The C-Store Pipe-Tobacco Opportunity
Are retailers missing out on one of tobacco’s greatest growth segments?
OAKBROOK TERRACE, Ill. — The electronic-cigarette boom over the past couple of years has gotten plenty of attention. And while it may be impossible for any segment in the tobacco category to compete with that growth (given the fact that e-cigarettes are a completely new product and thus started with zero sales), pipe tobacco has been experiencing a renaissance of its own in the post-SCHIP era: Sales-data research firm IRI reports that convenience store pipe-tobacco sales have nearly tripled in the last three years, going from 116,061 pounds sold in September of 2010 to 348,011 pounds in April of 2014.
Yes, an easy explanation of the sudden interest in pipe tobacco would be its tax advantage over roll-your-own or make-your-own tobacco after the passing of tax hikes to fund SCHIP (State’s Children’s Health Insurance Program) in 2009. But as vice president of marketing and product development for Scandinavian Tobacco Leonard Wortzel noted, pipe tobacco continues to grow.
“We’re not seeing the 50-60% growth year-over-year, like in 2009, but we are still seeing double-digit growth at tremendous levels,” he said. “There was a whole subset of consumers who were desperate for getting value, and they discovered that pipe tobacco is probably the best value in the tobacco world today.”
“In markets with above-average taxation on cigarettes, retailers have an opportunity to leverage pipe tobacco as a way to deliver value to the price-sensitive consumer,” agreed David Bishop, managing partner of Barrington, Ill.-based sales and marketing firm Balvor LLC.
But are convenience stores taking advantage of that opportunity?
Despite nearly tripling its sales of pipe tobacco over the past four years, “From what we can see, (the c-store channel) has kind of missed this growth story,” Wortzel said. “They have, for the most part, not participated to the extent that other channels have.”
Easily the biggest challenge facing c-store retailers interested in the pipe segment is space. It’s an old story: Between cigarette contracts and burgeoning OTP options, there’s simply not enough room behind the counter. This is all the more challenging when it comes to pipe tobacco.
“Large packages are a key operational issue for convenience retailers as space on the back counter is extremely valuable,” said Bishop.
To help ease some of these space concerns, manufacturers like Scandinavian and Republic Tobacco now offer smaller-format pipe pouches. They still take up more space than the average OTP SKU, but are much easier to fit than the traditional 16-oz. bags.
“Convenience retailers have generally figured out that pouches are the best-selling pipe-tobacco format and the easiest to merchandise,” said Steve Sandman, president of Republic Tobacco.