The State of OTP

Regionality and regulations remain drivers of OTP performance.

February 06, 2023

By Melissa Vonder Haar

ALEXANDRIA, Va.—OTP may not have the same sales power as cigarettes, its tobacco counterpart, but it is still a top sales driver at 7.41% of in-store sales in 2021, indicate data from the NACS State of the Industry (SOI) Report, which ranked OTP as the fifth-largest inside sales contributor.

But savvy retailers know the value of the other part of the tobacco set.

“While cigarettes tend to have smaller margins, margins for OTP are generally much better,” said Jayme Gough, NACS research manager. “They increased year over year from 29.96% to 30.22% in 2021. Gross profit increased 8.1% year over year to a total of $4,369 per store, per month in 2021.”

OTP has also shown resilience. While both cigarettes and OTP sales grew between 2019 and 2020, CSX monthly data show OTP has continued to grow in 2022, with all months of the first three quarters of 2022 showing higher sales than 2021. “Unlike cigarettes, OTP sales have just continued to grow post-pandemic,” Gough said.

Still, the category remains susceptible to the same pressures facing cigarettes.

“Like all consumers, OTP consumers are impacted by rising prices and inflation,” said Matt Domingo, senior director of external relations at R.J. Reynolds Tobacco Company. “These forces can shape purchasing behaviors and decisions, as consumers become more budget sensitive.”

“We are seeing demand for products with higher nicotine content,” added Kraig Knudsen, tobacco category manager for the Circle K Heartland Division. “Decreased consumption frequency could explain this.”

Regulatory pressures are also impacting how—and where—OTP consumers shop. Lonnie McQuirter, director of operations at 36 Lyn Refuel Station, has seen this firsthand in Minneapolis, where convenience retailers cannot sell flavored tobacco products, but adult-only retailers can.

“It used to be if you carried any kind of cigar or dip, the customer would buy it,” he said. “We’re starting to see customer preference take precedent: If you don’t carry what they want, they will go someplace else.”

This stressor varies greatly depending on a retailers’ region. Ray Johnson, operations manager at Speedee Mart, is allowed to sell flavored products at his Nevada stores and anticipated a big market for shoppers from neighboring California now that flavors are banned.

“We’re waiting to see how much those visitors are going to try to bring home when they visit Las Vegas,” he said.

Read the remainder of this month’s Category Close-Up column “Fits and Starts” in the February issue of NACS Magazine.

Melissa Vonder Haar is the marketing director for iSEE Store Innovations. Follow her on Twitter at @iSeeMelissaV.