Reduced Risk Products Become a Larger Part of the Backbar Conversation

NATIONAL REPORT — When you envision your backbar of the future, what do you see? Current industry predictions foretell a twofold change — a backbar with fewer cigarette products, and a bigger focus on harm reduction products.

The expert consensus is that convenience stores should be preparing for a future filled with reduced risk products (RRPs), which currently include modern oral nicotine, e-cigarettes/e-vapor and heat-not-burn items. Created to replicate and replace combustible cigarettes, RRPs and tobacco harm reduction refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to them vs. continuing to smoke traditional cigarettes.

[Read More: Reduced Risk Tobacco Products Hold Big Promise]

"Consumer choice in less harmful alternatives remains one of the greatest untapped opportunities in the nicotine category for 2023," said Mike Wilson, vice president of trade strategy and operations for Winston-Salem, N.C.-based Reynolds Marketing Services Co. "Many adult consumers are looking for potentially less risky products and as these consumers continue to navigate away from combustible cigarettes, polyusage continues to rise."

To meet these demands, he recommends c-store retailers strive for a more robust nicotine portfolio from reputable manufacturers. "Incorporating next-generation products into your backbar provides consumers the option to explore new ways to enjoy nicotine," he said.

Ongoing Conversion

Goldman Sachs Senior Financial Analyst Bonnie Herzog agrees, and in light of advanced public health goals and industry innovation, she envisions "much more backbar space allocated to reduced risk products" in the next 10 years.

"I'm very excited about the ongoing conversion to reduced risk products," she said, adding, "I do wish and hope it could happen at a faster pace and maybe it will, depending on the FDA [Food and Drug Administration]."

Through its extensive Premarket Tobacco Product Application (PMTA) process, the FDA must authorize a marketing granted order (MGO) for reduced risk products — and all tobacco and nicotine products — to be marketed and sold in the United States.

Even with the hurdles that have come along the PMTA pathway, Herzog is hopeful that harm reduction will be changing dramatically in the next two years. "We all need to buckle up for a wild ride because I think the innovation pipeline is going to accelerate," she said.

Philip Morris International (PMI) reportedly has a range of RRPs in various stages of development, scientific assessment and commercialization. The company, headquartered in Stamford, Conn., has also stated publicly that it is looking to "replace cigarettes with science-based smoke-free products as soon as possible."

Early this year, three new tobacco- flavored heated tobacco products from Philip Morris were authorized by the FDA. The products receiving MGOs — Marlboro Sienna HeatSticks, Marlboro Bronze HeatSticks and Marlboro Amber HeatSticks — are "heated tobacco products" (HTPs) used with the company's IQOS device, an electronic device that heats tobacco-filled sticks wrapped in paper to generate a nicotine- containing aerosol.

In 2019, the FDA authorized the marketing and sale of IQOS and several other Marlboro HeatSticks products through its PMTA pathway. Philip Morris pursued marketing authorization for these new Marlboro HeatSticks by submitting supplemental PMTAs for modified versions and line extensions of the already-authorized product.

As a sidenote, IQOS has not been sold in the United States for over a year due to a U.S. International Trade Commission ruling that said the device infringes on two patents held by R.J. Reynolds Tobacco Co. Moreover, Altria Group Inc. is under an exclusive licensing agreement with PMI to sell IQOS in the U.S.; however, the companies announced in October they would be ending their agreement. PMI will pay $2.7 billion to Altria to have the full rights to commercialize IQOS in the U.S. beginning April 30, 2024.

This move has Herzog very optimistic. "Philip Morris clearly sees a big opportunity in the U.S. market to be willing to be paying $2.7 billion for the right to distribute it themselves," she noted. "It's a positive, too, for Altria. The large sum of cash increases their optionality to develop some of their own smoke-free products, two of which are in the final stage of design."

Altria's "Moving Beyond Smoking" mission calls for building a promising pipeline of wholly owned heated tobacco products and intellectual property consisting of heated tobacco capsule (HTC) formats and new-to-market technologies, according to CEO Billy Gifford.

"We believe capsule products can appeal to smokers who are open to novel smoke-free products, but have not yet found a satisfying alternative to cigarettes. This audience includes the millions of U.S. smokers who tried, but ultimately rejected, e-vapor products," he said.

Another positive development in Herzog's view is that Altria announced a smoke-free joint venture with Japan Tobacco International late last year. The two companies will collaborate on the global development and commercialization of heated tobacco sticks. Their plan is to submit a PMTA for such innovation in late 2024, she said.

Reynolds, meanwhile, has stated that it too is committed to tobacco harm reduction and is making "significant investments in innovative tobacco products and engaging directly with stakeholders and policymakers to develop a regulatory environment that supports and promotes tobacco harm reduction."

Last year, its R.J. Reynolds Vapor Co. subsidiary received MGOs for the Vuse Ciro e-cigarette device and accompanying tobacco-flavored closed e-liquid pod. For each device, two versions of the power units were authorized to reflect different battery manufacturers described in the company's applications.

Additionally, E-Alternative Solutions (EAS) and its sister company Swisher are active proponents of the tobacco harm reduction movement. Their current contributions include electronic nicotine delivery system (ENDS) and modern oral nicotine products. EAS currently markets and sells Leap pod-based and Leap Go disposable products. Swisher's Rogue pouch, gum, lozenge and tablet modern oral nicotine products also have potential as harm reduction alternatives.

EAS is hopeful it will receive FDA approval. "The Leap and Leap Go products have completed scientific review and we eagerly await marketing orders as our PMTAs demonstrate that these products are appropriate for the protection of public health," a company spokesperson stated. "The Rogue product PMTAs have been accepted and filed by FDA's Center for Tobacco Products [CTP], but have not yet entered scientific review."