Tobacco with Love
At Timewise Food Stores, assortment and intense strategy drive tobacco sales.
Marshall Dujka doesn’t want Timewise Food Stores to be known as destinations for cheap cigarettes. In fact, the company doesn’t even carry the fourthtier smokes that have become popular with other retailers, courtesy of the troubled economy.
Fourth tier, he says, faded away due to contract-related space constraints. “And we never got back into it,”
Dujka says. But he’s not complaining. “As you look at our premium as a percent of our cigarette sales and other tobacco sales vs. the industry, we are very highly skewed toward premiums.” Dujka is one of the four owners of Houston-based Landmark Industries, a 170-store chain that operates under the Timewise brand. And rather than the lowest-cost cigarette brands, he wants his chain to be known for a good selection at a fair price. And the strategy, while seemingly counterintuitive at first blush, is working. According to StarsReports data shared by Timewise, the company is up 2% in cigarette volume vs. a year ago, while competitors in the same class of trade in the same ZIP codes where Timewise operates lost 2.9% of their volume.
A look at the tobacco back-bar underscores the dedication that got the company to that point. Behind the counter, cigars, snus and moist smokeless tobacco dominate a 2-footwide rack. And because the total SKUs exceed space, Timewise posts danglers instructing customers to ask about additional flavors on hand.
A large humidor on the counter showcases large cigars ranging in price from $4.29 to $9.49. There are accessories, too, including lighters, cigar cutters and snazzy cigarette cases—not to mention the 8 feet of space dedicated to cigarettes. The plethora of products is featured neatly, without the slightest hint of clutter.
Then there are the ceiling danglers and, where legally allowed, window signage, both promoting multipack pricing. What is a bit unusual about the execution of this promotion is that the sign lists the individual price per pack were a customer to purchase two packs, rather than providing the total cost of both packs, as was done in the past.
“To make it easier for customers to figure out the price per pack,” says Dujka, “we just tell them what one pack is going to cost if they buy the deal. People get that, without them having to do the calculation. “If they buy two, they get a really good deal. If they buy one, they get a fair price.”
While the company declined to talk about specifics concerning margins per pack or promotions, Dujka does say the company has long relied on penny profits: “We try not to go backwards on penny profit per transaction, because all other location costs are increasing. So we have to continually make as much or more on everything we sell.”
One way the company has capitalized on making more is by bringing former wholesalers on board to help with the category. Kevin Doody serves as a consultant to the company, and Martha Flint is the category manager who handles tobacco. Both formerly worked at a local wholesaler that supplied to Timewise. “Having a wholesale perspective has helped us in the cigarette business,” says Doody, “because we’re very familiar with the wholesale incentive programs, and how the wholesalers make a living in terms of the cents per carton against the task at hand.”
“By knowing what it takes to operate a wholesale grocery business,” Flint says, “it not only enables us to negotiate pricing that is advantageous for us, but it provides adequate margin for our wholesaler.” The company’s wholesaler is Core-Mark International. “We view our wholesaler as our business partner, not simply a supplier,” Flint says about the strategy.
The company also focuses on providing clean, well-lit facilities, friendly personnel and product variety as differentiators, according to Doody. “We don’t have to be the low-end leader on something to get the community to want to come in and shop with us. In fact, there may be evidence to suggest that our customers prefer that we do not do that,” he says. “For 20 cents a pack or 10 cents a pack, whatever the number becomes, it’s just not an issue to the consumer.”
Seeing Is Believing
Rather than rely on driving down the retail price, Landmark aims to woo customers with a robust selection that underscores a total-tobacco approach, rather than a strict emphasis on cigarettes with just a smattering of other tobacco products.
“When people come into our locations,” says Dujka, “we want to present the category as if we’re really in the tobacco business.”
The company typically dedicates 8 feet of space behind the counter to the 180 SKUs of cigarettes it carries, excluding promotional items. (By comparison, some stores that the company acquired committed just 4 feet of space.) Cigarettes account for 27.9% of the company’s total sales. While that figure may not radically differ from traditional convenience operators, the category is up 2% over last year for Timewise vs. being down 2.9% for the company’s local competitors.
Resets in cigarettes are ongoing, according to Flint, requiring daily tweaking and adjustments for new items.
A recent breakout star in cigarettes at Timewise has been the American Spirit brand, which has jumped 300% in carton volumes over the past three years. While the actual cigarettes are hidden away in a drawer, due to contract constraints, Timewise has promoted the brand with signage and campaigns featuring pictures of the cigarettes, with the caption: “We are Timewise … We are Americans … We have Natural American Spirit.”
A “Special Price When You Buy 2” sign features R.J. Reynolds’ NaturalAmerican Spirit brand for $6.39, compared with Lorillard’s Newports also on the sign for $5.15. Dujka equates the superpremium American Spirit brand as being the craft beer of cigarettes, appealing to those same customers and having particular success with millennials near universities.
“It’s the alternative to the brands that all the other generations smoked,” he says. “And they don’t mind paying for it; they have money in their pockets. … From a percentage standpoint it’s been very successful, and we make great profit on it.”
American Spirit customers also have been very loyal, Dujka says, because “there’s just not that many places they can buy it.”
Making Categories Count
Flint says she approaches tobacco with the same strategies she uses for the other categories she manages, including candy, breakfast and nutrition, health and beauty, grocery, snacks, cookies, pet and automotive. That approach is rooted in fair pricing, current product mixes, effective promotions and maximizing funding through vendor contract negotiations.
Timewise is also big on being the first to market with new item releases. While many c-store operators pin their tobacco successes on standard cigarettes, Landmark distinctively takes an across-the-board approach that incorporates snus, the latest cigars and now even roll-your-own tobacco.
The company dedicates 2 feet of space behind the counter to other tobacco products (OTP) at most stores, although the set might expand to as much as 4 feet to accommodate increased demand in an area. In the past year, the category has grown 11.4% in volume at Timewise stores, while competitors in the same class of trade in the same ZIP codes as Timewise increased only 4.9%.
“We do a major reset the first quarter of the year every year, and then we do pull-and-plugs throughout the year for new-item introductions and for any performance-based needs,” Flint says. Products might change based on what’s most popular at each store, but the company’s philosophies apply throughout.
- Moist smokeless tobacco (MST). Doody laughs about a manufacturer presentation that included a statistic that 40% of MST users say price is very important: “What they’re really saying is 60% don’t care. What do they care about? You want it available, and you want it as fresh as you could get it.” The company carries 51 SKUs every day, with some stores carrying additional SKUs to accommodate special requests from customers.
- Cigars. The company carries about 67 SKUs of cigars. “We have had very good success with many of the new flavored-cigar SKUs,” Flint says. “And we make every attempt possible to be amongst the first to the market with any new items that we feel will perform well.”
The company does well with single cigars and with flavors, particularly grape and white grape. Middleton’s Black & Mild and Swisher cigarillos are particularly popular brands, Flint says.
- Snus. Timewise maintains several SKUs of snus, including the latest offerings from Marlboro, Camel and Skoal. “It’s not flying off the shelves, but we do have them available,” Flint says.
But the company is not discouraged, with Doody saying manufacturers are simply “a little ahead of where they need to be.” “I think it’s not evolving or developing as quickly as they thought it would develop,” Dujka says. “It will get there; the question is what it’s going to take in the meantime, in terms of investment.”
E-cigarettes. While Timewise has tried the category, the demand wasn’t there to support continued sales. “We have a good group of managers, and they’re sensitive to our customers; if they start getting requests for something, they’re going to let us know,” Dujka says. “Maybe we need to revisit that subject, but we’re not there now, not with that product.”
Roll-your-own (RYO ). At press time, the company was implementing new plan-o-grams in about 20 rural stores to include 12 SKUs of RYO products, including 3 SKUs of pipe tobacco. The company had tested RYO several years ago, and “it really wasn’t doing much anywhere,” Dujka says.
The company decided to try out RYO, sometimes a cheaper alternative to machine-rolled cigarettes (especially with less-taxed pipe tobacco), in a few stores again last year—and it has started to catch on. “I think we all saw that there’s been a change in people’s thoughts on using this product,” he says. “So that’s why we decided to go a little further into it.”
Maintaining the Mix
Having the right product mix means nothing if you don’t have them in stock. Dujka attributes much of the company’s success to the “unique inventory replenishment system” Timewise uses in conjunction with Core-Mark.
“It allows us by location to carry the brands that people want, because every location has its top sellers and every location has a different set of bottom sellers,” he says. “I think that’s how we can have maybe a little higher retail than our competition because then when customers walk in, they know they’re going to get their cigarettes from us.”
Doody explains that the system sets reorder points and keeps track historically on inventories coming in, with parameters set on lead times and how much safety stock the retailer wants to carry.
The system favors velocity items, guaranteeing ample inventory levels for fast movers. “When you get outside of the top 20, the manager has to act in a completely different fashion. They actually have to trigger an order for the item,” Dujka says. The top 20 account for roughly 94% of sales.
Putting the system in place three years ago was not without its challenges, however. “The hardest thing to do was get people to give us inventory instead of an order,” he says. “Our system’s always been ‘This is what I need,’ and now it’s ‘This is what I have.’ And it took a little while to get the managers on board. “Once we got past that, it all fell into place. Timewise works for tobacco, and tobacco works for them.”
Lessons from Landmark
- Why sell one when you can sell two?
- You can offer a good price without giving product away.
- Keep up on inventory to become a destination for your product mix.