At the Present Time

Melissa Kress, Convenience Store News

4/16/2015

Electronic cigarettes and vapor products draw the most attention in any conversation today about the tobacco category. However, to concentrate only on these emerging — and rapidly changing — segments is an injustice to the other products residing on the back bar.

An exclusive tobacco retailer study conducted by Convenience Store News found that 100 percent of the convenience store operators surveyed carry cigarettes and other tobacco products (OTP) in their stores. Slightly less, at 91.1 percent, carry electronic cigarettes and only a little more than two-thirds of the retailers carry vapor products.

In terms of category performance, while retailers reported that the net change in cigarette unit sales was down 2.5 percent, the majority of retailers noted that their cigarette unit sales on a per-store basis either increased or stayed the same in 2014 vs. 2013. Only 21.3 percent reported decreases, which were large enough to pull the average to a decline. The retailers painted a similar picture for OTP dollar sales, with only 17.6 percent reporting a decrease in the same time period. (CSNews did not poll retailers about their cigarette dollar sales because taxes vary so widely from state to state.)

Breaking down OTP by segment, just about half of respondents (52.6 percent) said their smokeless tobacco dollar sales increased from 2013 to 2014 and a little less said their cigar dollar sales increased (41.6 percent). Both segments, however, notched noticeable declines for other respondents: 37.7 percent for cigars and 32.9 percent for smokeless tobacco.

The CSNews retailer study also found more evidence that the e-cigarette segment is beginning to level off. About a quarter of respondents said their e-cigarette dollar sales — which includes disposables, rechargeables, kits and cartridges — remained the same year over year, while 18.3 percent said their sales had actually decreased.

Not surprisingly, the majority of retailers (62.3 percent) reported an increase in dollar sales of vapor products, which includes vaporizers, vape pens and e-liquids. That jump could be a result of more retailers now offering vapor products. For example, 18.9 percent of respondents indicated they added vapor products to their lineup less than six months ago, 24.5 percent added them six to 12 months ago, and 52.8 percent added them in the past one to two years. On average, survey respondents first started offering vapor products 1.2 years ago.

As further evidence of e-cigarettes leveling off and vapor products exploding onto the scene, 54.2 percent of the participating retailers said they are offering more vapor brands today vs. last year, while 43.1 percent are carrying the same amount of e-cigarette brands. On average, retailers carry 4.3 brands of electronic cigarettes and 3.1 brands of vapor products.

Shelf space allocation in the stores is shifting as the popularity of the various tobacco segments ebbs and flows. Just about half of the respondents indicated they are upping their space allocation for e-cigarettes (47.7 percent) and vapor products (53.1 percent).

Where are they finding the space? According to the study results, 25.4 percent of the retailers have decreased cigarette space. While it may be easy to say e-cigarettes and vapor products have moved into this real estate, two-thirds of respondents said their allocation for cigarettes has stayed the same. Cigars, papers and pipe/cigarette tobacco have all seen double-digit decreases in shelf space, so the shift is more than likely being spread out across several segments.

Interestingly, though, not all vapor products are created equal in c-stores. While a sizeable number of retailers said they currently carry e-liquids, e-cigars and e-hookahs, just as many if not more said they do not and don’t plan to add them to their tobacco category mix.

METHODOLOGY

Convenience Store News conducted a survey among convenience store retailers on the current status of their tobacco programs. Responses from a total of 90 retailers are included in these results. A total of 59 percent of respondents represent chains (two or more units), while 41 percent are single-store operators. Respondents operate an average of 121 units. All respondents carry cigarettes and other tobacco products at their stores, while 91 percent have electronic cigarettes and 69 percent carry vapor products.

The Good, the Bad & the Non-Issue

In one form or another, price is playing a positive role in convenience store retailers’ tobacco category performance. Of the retailers surveyed by Convenience Store News, many cited coupons, promotions and pricing as having the biggest positive impact on the business.

“Competitiveness between brands is leading to a lot of discounting,” one retailer pointed out.

Others credited innovation in the tobacco space, such as electronic cigarettes and foil packaging for cigarillos. “The past year has seen three to four good innovations,” one retailer stated.

Innovation in established brands was cited by another retailer as key. “Every time they bring out a different type of Marlboro, it lifts our sales,” this respondent said.

Other positive factors on their tobacco business, according to retailers, include falling gas prices, low state excise taxes, and the rise in e-cigarettes and vapor products.

But it’s not all roses. Prices were also cited as having the biggest negative impact on the tobacco category’s performance. Higher taxes, price hikes and a depressed general economy were called out by some retailers in the negative column.

Regulation, or the lack thereof, is also figuring into the tobacco category’s health. Several retailers pointed to the Food and Drug Administration’s proposed deeming regulations of electronic cigarettes and cigars as a major driver of uncertainty in the category. Others cited increased regulations at the state and local levels as detriments.

“Cities limiting where people can smoke and all the bloody laws in California,” one retailer remarked when asked about current tobacco category challenges.

One factor that is having less of an impact than some may have anticipated a year ago is CVS Health Corp.’s exit from the tobacco business. Of the retailers surveyed by CSNews, only 18.2 percent said they have seen an increase in their tobacco business since the drugstore chain pulled all tobacco products from its shelves in late summer; 39.4 percent said they have seen no increase. For nearly half of respondents (42.4 percent), CVS’ move has been a non-issue because the chain does not operate any stores in their area.

For at least one respondent, though, the move has been a definite plus. When asked what is having the biggest positive impact on the category’s performance, this retailer noted: “Other channels of trade leaving the market. CVS was direct competition for us in some markets and we gained as a result of its leaving.”