In a year in which consumers generated strong other-than-tobacco numbers, smokeless tobacco outperformed industry forecasts in 2015.
By Anne Baye Ericksen, Contributing Editor
While the number of U.S. smokers still lags that of years past and legislators continue to debate how to legislate the vapor and e-cigarette markets, other tobacco products (OTPs) such as chewing tobacco and snus, appear to have quietly gained popularity in the last few years.
Still, analysts advise this particular subcategory faces a less-than-certain future, especially as municipalities and states push for tougher tobacco restrictions in public places, including the ballpark. Chicago, last month, became the fourth city to ban smokeless tobacco at sports venues, joining Boston, Los Angeles and San Francisco in attempting to reduce its use in athletics.
LEDGER NOTES
On the upside, 2015 turned out to be a profitable year for smokeless tobacco. According to IRI, a Chicago-based market research firm, chewing tobacco sales in U.S. convenience stores finished the 52-week period ending Dec. 27, 2015, with an 8.61% increase in dollar sales, to $6 billion. IRI reported that c-stores moved more than 1.3 billion units.
Although spitless tobacco products make up less than 5% of the subcategory, they experienced even more growth in dollar sales at 19.24%. In terms of unit sales, spitless tobacco registered a 12.87% increase for 2015.
“As full nicotine bans become more prominent, discreet use of snus may grow in demand, creating greater opportunity for convenience stores to increase the sales of this tobacco product,” said Eric Penicka, an analyst for Euromonitor International.
Smokeless tobacco sales in 2016, however, seemed to have trailed off. According to Nielsen data cited by Wells Fargo Securities LLC, smokeless tobacco sales in all channels grew by 6.3% during February. The Nielsen channel data also indicated that heftier retail prices compensated for declining unit performance during the last few months. In a year-to-year comparison for the same four-week period ending Feb. 27, 2016, average dollar sales increased 8% while unit sales dropped 1.1%.
More specifically, Swisher, maker of Kayak, recorded volume growth between October and January; however, February’s numbers took a hit. National Atlantic Trading Co. also reported unit volume increases throughout the fourth quarter of 2015, only to see volume fall off this year—Stoker’s Chewing Tobacco gained more than 9%, but unit sales of Beechnut fell 7.6% during the four weeks in February.
Sales of Reynolds American’s Grizzly for the four weeks leading up to Feb. 27 jumped 4.5%, unit sales year-to-year comparison for the same period of Altria Group’s Skoal rose 4.8%, but unit sales of Copenhagen dipped 2.8%.
“[The category] is still growing, but at a slower rate the first two months of 2016,” said Chris Smyly, director of marketing for Pester Marketing. The company, headquartered in Denver, operates 57 Alta Convenience Stores in Colorado, New Mexico, Nebraska and Kansas. “While our overall [tobacco] sales growth continues to be one of the best categories we have, we have seen a slight dip in growth over the last 6-8 months as some of the hot subcategories have leveled off.
“Our larger stores carry over 150 different SKUs in the different subcategories that comprise the OTP category, but with 57 different store footprints and over 20 different POGs (planograms), we do a lot of work focusing on getting the core SKUs correct and pricing that’s enticing to the customer,” he said.
Recently, Smyly instructed stores to run bulk-buy discount promotions.
“We have added a new, aggressive two-and-roll discounting offer across the board that allows customers to buy more and save more, and it allows our sales associates an easy way to suggestive sell it,” he explained. “It’s admittedly nothing new, but when it’s promoted properly, it’s surprisingly successful.”
Additionally, Smyly has recalculated shelf space as demand for electronic tobacco products faded.
“We jumped all in at most stores and reallocated large amounts of space to the growth, but as the e-cigarette and hookah crazes level off, we will look to pull back and retool space a bit to grow some of the other areas in the category,” Smyly said. “The good news is that the space is there for us to ebb and flow with the trends.”
“Prominent shelf positioning will continue to be pivotal for the category as consumers supplement cigarette use with smokeless tobacco,” added Penicka.
GAME CHANGER
Another development impacting smokeless tobacco performance in c-stores this past year has been the uptick in legislative activity to restrict the sale of tobacco products. New York City officials recently were expected to join the ranks of Chicago and Los Angeles, calling for a law prohibiting the use of chewing tobacco at athletic venues in the Big Apple. The policy is expected to pass with full support.
“Making athletic venues entirely nicotine free will, of course, impact occasion of use and could possibly limit overall use of smokeless tobacco over a very long period,” Penicka said. “However, it is unlikely this will have an immediate impact on the tobacco category, specifically in the convenience store channel. At most, convenience stores in the immediate vicinity of MLB ballparks may see a shock to sales.”
While sports venue bans may have isolated impacts on c-stores, other efforts to curtail tobacco sales could have a more direct effect. This past February, Boston became the latest major city to ban sales of flavored tobacco products, including flavored snuff and snus, in retail locations other than tobacco outlets. Elsewhere, city and state lawmakers have voted to raise the minimum purchasing age to 21 as well as stipulating mandatory pricing minimums.
“Flavor bans are affecting the sale of cigars, pipe tobacco, e-cigarettes and smokeless tobacco because many brands are sold in various flavors. The end result is that adult tobacco consumers must seek out alternative sources of their preferred flavored tobacco products, which only results in a negative economic impact on law-abiding retailers,” said Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO).
Briant stressed the importance of c-store owners, operators and managers voicing their concerns about the economic impact of these prohibitive measures.
“Retailers need to contact their local elected officials directly and explain to them how many SKUs will be removed from store shelves if a flavored tobacco product ban is adopted, the amount of sales in dollars that will be lost under such a ban and impact on employees’ jobs if a flavor ban is adopted,” he said. “The economic impact is real, and retailers are being punished for selling legal products to adults when no scientific evidence exists that banning flavored tobacco products will reduce underage age tobacco use.”
For the short-term, some analysts anticipate the smokeless tobacco subcategory to remain fairly stable.
“In the second and third quarter, we’re looking to further enhance some of our store-specific offers,” said Smyly. “Looking forward, I see much improved second and third quarters in both sales and margins.”
Resource: http://www.cstoredecisions.com/2016/04/08/defying-expectations/
By Anne Baye Ericksen, Contributing Editor
While the number of U.S. smokers still lags that of years past and legislators continue to debate how to legislate the vapor and e-cigarette markets, other tobacco products (OTPs) such as chewing tobacco and snus, appear to have quietly gained popularity in the last few years.
Still, analysts advise this particular subcategory faces a less-than-certain future, especially as municipalities and states push for tougher tobacco restrictions in public places, including the ballpark. Chicago, last month, became the fourth city to ban smokeless tobacco at sports venues, joining Boston, Los Angeles and San Francisco in attempting to reduce its use in athletics.
LEDGER NOTES
On the upside, 2015 turned out to be a profitable year for smokeless tobacco. According to IRI, a Chicago-based market research firm, chewing tobacco sales in U.S. convenience stores finished the 52-week period ending Dec. 27, 2015, with an 8.61% increase in dollar sales, to $6 billion. IRI reported that c-stores moved more than 1.3 billion units.
Although spitless tobacco products make up less than 5% of the subcategory, they experienced even more growth in dollar sales at 19.24%. In terms of unit sales, spitless tobacco registered a 12.87% increase for 2015.
“As full nicotine bans become more prominent, discreet use of snus may grow in demand, creating greater opportunity for convenience stores to increase the sales of this tobacco product,” said Eric Penicka, an analyst for Euromonitor International.
Smokeless tobacco sales in 2016, however, seemed to have trailed off. According to Nielsen data cited by Wells Fargo Securities LLC, smokeless tobacco sales in all channels grew by 6.3% during February. The Nielsen channel data also indicated that heftier retail prices compensated for declining unit performance during the last few months. In a year-to-year comparison for the same four-week period ending Feb. 27, 2016, average dollar sales increased 8% while unit sales dropped 1.1%.
More specifically, Swisher, maker of Kayak, recorded volume growth between October and January; however, February’s numbers took a hit. National Atlantic Trading Co. also reported unit volume increases throughout the fourth quarter of 2015, only to see volume fall off this year—Stoker’s Chewing Tobacco gained more than 9%, but unit sales of Beechnut fell 7.6% during the four weeks in February.
Sales of Reynolds American’s Grizzly for the four weeks leading up to Feb. 27 jumped 4.5%, unit sales year-to-year comparison for the same period of Altria Group’s Skoal rose 4.8%, but unit sales of Copenhagen dipped 2.8%.
“[The category] is still growing, but at a slower rate the first two months of 2016,” said Chris Smyly, director of marketing for Pester Marketing. The company, headquartered in Denver, operates 57 Alta Convenience Stores in Colorado, New Mexico, Nebraska and Kansas. “While our overall [tobacco] sales growth continues to be one of the best categories we have, we have seen a slight dip in growth over the last 6-8 months as some of the hot subcategories have leveled off.
“Our larger stores carry over 150 different SKUs in the different subcategories that comprise the OTP category, but with 57 different store footprints and over 20 different POGs (planograms), we do a lot of work focusing on getting the core SKUs correct and pricing that’s enticing to the customer,” he said.
Recently, Smyly instructed stores to run bulk-buy discount promotions.
“We have added a new, aggressive two-and-roll discounting offer across the board that allows customers to buy more and save more, and it allows our sales associates an easy way to suggestive sell it,” he explained. “It’s admittedly nothing new, but when it’s promoted properly, it’s surprisingly successful.”
Additionally, Smyly has recalculated shelf space as demand for electronic tobacco products faded.
“We jumped all in at most stores and reallocated large amounts of space to the growth, but as the e-cigarette and hookah crazes level off, we will look to pull back and retool space a bit to grow some of the other areas in the category,” Smyly said. “The good news is that the space is there for us to ebb and flow with the trends.”
“Prominent shelf positioning will continue to be pivotal for the category as consumers supplement cigarette use with smokeless tobacco,” added Penicka.
GAME CHANGER
Another development impacting smokeless tobacco performance in c-stores this past year has been the uptick in legislative activity to restrict the sale of tobacco products. New York City officials recently were expected to join the ranks of Chicago and Los Angeles, calling for a law prohibiting the use of chewing tobacco at athletic venues in the Big Apple. The policy is expected to pass with full support.
“Making athletic venues entirely nicotine free will, of course, impact occasion of use and could possibly limit overall use of smokeless tobacco over a very long period,” Penicka said. “However, it is unlikely this will have an immediate impact on the tobacco category, specifically in the convenience store channel. At most, convenience stores in the immediate vicinity of MLB ballparks may see a shock to sales.”
While sports venue bans may have isolated impacts on c-stores, other efforts to curtail tobacco sales could have a more direct effect. This past February, Boston became the latest major city to ban sales of flavored tobacco products, including flavored snuff and snus, in retail locations other than tobacco outlets. Elsewhere, city and state lawmakers have voted to raise the minimum purchasing age to 21 as well as stipulating mandatory pricing minimums.
“Flavor bans are affecting the sale of cigars, pipe tobacco, e-cigarettes and smokeless tobacco because many brands are sold in various flavors. The end result is that adult tobacco consumers must seek out alternative sources of their preferred flavored tobacco products, which only results in a negative economic impact on law-abiding retailers,” said Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO).
Briant stressed the importance of c-store owners, operators and managers voicing their concerns about the economic impact of these prohibitive measures.
“Retailers need to contact their local elected officials directly and explain to them how many SKUs will be removed from store shelves if a flavored tobacco product ban is adopted, the amount of sales in dollars that will be lost under such a ban and impact on employees’ jobs if a flavor ban is adopted,” he said. “The economic impact is real, and retailers are being punished for selling legal products to adults when no scientific evidence exists that banning flavored tobacco products will reduce underage age tobacco use.”
For the short-term, some analysts anticipate the smokeless tobacco subcategory to remain fairly stable.
“In the second and third quarter, we’re looking to further enhance some of our store-specific offers,” said Smyly. “Looking forward, I see much improved second and third quarters in both sales and margins.”
Resource: http://www.cstoredecisions.com/2016/04/08/defying-expectations/
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