t the only one seeing success in e-cigarettes. Despite regulatory challenges, e-cigarettes are one of the few segments of tobacco that grew double-digit in dollar sales in c-stores in 2022, up 10%, according to Chicago-based market research firm Circana. The other growth highlight of the year: spitless tobacco. The segment, which encompasses modern oral nicotine (MON) pouch brands from Zyn, On, Rogue and more, grew in both unit and dollar sales—up about 33% in both in 2022, according to Circana.

Retailers and manufacturers are learning how to best manage these segments even as regulation poses problems.

So what changed for Austin when it came to flavored disposables? It was the realization that regulation is slow, she said, so she decided she should capitalize on the sales while she can.

Sam Odeh, CEO of independent c-store chain Power Mart Corp., Oak Brook, Illinois, is taking a similar approach.

At his five company-operated sites in the Chicago suburbs, disposable e-cigarette Posh is one of his best-selling vapor products, next to Juul.

As to the future of tobacco and whether products like Posh will one day have to be taken off his shelves, Odeh said he’s going to take it day by day—maybe even hour by hour.

“In this business, if every time we saw some type of regulation come down … and we made that fast and furious decision, I think half of our store would be empty today,” he said. The key is to “capture the sale when it’s allowable and legal.”

Getting more illegal products off the market will help vapor, said Niraj Patel, founder and president of Bidi Vapor LLC, Melbourne, Florida.

C-store tobacco category managers can enhance their tobacco sections by asking suppliers tough questions, he said: “Are they selling legitimate product? Did they submit a timely PMTA? Did they receive a [marketing denial order]? Is the product you’re buying part of a PMTA submission or is it a new device?  Does the brand provide general liability insurance coverage?  Is the nicotine in their product derived from tobacco or is it synthetic? Look at the devices and how they are packaged. Do they look like they’re meant to appeal to youth? Retailers make choices. And in the case of vaping, they have to look beyond the profit and consider what’s best for the communities they serve.”

Removing products like e-cigarettes that the FDA denies authorization of or, potentially, having to remove menthol cigarettes and flavored cigars, as the agency has proposed, leaves holes in back bars.

While the elimination of these products would be detrimental to the category, Austin is confident there will be more innovation, such as MON, to fill the space.

Zyn and Rogue, from Richmond, Virginia-based Swedish Match and Jacksonville, Florida-based Swisher, respectively, are the main brands Austin sells.

“I made a whole section in our newer stores for MON, so I think that’s really helped our sales on it,” she said.

Those newer stores have four, 4-foot-long sections that make up the back bar, and about an entire 4-foot section is dedicated to MON.

“You have to find ways to offset the declines in cigarettes” she said. “So you almost have to give that stuff equal space to make sure that our customers know that we have it.”

Meanwhile, margins for cigarettes have suffered on a variety of factors including inflation, price increases and high fuel prices affecting things. Customers are used to fluctuations in cigarettes, though, Odeh said.

“I think the key aspect to this is, how far can you push the customer?” Odeh said.

As Altria and Philip Morris USA announced its first cigarette pack-price increase of the year in January (increasing the pack price of brands like Marlboro, Basic, Chesterfield and L&M by 15 cents), New York-based Goldman Sachs Managing Director Bonnie Herzog said while there is some risk of downtrading, customers remain loyal to brands, significantly, Marlboro.

Altria has studied some of the consumer trends that are affecting cigarettes. Circana showed the segment was down 3.5% in dollar sales and 8.1% in unit sales in c-stores in 2022.

In the third quarter of 2022, consumer discretionary income levels remained under pressure as higher gas prices and inflation persisted, Sal Mancuso, Richmond, Virginia-based Altria’s CFO, said in the third-quarter 2022 earnings call; however, there were still signs of brand loyalty in the tobacco space. Tobacco consumers stick with their preferred tobacco brands at a higher rate compared to other categories when experiencing higher prices, Mancuso said, citing Altria consumer research. The results were consistent with its previous surveys, he said. Inflation and the rise in gas prices was partially offset by a strong job market and wage growth, he said.

How retailers and suppliers market tobacco products can also make a difference, according to R.J. Reynolds Tobacco Co., Winston-Salem, North Carolina.

Mike Wilson, vice president of trade strategy and operations at Reynolds Marketing Services Co., said retailers are using digital media within their own channels to drive adult nicotine consumer engagement with c-store loyalty programs.

“Those that are leveraging this technology are outpacing their competition within the space,” Wilson said. “Retailers are also leveraging digital content within their owned channels to increase consumer awareness of new product introductions and multi-unit sales offers.”

The best advice for c-stores looking to maximize nicotine in 2023 is to remain on the front foot of innovations, he said. Consumers are also looking for different ways to enjoy their products, so a well-run category must include options.

“Lastly, ensure your category space is adequately merchandised,” Wilson said. “The days of backbars entirely dedicated to cigarettes are gone. To truly maximize your category, you must have neatly merchandised space dedicated to each segment within the nicotine category.”