THE CIGARETTE BUSINESS IS CHANGING. ARE YOU KEEPING UP?
Mergers, declining sales and consumer alternatives pose challenges for retailers who rely on cigarette sales to maintain margins. Are you ready for these challenges?
Cigarettes are still a vital c-store category. They represent 38% of all non-fuel sales for convenience stores. Although the number of cigarette smokers in the U.S. has dropped from 20.6% in 2008 to around 16% in 2014, the category still represents 90% of all tobacco sales. But these changes in the industry present challenges for retailers:
- Steady decline in the number of smokers in the U.S.
- An increase in alternate products such as Vapors and E-Cigarettes.
- New competition from dollar stores.
- Restrictive new regulations.
- Increasing taxes.
And perhaps the biggest change, albeit, the implication of which are still unknown, is the Reynolds American Inc acquisition of Lorillard Inc in a deal worth $25 billion. This change will blend Camel and Pall Mall brands with the Newport brand offering greater competition to the industry leader Altria Inc., the maker Marlboro.
According to CSD Magazine, “Cigarettes remain a commodity business for retailers, and competitive pricing and high in-stock levels are two ways for retailers to compete more effectively. Experts say that c-stores that don’t excel in this category are those that fail to maintain high in-stock levels on core brands and rigidly apply an inventory budget at store level.”
AN OPPORTUNITY FOR INCREASED SALES
One major change in the tobacco sales industry happened in July of 2014 when CVS pharmacy announced it would discontinue sales of all tobacco products in its stores. This decision by CVS has opened a door for other retailers to capture some of their market share. Some say that this decision by a major retailer also speaks to the fact that tobacco sales are no longer the end-all-be-all that they once were. [Read more about this in our blog “Falling Giants Give Way to Independent Tobacco Retailers“]
DEALING WITH THE CHANGES
So, how does a retailer deal with a declining category that is facing so many changes at once?
PRICE: “Having those competitive prices is a necessity”, states David Bishop, managing partner at Balvor LLC, a sales and marketing firm. Retailers hope that once the Reynolds/Lorillard acquisition is approved by the FTC, it will create a more competitive environment between the two largest tobacco companies, thus offering retailers more competitive pricing. However, as prices become competitive, margins may get smaller. Still, competitive pricing is a necessity, especially now that dollar stores have entered the tobacco retail arena.
ADVERTISEMENT: With CVS pulling out of the retail tobacco game, where will those customers go? How will you attract them to YOUR store? How will capture some of their market share? Customers have to know what you are offering and at what price point you are offering it. Communicating those prices using pump signs, pole signs and window signs to reach the consumers outside the door to get them is absolutely necessary.
OFFERING: With cigarette sales in decline, retailers must offer a broader selection of brands to make sure you have what consumers want. Additionally, retailers must offer alternative products such as smokeless, Vapor and E-Cigarettes or risk losing sales to consumers that want those products.
WE’RE HERE TO HELP
We, at TheCstoreEstore.com, are here to assist retailers by providing the largest selection of tobacco fixtures and cigarette displays, and offering retailers the fixtures and point of sale products that they need to keep cigarette, tobacco and smokeless sales a viable and profitable category.
Visit our website to view a full range of tobacco fixtures and cigarette displays. With the exception of custom units, all pricing is disclosed on our website and online ordering is very simple. Call us and we’ll provide you with immediate pricing for all custom units.
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