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Recently CSNews reached out to c-store executives from across the country to learn their reactions to the Food and Drug Administration’s current review of the menthol cigarette market. The overwhelming consensus is that the FDA will choose to leave the category alone rather than ban menthols and risk creating a huge black market.
All of the respondents were familiar with the current lobbying by the U.S. tobacco industry to nix a federal menthol cigarette ban. Wayne Willis, merchandising director for Certified Oil Corp., stated that industry resistance has been especially fierce because menthols are one of the few growing cigarette categories. Ban menthols and “you’ll hasten the decline [in U.S. tobacco sales] that’s already occurring,” he said.
Moreover, since lost menthol sales would mean lost tax revenue -- menthol smokers account for roughly one-third of the $70 billion U.S. cigarette market -- the respondents agreed unanimously that the Feds would rather let menthol cigarettes stay on store shelves than lose untaxed revenue on contraband smokes.
“Every ban or excessive tax creates a black market,” said John C. Call, who operates a chain of Convenient Food Mart c-stores in northeast Ohio. “Commerce always rushes in to fill the addictive needs of the population,” he added.
The respondents also expected sellers of the banned cigarettes would include the usual players in the cigarette black market. As Call put it, whenever an item is banned from sale, “opportunity is taken from those who play by the rules of society and placed in the hands of those who don’t.”
Native American bootleggers “would start manufacturing [menthols] in their tribal cigarette facilities and selling them from one tribe to another,” said Tim Cote, vice president of marketing for Plaid Pantries Inc., a c-store chain in Oregon and Washington.
Meanwhile urban operators would add menthol cigarettes -- which are especially popular among African-American smokers -- to their car trunk and backroom inventory, said Call. He added that in his company’s urban locations the menthol category “is over 50% of cigarette sales.”
In fact, respondents were acutely aware that companies earning a hefty amount of their cigarette revenue from inner city stores would bear the brunt of any change to menthol cigarette pricing or availability.
“Our inner city stores are our menthol stores,” said Cindy Gross, buyer and marketing coordinator for Handee Marts Inc., a 7-Eleven licensee. Gross stated that of the company’s 62 stores in Maryland, Ohio, Pennsylvania and West Virginia, its six inner city stores generate the bulk of its menthol sales – more than a third of its cigarette revenue.
Rachel Montgomery, category manager for Wilson Farms, an operator of c-stores and gas stations across New York State, said that a menthol ban would inevitably swell that state’s burgeoning black market for cigarettes. She added that some menthol brands, including best-selling Newport, “already have a large black market for them, especially when you get closer to New York City” and its high tobacco taxes.
In contrast, respondents from companies with stores mostly in suburban and rural areas had both fewer sales of menthol cigarettes and fewer concerns about a ban.
“We operate in a pretty low menthol market,” said Cote, adding that menthols account for 10 to 15% of cigarette sales for Plaid Pantries. If menthols are banned, Cote said he “would be surprised if we see much sales change at all.”
The respondents were also concerned about how their c-stores’ law-abiding customers would react to a possible FDA menthol ban, which would apply only to cigarettes.
“Menthol cigarette smokers are pretty loyal to their menthol,” said Gross. “I think they’ll find other [tobacco] alternatives” that let them enjoy menthol flavor rather than switch to non-menthol brands, she said.
Cote noted that “there are already some [smokeless tobacco] mixes that provide menthol flavor,” noted Cote. However Wilson Farms’ Montgomery dismissed the possibility that menthol smokers would embrace chewing tobacco and snuff.
“Combustible tobacco products are so different compared to other tobacco products,” she said, “that I doubt menthol smokers would be willing to make that transition. It’s like the difference between having a mint and having a piece of gum.”
Jeremy Weiner, sales and marketing manager for Smoker Friendly, said menthol cigarette smokers “would probably switch to menthol cigars,” just as smokers of other flavored cigarettes switched to flavored cigars after last year’s ban.
Also, a menthol ban would almost certainly spur the invention of a device that “would give smokers a legal way of adding menthol flavor” to cigarettes, said Cote. “After all, it’s already done with electric cigarettes,” he said.
However, Call reckoned that smokers would stick to low tech, tried and true menthol delivery systems. “What you will see is an uptick in sales of cough drops and mints,” he said. “People will just pop one of those before they light up.”
Finally, the respondents agreed that lost sales of menthol cigarettes would also mean lost sales of impulse and add-on items for retailers. “As you lose traffic from the cigarette customer, you lose their ancillary purchases as well,” stated Montgomery. “This includes all areas of the business – gasoline, coffee, candy, beer, etc.”
Significantly, while retailers await the FDA’s decision, which is expected next year, the tobacco industry has been hedging its bets.
This month Philip Morris USA will introduce a new menthol brand, Marlboro Skyline, said the category manager for a c-store chain that operates in five Southern states. “They’re going after Newport smokers, or at least until the FDA rules against menthols,” he said.
He also stated that in November, Lorillard Inc., makers of Newport, will debut a non-menthol version of its flagship brand. Newport Non-Menthol, which will sell in a red box, will be the brand’s “first entry in the non-menthol category,” he said.