Tobacco's other world. (Nonfoods for Profit).
Long overshadowed by cigarettes, a number of "other tobacco products," such as cigars, smokeless tobacco and even non-tobacco items, can offer retailers a way to make money from the category, often with fewer hassles.Retailers can profit from the tobacco category with few headaches, if they are simply willing to look for potential opportunities. To a large degree, many of these opportunities lie in the broad product sub-category labeled by many analysts, including the leading data-gathering companies, as "other tobacco products" (OTP). It is a growing segment of the tobacco category, which excludes cigarette products.
According to industry officials, including suppliers and retailers, OTPs are gaining significantly more exposure in retail stores as advertising and promotional activities for these items expand and consumer demand shifts away from cigarettes. At the same time, most of these products offer retailers strong margins--high enough that many merchants are eager to expand space for products that most did not even carry five or 10 years ago.
But the increasing exposure of OTPs is creating a quandary for a number of retailers that say they are already crunched for space and worry that they may have to cut another section to include some of these products. Still, many grocery merchants seem to have their minds open and are willing to at least experiment further with these products.
The largest of these categories appears to be the moist smokeless tobacco segment. According to data gathered by Chicago-based Information Resources Inc. (IRI), the category posted nearly $400 million in sales in mass market outlets (excluding Wal-Mart) with supermarkets garnering more than 95% of that total.
Officials at U.S. Smokeless Tobacco Co. (USSTC), based in Greenwich, Conn., say that their own information, along with data collected by Schaumburg, Ill.-based ACNielsen, shows that moist smokeless tobacco is the fastest growing and most profitable segment within the OTP category.
"According to ACNielsen/USSTC market research for the 52-weeks ending July 6, grocery stores generate more consumer foot traffic than any other retail channel," says an USSTC spokesman. "Exciting category management technologies and channel-specific merchandising vehicles offer supermarkets their best opportunities in years to grow share in the moist smokeless tobacco (MST) business. The top 10 MST items--of which USSTC manufactures eight--represent 78% of supermarket category sales."
The company is not resting on its laurels either. In October, USSTC launched two new products--Copenhagen and Skoal pouches--into the marketplace. Company officials say that their pouches are three times the size of the leading tobacco pouch product and feature moist, rich, premium-quality tobacco. In April, USSTC introduced Skoal Berry Blend, a berry-flavored long cut product. It is the first new line extension for Skoal in nine years.
On the promotional side, USSTC is conducting the Skoal 4-speed sweepstakes, which will provide 10 randomly selected adult grand prize winners with four speed adventures involving cars, boats, trucks and airplanes in a variety of exciting locations. The sweepstakes is being supported through a high-impact point-of-sale (POS) program, print advertising and event marketing. A 600,000-piece direct mail campaign (the company's largest to date to support a sweepstakes) has also been launched. The grand prize winners will be selected in January.
The $263 million (in mass retail, excluding WalMart) cigar market also continues to expand. According to information gathered by John Middleton, a manufacturer of popular-priced cigars, sales in this segment are increasing by about 10% annually, with convenience stores controlling the vast majority of sales volume.
"We are very pleased with our progress in supermarkets," says Dick Smith, vice president of sales and marketing for King of Prussia, Pa.-based John Middleton. "During the third quarter, we had our largest share gain in food stores. This was driven by our ongoing checkout coupon program, working with Catalina. Beyond this we are running account-specific promotions with a number of supermarkets. We would love to partner in more of these. It's our goal to have, and share, the best business-building ideas in the cigar business."
John Middleton introduced Black & Mild mild cigars and Black & Mild untipped cigars to complement the original Black & Mild cigar, its top-selling item.
The roll-your-own segment is probably the most intriguing to retailers and the industry as a whole. According to Barton Laws, vice president of marketing for Dresden, Tenn.-based RBJ Sales Inc., the roll-your-own market is growing because of the increase in federal, state and local taxes on traditional cigarettes in many areas of the country. According to IRI, sales of roll-your-own tobacco increased by 8.7% in the 52-week period ended October 8, 2002, to nearly $48 million in mass market outlets, excluding Wal-Mart.
"Our category is growing by leaps and bounds," says Laws. "Consumers can make a pack of roll-your-own cigarettes for under $1. Each time taxes go up on cigarettes, more consumers seem to be willing to experiment with our products. The big benefit for retailers is the fact that roll-your-own products have margins that can reach the 30% range, compared to less than half that for regular cigarettes."
Education is still a key component for consumers and retailers. "I think it is interesting that more supermarket retailers are getting involved with our types of products and creating special sections for it," he adds. "One retailer in Pennsylvania now has a rack program with our products that has grabbed a lot of attention. Supermarkets can do very well with our product if they give it space. They already have the traffic. Now all they have to do is make the consumer aware of the savings by rolling cigarettes themselves."
Another growing segment of the OTP category is tobacco-free. Seeking to provide an alternative to tobacco products, tobacco-free items are gaining exposure with retailers and consumers. According to Dave Savoca, president of Smokey Mountain Chew, based in Darien, Conn., more consumers are actively seeking an alternative to tobacco products, setting up the perfect stage for his products.
"Our sales growth is well into the double digits annually, and it is growing for a number of reasons," he says. "One reason is that retailers and distributors are realizing that we are a tobacco-free alternative to snuff. We bring new sales into the category because we are not cannibalizing any other segment. In addition, this category provides strong margins and is not controlled by the Food and Drug Administration."
Savoca adds that Smokey Mountain Chew products are a great opportunity in a non-self serve state for tobacco since his products can be placed on a counter or open shelf. "It will allow consumers to see an alternative and perhaps generate greater sales by some customers who may be interested in our products in addition to their traditional tobacco items," he says.
THE OTHER TABACCO PRODUCTS SEGMENT RETAIL CLASS DOLLAR SALES % CHANGE UNIT SALES % CHANGE FOOD $533.0 1.9% 187.7 -4.8% DRUG 218.1 -2.4 54.0 -7.5 TOTAL 762.1 -1.4 245.7 -7.2 Source: Information Resources Inc. For 52-week period ended October 8, 2002. Sales in millions.
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| Author: | Mendelson, Seth |
|---|---|
| Publication: | Grocery Headquarters |
| Geographic Code: | 1USA |
| Date: | Dec 1, 2002 |
| Words: | 1166 |
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