Family Dollar's Tobacco Plans

Partnerships with Vector, McLane could net unexpected positives for c-stores, tobacco outlets

Published in Tobacco E-News

By  Melissa Vonder Haar, Tobacco Editor

MATTHEWS, N.C. -- It wasn't a surprise that Family Dollar would carry major premium brands like Marlboro and Newport as part of its foray into tobacco.

But details are slowly emerging about the dollar chain's earnestness in a category it believes can be quite lucrative. What's becoming clear is that the Matthews, N.C.-based operator of 7,200 stores will feature a multi-tier cigarette section.

Last week's earning call by Vector, the nation's fourth largest cigarette maker, revealed that Family Dollar will be adding Vector's discount Pyramid brand to 5,000 stores.

"This is the first company-specific announcement we have heard with a dollar chain, and supports that the channel will be more discount-focused as we expected," Deutche-Bank analyst Christina McGlone said.

Having successfully tested cigarettes in more than 100 stores, Family Dollar's research has found that its "core customers over-index on cigarette and tobacco products and core customers are going to other retailers to purchase tobacco products." Family Dollar has not returned calls by Tobacco E-News/CSP Daily News concerning its move into tobacco. (See Related Content below for previous coverage.)

The discount chain's decision to carry Pyramid makes sense: Pyramid boasts a nearly 13% share of the discount market and, with an average retail price of $3.96, is one of the lowest-priced brand names available.

And it's not just Vector Family Dollar is working with. Family Dollar also announced a strategic partnership with leading grocery and c-store distributor, McLane Co.

"We are broadening our assortment and increasing our relevancy to our customers," said Howard R. Levine, Family Dollar chairman and CEO. "McLane's national footprint and broad distribution network make them a great partner to support our growth initiatives."

Such growth initiatives include offering a broader selection of merchandise, including refrigerated and frozen food, across the retailer's entire retail network.

These partnerships between Family Dollar and tobacco manufacturers and distributors could rattle convenience store retailers, especially if other dollar discount stores follow suit. But UBS senior analyst Nik Modi said he believes Family Dollar's tobacco interest could have an upside to the larger retail community.

"Regulation has been a bigger problem than competition," Modi said during a web conference hosted last week by CSP (see Related Content below for previous coverage), pointing out that until now much of the proposed state and federal anti-tobacco regulations have been aimed at c-stores and tobacco shops. While Family Dollar certainly represents competition for cigarette sales, the company will also have a newfound interest in tobacco legislation.

Modi predicts this interest in tobacco regulation will ultimately help current tobacco retailers more than the new discount tobacco retailer will hurt their sales. "I look at it as an opportunity to have an ally in the legislative environment," he said. "Their interests are now aligned with your interests."