Drug Store Smoke Signals

CSP tobacco roundtable hits on channel challenges, OTP, creeping batteries

Published in CSP Daily News

OAK BROOK, Ill. -- Pressures on cigarette sales, the growth of menthol with a special nod to the Newport brand and the proper merchandising for other tobacco products (OTP) highlighted talk at CSPs annual Tobacco Category Roundtable Meeting, held last week in Oak Brook, Ill.

A dozen retailers and 24 suppliers attended the event that raised concerns over the re-awakening in some areas of drug stores to the category, as well as talk of a disconnectVbCrLf store-level employees have with the emerging power of OTP.

Addressing key trends [image-nocss] in the major tobacco subcategories, co-presenter Nik Modi, a financial analyst with UBS in New York, along with Kit Dietz, owner of Dietz Consulting LLC, Huron, Ohio, advised attendees of opportunities and threats.

Drug stores are recommitting to the category, and other channels are creeping up,VbCrLf said Modi, adding that in the past, convenience retailers have seen volume growth because people had stopped purchasing cigarettes in other channels in favor of convenience stores. That trend is subsiding, he said, adding that the c-store share of this channel migrationVbCrLf is slowing and that retailers must act now before their share of faucetVbCrLf goes dry.

Reporting what he has been seeing in the Florida market, David Schenck, senior category manager, Circle K Stores Inc., Tampa, Fla., said the drug channel has been up 50% in tobacco sales in his area, with Woonsocket, R.I.-based CVS having bought out Largo, Fla.-based Eckerd. CVS decided to focus on cigarettes last year and has more than doubled its sales from the year before,VbCrLf Schenck said.

The bright spot in terms of cigarette trends for c-store operators appeared to be in menthols, Modi and Dietz said. Data supplied by CSP showed that in a July 2006 survey of 35 retailer respondents representing 9,500 stores, 76% said their Menthol carton volume was indeed growing, with about 54% dedicating more space to the subcategory. Citing MRI and UBS estimates, Modi said that Newport continues to grow despite heavy promotional activity from its competitors.

The group addressed a multitude of topics, including the movement by major cigarette manufacturers into smokeless products and its implications, Native American and taxation issues, as well as the increasing potential of cigars and OTP.

On the potential of OTP, attendees discussed how the amount of space allotted for the subcategory does not match the increasingly profitable revenues those items bring into the store. When we think of resetting the category, we think about what we already have [in terms of space] instead of rethinking the set,VbCrLf Dietz said.

Another problem to consider is how the back barVbCrLf also gets infiltrated by high-cost items such as batteries, which store managers want to keep out of the publics reach. We have to regain the space,VbCrLf said Lou Maiellano, president of TAZ Marketing & Consulting Group, Levittown, Pa. Operations [people] get involved and batteries start creeping in.VbCrLf

Other retailers noted how despite the potential of the category, sometimes employees at the store do not properly manage the items. Its trying to get out of the fog of war,VbCrLf said John Strickland Jr., president of Wayne Oil Co. Inc., Goldsboro, N.C. The product didnt get shipped, it didnt get ordered, theres no tag.VbCrLf

Retailers present all related stories of the difficulty of getting store associates to focus on OTP; however, many believed that tackling that challenge would help them gain more from the subcategory.

C-stores have an advantage moving forward, according to John Mayer, national tobacco/cigarettemanager for McLane Co., Temple, Texas. Customers want to feel welcomed,VbCrLf he said, noting how customer service is an industry differentiator. They want to feel good about making that purchase.VbCrLf