Pricing, Competition & Contracts

Published in Tobacco E-News

Retailers, suppliers break down biggest concerns at CSP's Tobacco Category Meeting

By  Melissa Vonder Haar, Tobacco Editor

CHICAGO -- "It's a whacky world as far as tobacco goes," said Kristi Prior, CSP's director of EduNetwork, describing the category as "a little bit volatile and a little bit unpredictable."

Prior was speaking last week to a group of more than 50 tobacco retailers, manufacturers and distributors gathered in Chicago to take part in CSP's annual Tobacco Category Meeting. There was quite a bit to discuss, especially when it came to the biggest obstacles facing purveyors of the key category. Both the pre-meeting survey of retail participants and the Tobacco Roundtable discussion at the meeting revealed a bevy of concerns, ranging from limiting contracts, rising prices and how these issues impact outside competition.

As far as pricing, the survey showed cost increases are still one of the biggest problems facing retailers, with every survey respondent listing cost increases as either "critically important" or "somewhat challenging" (58.3% and 41.7% respectively).

And while results suggested the relationship between retailers and suppliers has improved (with 41.7% of respondents saying vendor relations are "not really a problem"), survey comments and roundtable discussions hinted at on-going problems with the contracts enforced by suppliers. When asked about the biggest challenge to the tobacco category, several survey participants referenced contracts, listing "navigating tobacco company contracts" and "major cigarette manufacturer contracts."

At the roundtable discussion, retailers and e-cigarette manufacturers alike expressed concerns about major manufacturers imposing cigarette-like contracts on OTP and e-cigs as they get into the expanding categories.

Pricing and contracts have also proved to be related concerns for retailers. "The influence contract agreements have on pricing and promotions," said one retailer when asked what they'd change about tobacco category management. "It's difficult to maintain pricing competitiveness and grow the overall category without agreements."

Maintaining an edge against the competition for tobacco sales was another crucial worry expressed by retailers. There's the new threat posed by dollar stores like Family Dollar (which 50% of survey respondents listed as "somewhat challenging"), as well as the ongoing threat from Native American reservations--some of which are now starting to manufacture cigars and smokeless products. And while internet and mail-order tobacco may appear to be a thing of the past, one distributor warned that popular OTP products are "more widely available than you think" via mail catalogues.

However, the biggest competition facing tobacco retailers might not come from other sales outlets, but local government. While dollar stores, reservations and mail-order catalogues do represent a threat to c-store sales, local ordinances determining when, where and how retailers can sell tobacco could be more detrimental if passed.

Yes, Worcester's tobacco advertising ban, Lake Haverstraw's tobacco display ban and New York's graphic warning ads were all blocked or overturned--but with NATO fighting 15 bills through 2013, local government represents a significant threat to the tobacco retailer.