McLane Show Shines Spotlight on Tobacco, Foodservice

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.

Foodservice Opportunities

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.

Consumers indicated that quality of food, food freshness and the price-value connection are the top attributes they look for when buying prepared food. While quality and freshness are not breaking news, Miller pointed out that c-stores need to look at how they are communicating what they do with foodservice. 

"If we are not talking about it, then we are not giving ourselves the best chance to execute against it," he advised.

When looking at the top six attributes — which also include store cleanliness, menu choices/options and past experience — the Channel Choices Study showed convenience stores trail the competition. That's not the best information, Miller acknowledged, but once c-store retailers understand what is important, they can do it better.

Looking specifically at the convenience channel's top attributes, consumers pointed to speed of service, ease of parking, on direct travel route, on the way to/from work/home, and food portability/ease of eating. 

"If anyone should own these attributes, it should be convenience," said Miller. C-stores need to "rally around what we do well."

C-store shoppers also say brands do matter when it comes to a prepared-food purchase and the perception of food quality. In fact, brands can improve consumer perception of the quality of the entire store.

But perhaps the greatest opportunity for convenience stores in the foodservice realm lies in the afternoon snack daypart. According to the Tyson-Carbonview study, 46 percent of general c-store visits occur after 2 p.m. In addition, impulse purchases grow and fewer visits are made by individuals alone as the day goes on, Miller explained.

"The traffic is there late in the day and decisions are likely to be unplanned and involve more than one person," he said.

The McLane Co. Inc. National Trade Show took place Sept. 1-3 at the Colorado Convention Center in downtown Denver. Next year's event will be held Aug. 30-Sept. 1, 2016 in Dallas.

Temple, Texas-based McLane is a $46-billion supply chain services provider. The company provides grocery and foodservice supply chain solutions for convenience stores, mass merchants, drugstores and chain restaurants throughout the United States. McLane is a wholly owned unit of Berkshire Hathaway Inc.