SMOKE SALES
Cigarettes and MYO/RYO
By Chris Blasinsky
Originally Published May 2007
The U.S. tobacco industry is not without its challenges -- socially and legislatively. However, sales of tobacco Products in the convenience channel continue to remain strong. According to NACS State of the Industry data,in-stores sales of cigarettes and other tobacco products (OTP) continue to dominate the convenience and petroleum retailing industry in the United States, making up two of the industry's top five product categories.
Today, product line extensions, new flavors and packaging are boosting tobacco's excitement and momentum. Also -- although miniscule compared to packaged cigarettes -- the growing make-your-own( MYO) and roll-your-own( RYO) OTP subcategory is helping retailers build customer loyalty.
Loyalty Builders
Cigarettes are a mainstay of the convenience channel. To maximize sales, cigarette manufacturers suggest that category management, pricing, selection, and promotions are all key to meeting consumer needs and boosting in-store cigarette sales.
"Tobacco manufacturers who are sincerely supporting total category management assist retailers in growing their brands without requirements that restrict other manufacturers brands from growing," says Bob Caldarellas, senior general manager of sales development at Lorillard Tobacco Company.
"In the long-term, this strategic approach will assist the retailer to grow the cigarette category." Because "no two stores or markets are identical," companies need to recognize that program flexibility is a requirement, according to Steve Shipe, vice president of sales and market services at Liggett Vector Brands.
"The key for all retailers is to offer consumers a wide range of legally compliant brands at a fair price based on all available programs and promotions,he says. Communication of brand availability and pricing "is important to ensure adult smokers can make informed decisions regarding the value they are seeking," he adds.
- JOSH KESSELMAN
Convience store customers who shop the channel also know which stores carry their favorite brands, and creating even more loyalty to the category are MYO/RYO consumers who like having control of the look, feel and taste of their cigarette in their own hands. "RYO consumers are mavericks by nature.
They roll their own because it's cheaper and because they simply prefer it," says Josh D . Kesselman co -director of HBI International. "They can see the tobacco, touch it, smell it and pick out exactly what they want. Because of this customization, consumers end up with the perfect cigarette because they made it. Also, once a RYO customer finds a particular brand they like, they know which store carries it and will become loyal to that store."
When it comes to consumer choice, Mary Beth Glynn, marketing manager of Republic Tobacco, echoes that customization is key to building consumer loyalty. "Consumer awareness is on the rise that MYO/RYO is an option,as well as the growing selection of quality products this category has to offer at retail," notes Glynn.
"Whether they are rolling or injecting with
filter tubes, the choice is theirs in terms
of quantity, type and flavor of tobacco, as
well as the type and size of the filter tubes
or cigarette papers and the type of injector
machine or roller that they can use."
Space Allocation
Behind the counter, space is an issue for most retailers selling tobacco products. Therefore, many look to their supplier partners for effective solutions that maximize display space.
"ln-store POS and signage options can provide visibility for our available brands along with their retail prices," says Liggett Vector's Shipe, adding that such basic information allows adult smokers to make informed purchasing decisions.
Cigarettes continue to represent over a third of convenience retailers in-store dollar volume, yet space dedicated to the category is typically not commensurate, according to Lorillard's Caldarella. He notes that the merchandising fixtures they provide to retailers represent a significant investment to Lorillard, while simultaneously helping retailers meet their space needs to merchandise product effectively."But in the long-run they pay dividends as they provide a home for retailers to merchandise the company's products," he adds.
At Republic Tobacco, Glynns says that the company has taken into consideration clerk access to MYO/RYO products by developing a variety of display fixtures that optimize customer and clerk visibility and convenience for non self serve areas. Some of the displays also includes space to store consumer information on the products.
"We look at our customers as partners," says HBI's Kesselman" lt doesn't help our business to sell a box of rolling papers to a store unless it sells to the consumer. We are looking for a lifetime of orders rather than a single box with no repeat orders." HBI, in recognizing that different stores carry multiple brands, flavors and types of papers, created an eight-slot display that is flexible for carrying other products besides its own. "Stores have to respond to what consumers want or they will drive them to their competitors," he adds.
Responsible Retailing
With any age-restricted products come regulations, as well as retailer responsibility to ensure those products are sold only to those of legal age. For the cigarette industry, the responsible sale at retail is ongoing and requires a 24/7 commitment.
- MARY BETH GLYNN
"As manufacturers who sell only to the wholesale trade, we will not add any consumers to our mailing lists unless they submit proof of age, which includes a copy of their valid photo identification with their current address," she notes.
HBI offers retailers a responsible retailing program that features point of purchase signage to drive home to consumers, "Under 19? No Juicy Jays for you!"
"We strive to educate all of our partners on our policies as they relate to preventing underage sales of our products. In addition, we work to ensure that our brands and our advertising have absolutely no appeal to youth",says Liggett Vector's Shipe.
To help prevent underage tobacco sales, Lorillard supports programs such as "We Card" and applies "appropriate remedies to retailers who are cited for selling cigarettes to minors.
"While manufacturers and retailers alike play a role in preventing illegal underage sales, the primary responsibility is with the retailer, as they are involved in the face to face transaction with the consumer." says Caldarella.
Tobacco's Taxing Times
Packaged cigarettes are particularly vulnerable to states that look to boost their coffers by increasing excise taxes. However, such regulations are often times a blessing in disguise for the MYO/RYO subcategory.
According to HBI's Kesselman, every time taxes or prices on packaged cigarettes increase, a percentage of smokers will drop off and look to the MYO/RYO subcategory to save on costs. "A large percentage of smokers perceive RYO to be more natural -- if you roll your own, you can create your ultimate cigarette and tailor it to your exact needs," he adds.
While government regulations challenge the tobacco industry, MYO/ RYO< generally as a large economic al advantage according to Republic's Glynn. "Smoking bans may provoke some smokers to stop,but generally speaking, convenience stores might not lose significant tobacco business unless there is a dramatic price advantage at alternative retail channels. These days, very few self-serve promotional displays are seen on convenience store counters, but behind the counter, MYO/RYO products are becoming more visible," says Glynn.
"Obviously, legal restrictions relating to self-service sales or marketing of cigarettes will have an impact on how cigarettes are sold in convenience stores," says Liggett Vector's Shipe. "While not legally mandated, company specific restrictive trade programs will demand changes to the way a store would traditionally market a category consisting of multiple brands and price tiers."
"Reprinted with permission from NACS Magazine."