Enhancing variety will continue to be a key for this high growth category.
By Howard Riell, Associate Editor.

Sales of smokeless tobacco products keep increasing and convenience store operators are enjoying the ride.

But keeping that graph line headed north means keeping a wary eye on proposed federal regulations, keeping sets fresh, properly allocating shelf space, rotating product, keeping tabs on expiration dates and weeding out slow sellers.

Sounds like a full-time job. From a sales and legislative perspective what 2012 holds for retailers of smokeless tobacco remains a bit of a mystery.
“The legislative sessions really don’t start until January so in terms of possible tax increases or other restrictions, we won’t know anything until we see what legislation is introduced,” said Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO) in Minneapolis.

Beyond that, with Election Day now in the past, tobacco is unlikely to be a rallying point for politicians looking to fill state coffers. In fact, only two states passed increases in smokeless tobacco product taxes this year.

“I think states are realizing they’ve hit a point of diminishing returns in an attempt to continue to raise more revenue from tobacco products’ excise taxes,” Briant explained. “They’ve realized that states budgets are possibly not as in the red as they were during the great recession, so the need for additional revenue may not be as great.”

Exactly what all of that means for the months ahead, however, remains anyone’s guess. “I am an attorney, so I never predict,” Briant said. “But what can be said with certainty is that this was a very good year with few tax increases on smokeless tobacco products.”

Operator’s Opinion
“From an operations or a legislative standpoint, no one asks the convenience store operator for his opinion,” lamented Amer Hawatmeh, president of St. Louis-based St. George Oil, operator of six Coast to Coast convenience stores. “From my perspective, as I look at the tobacco products, the only thing I concern myself with is, is it guaranteed? This is becoming a bigger and bigger issue with tobacco companies. Tobacco used to go stale and they would guarantee it. They would pick it up and send you fresh product. They don’t do that anymore. Now it’s not only a large factor in your inventory, it’s also a big cost factor—you double the cost factor because when it stales you’re throwing it in the garbage can.”

After the product guarantee, Hawatmeh wants to know whether or not the manufacturer is advertising it, and how much space he’ll need to
allocate to it.

“We obviously want to give all brands a fair shake in case a particular SKU starts to generate strong sales,” Hawatmeh said. “With brands that retail at $2.99 with a 30% margin, it’s a good return on investment. That brings us back to the first two questions: is it guaranteed and how much space and how many dollars do I allocate to that inventory?”

Hawatmeh reported that the new Skoal Blend line is doing well in his stores. “It’s all under $3 for a roll. You’re seeing that the chewers—the guys who were buying the roll for $5 a can—are switching to this line because when you go from $5 to $3, that’s a nice savings,” he said. “And it’s the same product line with the same name on the can. It’s just called Skoal Blend.”

That line and others will receive a full opportunity to fly at Coast to Coast stores. “We’re trying them all and we’re pushing them pretty heavily,” Hawatmeh said. “We will push anything that will create value for a customer who will consistently buy it. That’s what it’s all about.”

Counting on Consumers
While the number of places adult consumers can use tobacco has dwindled, Hawatmeh said he sees little in the way of hesitation over health concerns among tobacco consumers in general.

“Smokers are going to be smokers. The only thing they do is smoke different stuff or chew different things that save them money. These people, they know the risk factors that exist out there, the reality of what’s going on, and they’re not stopping,” Hawatmeh said. “The sales have not slowed down. All it’s done is switched over. That’s why all the companies keep coming out with more and different products, so that they can rename them in order to save money on taxes and keep the sales going.”

In fact, Coast to Coast stores have had disappointing results with products designed to help smokers quit. “One of the things that we aimed to do was bring in all the nicotine chews and other cessation products for all the people trying to stop smoking, but we were just getting stuck with inventory. The consumer who wants to smoke is going to smoke,” Hawatmeh said. “I thought sales of tobacco substitutes would go through the roof, especially when you’re competing against the big-box guys who are trying to get a bigger margin on it. It just wasn’t working for us.”

What Hawatmeh and his team have learned about their tobacco customers is that they are not concerned with health risks. “Smokers are far more worried about their freedoms being taken away from them than anything else,” he said.

And what do the government freedom takers have up their sleeves now? “Who knows?” Hawatmeh said. “Every day somebody gets a new itch and they create a new law, and every law seems aimed at prohibiting us from selling tobacco to adult consumers.”

Driving New Business
Despite government interference and higher prices, the tobacco category’s greatest strength lies in its loyal consumer base.

“The OTP business, especially the moist smokeless business, is a very, very strategic one in that the consumer has tremendous repetitiveness,” said Lou Maiellano, consulting partner for Taz Marketing & Consulting Group in Sevierville, Tenn. “That consumer is very strong in the convenience store industry. I’ve seen statistics that say they spend 2-3 times more than the average c-store customer. It is absolutely one of the best customers in a c-store.”

While total tobacco sales over the last quarter have more or less stalled, the OTP segment is up strongly. Maiellano’s big concern is over declining margins. “That is not good,” he said. “Part of that is because of the competitiveness that’s out there.”

The smart move for retailers looking to build sales is to do quarterly reviews and make adjustments to the offering as needed.

“Don’t be afraid to make changes on variety or pricing. It’s still a business that changes rather quickly,” said Maiellano, who also recommended that c-store operators pay strong attention to their pouch business. “Eight years ago I started pushing this segment, and today it has become almost an understatement. The pouch business in the moist smokeless category is over double digits, with probably a 10- 11% share.”

Columbus, Georgia December 2, 2012 – According to the International Premium Cigar & Pipe Retailers Association, the news media and general public are being duped into widely reporting and believing a new tactic of many tobacco prohibitionists who are issuing so-called post-smoking ban studies that supposedly show declines in illnesses like heart attacks.
The IPCPR cited studies reported by the Mayo Clinic in Minnesota and the states of North Carolina and Oregon that have been shown to be either false or misleading. The association’s position is based on analyses by Dr. Michael Siegel, a professor of social and behavioral sciences, mass communication and public health and public health advocacy in the Masters of Public Health program in the Department of Community Health Sciences at the Boston University School of Public Health in his blog (http://tobaccoanalysis.blogspot.com).
“Although we disagree with Dr. Siegel’s position on smoking bans – he favors them, generally – we agree with his commitment to facts and truth over spin and self-serving rhetoric,” said Bill Spann, CEO of the IPCPR which represents more than 2,000 manufacturers, distributors and retailers of premium tobacco products and related accoutrements.
“For example, the Mayo Clinic reported finding a 45 percent reduction in the rate of admissions for heart attacks in Olmsted County, Minnesota. Prohibitionists led the media to believe the decline was directly attributable to the smoking ban. Not likely, according to Dr Siegel. What the Clinic failed to report was that the rate of heart attack admissions for the entire state of Minnesota during the same time period was down 33 percent,” said Spann.
“… I believe the Mayo Clinic investigators … deceived the media and the public by failing to disclose the striking decrease in heart attack admission rates in Minnesota as a whole during the study period…. ,” said Dr. Siegel.
“Another example of false or misleading reporting was in North Carolina where they reported that a statewide smoking ban had resulted in a 21 percent decline in heart attack admissions, although the actual data showed a 21 percent increase in heart attack admissions among women and a slowing of the overall rate of decline in heart attacks in the state,” said Spann referring to Dr. Siegel’s blog.
“Finally, Dr. Siegel refers to the state of Oregon and shows that there was no change in the rate of decline in heart attacks in Oregon during the first year of the implementation of the smoking ban,” Spann said.
“The rest of the story is that the data from Oregon do not support the conclusion that the statewide smoking ban led to an immediate and significant decline in heart attacks, as claimed by anti-smoking researchers and groups,” Dr. Siegel wrote in his blog.
“The ‘infantalization’ of America is happening right under our noses. Our supposedly representative form of government considers its citizens to be children incapable of making informed decisions. In their minds, our choices need to be made for us by ‘those who know better.’ These people have an agenda with a foregone conclusion, and will not let proven empirical standards interfere with stated dogma. It is out of control and needs to be stopped at the ballot boxes across this great land,” Spann said.
Spann suggested that the media and general public should be skeptical of all statistics and epidemiological studies regardless of their source and look beyond the data to determine for themselves if the reports are true and accurately reflect the facts.
“Prohibitionists often find it irresistible to pull numbers out of the air and make wild, unsupportable assumptions in order to promote their objectives of running other people’s lives,” said Spann. “Average Americans can stop this; all they need to do is stand up and be heard.”
# # #
Contact: Tony Tortorici
678-493-0313
tony@tortoricipr.com

Survey finds about 11.1 million adult Americans have used snus, 4 million have used e-cigarettes, and 1.4 million have used dissolvable tobacco products; current smokers 22 times more likely to have used e-cigarettes than never smokers, 7 times more likely to have used dissolvables, and 4 times more likely to have used snus.

http://surveillance.mstobaccodata.org/wp-content/uploads/2010/06/2011-APHA-Presentation.pdf (PDF)

Take a look and comment! What are your thoughts?

Federal Judge Upholds NYC Flavor Ban Ordinance
Judge rules that New York City flavor ban is allowed under FDA law
By THOMAS A. BRIANT
Tobacco E-News | November 29, 2011
NEW YORK — A federal district court judge has issued an order upholding a New York City ordinance that bans the sale of all flavored tobacco products, except cigarettes, that contain a constituent or additive that imparts a characterizing flavor other than the taste or aroma of tobacco, menthol, mint or wintergreen.

Specifically, the ordinance bans flavored tobacco products that have a taste or aroma relating to any fruit, chocolate, vanilla, honey, candy, cocoa, dessert, alcoholic beverage, herb or spice. There is a very limited exception in the ordinance, which allows flavored tobacco products to be sold in several existing “tobacco bars” in the city.

Shortly after the New York City Council adopted the ordinance in October of 2009, a lawsuit was filed in December of 2009 by U.S. Smokeless Tobacco Manufacturing Company and U.S. Smokeless Tobacco Brands Inc., seeking to overturn the New York City flavor ban ordinance. Then, in March of 2010, the same federal judge denied a motion by the U.S. Smokeless Tobacco companies seeking a temporary injunction to block the enforcement of the ordinance.

The new court order issued on November 15, 2011, is in response to a motion for summary judgment by the U.S. Smokeless Tobacco companies to declare that the New York City ordinance is preempted by the 2009 FDA tobacco regulatory law known as the Family Smoking Prevention and Tobacco Control Act. In the court order, the judge relied on Section 916 of the FDA regulatory law. This section of the law, titled “Preservation of State and Local Authority,” reads as follows:

“…nothing in this subchapter, or rules promulgated under this subchapter, shall be construed to limit the authority of…a state or political subdivision of a state [i.e., a city, town or county]…to enact, adopt, promulgate, and enforce any law, rule, regulation, or other measure with respect to tobacco products that is in addition to, or more stringent than, requirements established under this subchapter, including a law, rule, regulation or other measure relating to or prohibiting the sale, distribution, possession, exposure to, access to, advertising and promotion of, or use of tobacco products by individuals of any age. …”

As stated in the court opinion, this means that “with respect to regulations relating to, or even prohibiting sales of tobacco products, local governments are free to go above any federal floor set either by the Family Smoking Prevention and Tobacco Control Act or by the FDA acting pursuant to it.” In other words, even though the FDA has not acted to ban the sale of flavored tobacco products, the court determined that a city could adopt such a restrictive law prohibiting the sale of a “subclass of tobacco products,” because Section 916 allows local governments to take that kind of action. The judge did state that the Family Smoking Prevention and Tobacco Control Act grants the FDA the exclusive power to regulate the manufacturing and fabrication of tobacco products, but the law reserved to states and cities the authority to adopt stricter regulations over and above any federal laws relating to the promotion, distribution, and sale of tobacco products.
Article from CSP Tobacco E-News

I immediately recall my caution to folks that regulation by the FDA would allow this and similar actions to take place. Now the evidence! What are your thoughts? Is the beginning?

City files suit that shops engage in tax evasion
Tobacco E-News | November 22, 2011
NEW YORK — New York City’s legal department has filed a lawsuit against Island Smokes’ stores in Manhattan and Staten Island, arguing that the stores’ roll-your-own (RYO) offerings mean Island is engaging in tax evasion.

A 10-pack carton of the RYO cigarettes at Island costs less than $40, because Island charges taxes at the rate set for loose tobacco, a fraction of the price of commercially made cigarettes, according to an Associated Press article. For commercially made cigarettes, the taxes alone are $5.85 per pack ($4.35 for the state tax and a $1.50 city tax).

According to city lawyers, every package of cigarettes sold in the state must bear a New York tax stamp, with businesses that sell unstamped cigarettes violating local law and the federal Contraband Cigarette Trafficking Act. The suit, which was filed in Manhattan federal court, also says that the stores violate a state law requiring cigarettes to meet fire-safety standards.

“By selling illegally low-priced cigarettes, defendants not only interfere with the collection of city cigarette taxes, they also impair the city’s smoking cessation programs and impair individual efforts at smoking reduction, thereby imposing higher health care costs on the city and injuring public health,” the complaint said.

A lawyer for Island Smokes, Jonathan Behrens, said the company is simply selling loose tobacco and tubes and giving customers access to rolling machines to make the cigarettes themselves — and “not selling unstamped cigarettes.”

Legal battles over shops using RYO machines are ongoing in Wisconsin, West Virginia and New Hampshire. The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau also issued a ruling Sept. 30, 2010, that retailers who give customers access to RYO cigarette machines are manufacturers, and are subject to the same licensing rules as other cigarette makers. In December of 2010, a federal district court judge issued a temporary injunction against the enforcement of the TTB rule on RYO machines. The lawsuit is now on appeal to the U.S. Circuit Court of Appeals.

Several weeks ago I saw these machines in a tobacco shop in TN. I see the opportunity but see the legal battle also as mentioned? Is this a wait and see situation or a real opportunity? What are your thoughts?

Couche-Tard to Push Private-Label Cigarettes?
Circle K retailer frustrated by “deflationary” MLP program
By STEVE HOLTZ
CSP Daily News | November 23, 2011
LAVAL, Quebec — Highlighting the noticeable detrimental effect Philip Morris USA’s Marlboro Leadership Program has had on its same-store sales in the United States, Alimentation Couche-Tard executives this past week hinted that they may unveil a private-label program or other action to drive its cigarette sales and margins.

During its second-quarter earnings call on Tuesday, Couche-Tard reported an average same-store sales increase in its U.S. stores of 2.5%. The Circle K retailer would have liked to see that statistic higher and pointed squarely at one product category for holding it back: cigarettes.

“In the United States, a cigarette manufacturer modified its supply terms and price structure at the beginning of the first quarter of fiscal 2012 in order to encourage retailers to decrease or maintain low unit prices on certain of its products,” the company said in its earnings report, “which has put a deflationary pressure on the corporation’s cigarettes sales.”

With that in mind, Couche-Tard executives estimated that excluding tobacco product sales, its same-store merchandise sales in the United States increased by 5.3%.

And so with Altria/Philip Morris USA announcing recently that it is revising, but keeping, its controversial Marlboro Leadership Price option for the first half of next year, analysts anxiously asked: Will the adjustments made to the program starting in January make it any more appealing to Couche-Tard?

“We saw the change announced recently and we will work to maximize the outcome of it,”said Raymond Paré, vice president and chief financial officer. “But this program is not more interesting or appealing for us because of these changes. … We don’t like to see these kind of programs that basically affect our capacity to price our product in our store.”

He added, “You will see soon one of the steps that we will take basically in order to … work around this program, and we are very excited by this.” No details of the steps were provided beyond referring to a desire to protect margins via private-label cigarettes.

Laval, Quebec-based Alimentation Couche-Tard Inc. is the leader in the Canadian convenience store industry. In North America, Couche-Tard is the largest independent convenience store operator (whether integrated with a petroleum Corporation or not) in terms of number of company-operated stores. As of Oct. 9, 2011, Couche-Tard had a network of 5,715 convenience stores, 4,107 of which include motor fuel dispensing. The network consists of 13 business units, including nine in the United States covering 42 states and the District of Columbia, and four in Canada covering all 10 provinces

If you want a truly frustrating job in public health, try getting people to stop smoking. Even when researchers combine counseling and encouragement with nicotine patches and gum, few smokers quit.

Get Science News From The New York Times »
By JOHN TIERNEY
Published: November 7, 2011

Recently, though, experimenters in Italy had more success by doing less. A team led by Riccardo Polosa of the University of Catania recruited 40 hard-core smokers — ones who had turned down a free spot in a smoking-cessation program — and simply gave them a gadget already available in stores for $50. This electronic cigarette, or e-cigarette, contains a small reservoir of liquid nicotine solution that is vaporized to form an aerosol mist.

The user “vapes,” or puffs on the vapor, to get a hit of the addictive nicotine (and the familiar sensation of bringing a cigarette to one’s mouth) without the noxious substances found in cigarette smoke.

After six months, more than half the subjects in Dr. Polosa’s experiment had cut their regular cigarette consumption by at least 50 percent. Nearly a quarter had stopped altogether. Though this was just a small pilot study, the results fit with other encouraging evidence and bolster hopes that these e-cigarettes could be the most effective tool yet for reducing the global death toll from smoking.

But there’s a powerful group working against this innovation — and it’s not Big Tobacco. It’s a coalition of government officials and antismoking groups who have been warning about the dangers of e-cigarettes and trying to ban their sale.

The controversy is part of a long-running philosophical debate about public health policy, but with an odd role reversal. In the past, conservatives have leaned toward “abstinence only” policies for dealing with problems like teenage pregnancy and heroin addiction, while liberals have been open to “harm reduction” strategies like encouraging birth control and dispensing methadone.

When it comes to nicotine, though, the abstinence forces tend to be more liberal, including Democratic officials at the state and national level who have been trying to stop the sale of e-cigarettes and ban their use in smoke-free places. They’ve argued that smokers who want an alternative source of nicotine should use only thoroughly tested products like Nicorette gum and prescription patches — and use them only briefly, as a way to get off nicotine altogether.

The Food and Drug Administration tried to stop the sale of e-cigarettes by treating them as a “drug delivery device” that could not be marketed until its safety and efficacy could be demonstrated in clinical trials. The agency was backed by the American Cancer Society, the American Heart Association, Action on Smoking and Health, and the Center for Tobacco-Free Kids.

The prohibitionists lost that battle last year, when the F.D.A. was overruled in court, but they’ve continued the fight by publicizing the supposed perils of e-cigarettes. They argue that the devices, like smokeless tobacco, reduce the incentive for people to quit nicotine and could also be a “gateway” for young people and nonsmokers to become nicotine addicts. And they cite an F.D.A. warning that several chemicals in the vapor of e-cigarettes may be “harmful” and “toxic.” But the agency has never presented evidence that the trace amounts actually cause any harm, and it has neglected to mention that similar traces of these chemicals have been found in other F.D.A.-approved products, including nicotine patches and gum. The agency’s methodology and warnings have been lambasted in scientific journals by Dr. Polosa and other researchers, including Brad Rodu, a professor of medicine at the University of Louisville in Kentucky.

Writing in Harm Reduction Journal this year, Dr. Rodu concludes that the F.D.A.’s results “are highly unlikely to have any possible significance to users” because it detected chemicals at “about one million times lower concentrations than are conceivably related to human health.” His conclusion is shared by Michael Siegel, a professor at the Boston University School of Public Health.

“It boggles my mind why there is a bias against e-cigarettes among antismoking groups,” Dr. Siegel said. He added that it made no sense to fret about hypothetical risks from minuscule levels of several chemicals in e-cigarettes when the alternative is known to be deadly: cigarettes containing thousands of chemicals, including dozens of carcinogens and hundreds of toxins.

Both sides in the debate agree that e-cigarettes should be studied more thoroughly and subjected to tighter regulation, including quality-control standards and a ban on sales to minors. But the harm-reduction side, which includes the American Association of Public Health Physicians and the American Council on Science and Health, sees no reason to prevent adults from using e-cigarettes. In Britain, the Royal College of Physicians has denounced “irrational and immoral” regulations inhibiting the introduction of safer nicotine-delivery devices.

“Nicotine itself is not especially hazardous,” the British medical society concluded in 2007. “If nicotine could be provided in a form that is acceptable and effective as a cigarette substitute, millions of lives could be saved.”

The number of Americans trying e-cigarettes quadrupled from 2009 to 2010, according to the Centers for Disease Control. Its survey last year found that 1.2 percent of adults, or close to three million people, reported using them in the previous month.

“E-cigarettes could replace much or most of cigarette consumption in the U.S. in the next decade,” said William T. Godshall, the executive director of Smokefree Pennsylvania. His group has previously campaigned for higher cigarette taxes, smoke-free public places and graphic warnings on cigarette packs, but he now finds himself at odds with many of his former allies over the question of e-cigarettes.

“There is no evidence that e-cigarettes have ever harmed anyone, or that youths or nonsmokers have begun using the products,” Mr. Godshall said. On a scale of harm from 1 to 100, where nicotine gums and lozenges are 1 and cigarettes are 100, he estimated that e-cigarettes are no higher than 2.

If millions of people switch from smoking to vaping, it would be a challenge to conventional wisdom about the antismoking movement. The decline in smoking is commonly attributed to paternalistic and prohibitionist social policies, and it’s ritually invoked as a justification for crackdowns on other products — trans fats, salt, soft drinks, Quarter Pounders.

But the sharpest decline in smoking rates in the United States occurred in the decades before 1990, when public health experts concentrated on simply educating people about the risks. The decline has been slower the past two decades despite increasingly elaborate smoking-cessation programs and increasingly coercive tactics: punitive taxes; limits on marketing and advertising; smoking bans in offices, restaurants and just about every other kind of public space.

Some 50 million Americans continue to smoke, and it’s not because they’re too stupid to realize it’s dangerous. They go on smoking in part because of a fact that the prohibitionists are loath to recognize: Nicotine is a drug with benefits. It has been linked by researchers (and smokers) to reduced anxiety and stress, lower weight, faster reaction time and improved concentration.

“It’s time to be honest with the 50 million Americans, and hundreds of millions around the world, who use tobacco,” Dr. Rodu writes. “The benefits they get from tobacco are very real, not imaginary or just the periodic elimination of withdrawal.

“It’s time to abandon the myth that tobacco is devoid of benefits, and to focus on how we can help smokers continue to derive those benefits with a safer delivery system.”

As a former addict myself — I smoked long ago, and was hooked on Nicorette gum for a few years — I can appreciate why the prohibitionists fear nicotine’s appeal. I agree that abstinence is the best policy. Yet it’s obviously not working for lots of people. No one knows exactly what long-term benefits they’d gain from e-cigarettes, but we can say one thing with confidence: Every time they light up a tobacco cigarette, they’d be better off vaping.

JUDGE BLOCKS FDA’S GRAPHIC CIGARETTE WARNING LABELS
—————————————————————–
WASHINGTON — A federal judge blocked new U.S. rules for
enhanced health warnings on cigarette packaging from going into
effect, saying the tobacco companies that sued may win their
claims that the warnings violate freedom of speech, according to
Bloomberg and other reports.

U.S. District Judge Richard Leon in Washington ruled today that
ordering tobacco companies to display graphic images of diseased
lungs and a cadaver bearing chest staples on an autopsy table
may “unconstitutionally compel speech.”

Leon granted a request by five tobacco companies seeking to
postpone the September 22, 2012, deadline for the regulations to
take effect while the court reviews the rule’s
constitutionality.

Lorillard, R.J. Reynold Tobacco Co., Commonwealth Brands Inc.,
Liggett Group LLC and Santa Fe Natural Tobacco Co. sued in
August, saying the U.S. Food & Drug Administration (FDA)
regulation mandates for cigarette packs, cartons and advertising
violate the First Amendment.

November 7, 2011
CSP Daily News FLASH

I find this of no surprise! What are your thoughts & comments!