You are here
DENVER — Tobacco and foodservice are as synonymous with the convenience channel as peanuts are with baseball. It's no wonder McLane Co. Inc. delved into these two key categories at its national trade show this week.
Nik Modi, managing director at RBC Capital Markets LLC, noted that 2015 started off rough on a macro level, but as the year progressed, GDP growth revitalized, weather patterns normalized, and the long-term trends are improving. U.S. consumer confidence is increasing and the low-income consumer is starting to participate in the economic recovery for the first time, he explained.
In addition, he said lower gas prices are a positive for the core tobacco consumer, and c-stores' growth is "very, very good."
All of this is positive for the cigarettes category; the decline in volume has moderated while pricing has held up. Good news on the cigarette front, however, spells less than good news on the smokeless tobacco and electronic cigarette fronts. As Modi explained, most cigarette consumers are dual users with smokeless and as gas prices have fallen, these dual users have made the switch back to cigarettes.
A similar trend is being seen with electronic cigarettes. In this case, though, the dual user may be gravitating back to cigarettes because the e-cigarette and vapor products currently on the market are not meeting their needs, he added.
E-cigarettes are also facing headwinds as convenience retailers adjust their tobacco segment mix. "Traditional e-cigarettes are holding ground in convenience stores," Modi said, noting that c-stores are beginning to rationalize their SKUs in this segment and "exiting vapor." The reason is partly because the core c-store consumer does not want complicated vapor products and partly because retailers over-SKU'd on the segment.
In fact, fewer retailers are looking to expand their e-cigarette offering. Specifically, 80 percent of c-stores said they were expanding their sets in December 2013, whereas only 23 percent said the same this June, according to Modi.
Despite this, he still believes vapor will be a disruptive category — but not until there are product improvements. A regulatory framework also needs to be in place.
Looking at an equally vital category to the convenience channel, Kevin Miller, senior marketing manager at Tyson Foods -- Convenience, detailed the key opportunities that retailers need to focus on to maximize their foodservice offering.
When it comes to on-the-go food offerings, c-stores compete with fast-casual and quick-service restaurants and grocery deli. There is a lot of back and forth among the four, Miller explained.
In a Channel Choices Study with Carbonview Research, Tyson found that among high-frequency c-store shoppers, only 19 percent buy prepared foods in the channel. "Ultimately, we are not getting our fair share overall," he said.