No Butts About It

Cigarettes reign, but tobacco diversification yields higher sales.

October 17, 2019

ATLANTA—Rising taxes, stiffer regulations and a growing public awareness of the health impact of tobacco have eroded the sale of cigarettes in recent years. Yet, despite that erosion, cigarettes continue to be the reigning champion of in-store sales for convenience stores. In the October 1 education session “Evolving Your Tobacco Category” at the 2019 NACS Show, presenter Don Burke reminded retailers that cigarettes are not down for the count just yet.

“Don’t give up on cigarettes,” said Burke, senior vice president of the data analysis firm Management Science Associates Inc. “They’re still the majority of tobacco sales, even though they’re declining slightly.”

The key to maintaining and even growing your tobacco category, he said, is SKU optimization. The premium cigarette subcategory still accounts for the majority of all cigarettes sold in convenience stores. Two other subcategories retailers should offer in their stores, Burke said, include super premium, such as American Natural Spirit, as well as deep discount cigarettes.

According to Burke, more dollar and drug stores are expanding their tobacco inventory with deep discount cigarettes as these retailers vie for a bigger piece of consumer spend. About 70% of U.S. tobacco sales go through the convenience and gas channel, but dollar stores, in particular, are encroaching on that territory. Still, retailers can compete, he said, by “making sure the store carries the same options as the local dollar stores, so your customers don’t make a second stop for tobacco.”

While cigarettes remain a top seller, Burke said convenience stores must diversify their tobacco product offerings, such as chewing tobacco and nicotine gum.

“In general, the retailers who carry a larger selection of tobacco products tend to have better sales,” he said.

The top three sellers in the other tobacco product (OTP) category continue to be cigars, electronic cigarettes and smokeless. Burke said large cigars are showing year-over-year increases, in addition to the moist powder smokeless tobacco snus and vaping products. Knowing what’s trending is important, but when considering new inventory, Burke encourages retailers to do some detective work. Talk to your distributors—they know what products are selling best in your market. Also, secret shop the closest dollar stores in addition to other convenience stores. Retailers should be selling similar if not the exact same products.

The reality is that tobacco users are becoming more fickle, fluctuating back and forth between an ever-expanding selection of products. Burke believes retailers have a tremendous opportunity to grow their businesses by offering both new products and the traditional cigarette. As such, Burke also discussed effective pricing and marketing strategies to drive sales and ensure a healthy margin.

“You must make sure to feature and emphasize these products,” he said. “Without the right marketing, you’ll never move inventory.”