By: Renée M. Covino
Tobacco industry insiders offer four tips for leveraging the trend.
NATIONAL REPORT — Tobacco’s latest oxymoron is here: Downtrading is on an upswing.
Pressures from ongoing inflation and continued list price increases across all tobacco categories are forcing consumers to make difficult decisions to either buy less, buy cheaper or try to quit, according to Bonnie Herzog, senior financial analyst at Goldman Sachs.
“Retailers note consumers are increasingly making purchase decisions based on what is on sale or discounted, with one retailer documenting that nicotine salt e-vapor products are among the least expensive nicotine delivery formats,” Herzog stated in her firm’s “Nicotine Nuggets” survey from the first quarter of this year.
Inflation and rising prices throughout 2023 will continue to drive tradedowns to off-brands, private label and generics/subgenerics in the tobacco/nicotine category, predicts Alex Morrison, senior business analyst for Cadent Consulting Group, based in Wilton, Conn.
Some good news is that there are multiple opportunities for convenience store operators to pivot a bit and take advantage of downtrading.
Keep Up With Value Trends
The most obvious way for c-store retailers to cater to cash-strapped tobacco consumers is to stock more items with a lower product quantity and/or lower price point and then, make note of these value offerings through in-store and window signage.
The top subsegments to do this in are value cigarettes, value moist, modern oral and vapor disposables, according to Don Burke, senior vice president of Management Science Associates Inc. (MSA), a Pittsburgh-based company focused on analytics and informatics.
“Being able to offer a strong product selection of value-priced items, while maintaining the right items in the higher-priced segments, will require some retail ingenuity,” he said.
In addition to stocking robust value brands, c-store operators should also keep up with the latest lower-priced premium offerings. For instance, Richmond, Va.-based Altria Group Inc.’s Marlboro Black Gold Pack nonmenthol cigarettes are the company’s latest answer to offset inflation-induced downtrading among its cigarette smokers. The product became available nationwide in May, coupled with increased marketing support for the overall Marlboro Black line. It is intended to gain back adult smokers who left the Marlboro brand, as well as keep those who are considering downtrading out of the brand.
“If consumers had felt the need to trade out because they were under economic pressure, it gives them a space within the Marlboro franchise where they can reengage — or if a consumer comes under pressure, it gives them a space to continue to engage with Marlboro,” explained Altria Group CEO Billy Gifford.
Embrace the DIY Trend
When economic times get tough, consumers lean into the do-it-yourself (DIY) space and for tobacco consumers, that means roll-your-own (RYO) items. RYO is experiencing somewhat of a resurgence, providing adult consumers with “a less-expensive alternative to factory-made cigarettes and allowing them to build the perfect taste for themselves and making them feel that they’re crafting something themselves,” said Becky Roll, chief revenue officer at Glenview, Ill.-based Republic Brands, which bills itself as the world’s leading rolling company.
Considering downtrading, Roll recommends that c-store retailers choose to become a top-of-mind destination for RYO, carving out a dedicated space for this segment in-store.
MSA’s Burke also points to another resurgent segment of RYO — pipe tobacco — and suggests retailers consider carving out a small space for that adjacent to RYO.
Map Out Geography Trends
Retailers should keep abreast of geographic influences affecting downtrading or the lack thereof. An industry report released in June found that adults and young adults in 12 states — Alabama, Arkansas, Indiana, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Ohio, Oklahoma, Tennessee and West Virginia — have a 50 percent higher prevalence of smoking cigarettes, and smoke significantly more cigarettes per capita annually than people living in other states (53 packs vs. 29).
These states also have lower taxes, resulting in a pack of cigarettes costing nearly 20 percent less than in other states. And these states currently have virtually no flavored tobacco sales restrictions.
Focus on Digital Trends
Now more than ever, progressive retailers are harnessing the full power of digital capabilities, using adult consumer data from loyalty and app-based programs to become more efficient marketers and drive awareness of what matters most to them, such as the best nicotine prices and promotions. The digital space is also rapidly becoming a means of education for alternative products.
“The very best retailers are consciously making the investment today to leverage the data for the benefit of their adult consumer base, as well as their own retail operations,” said Matthew Hanson, chief financial officer/chief growth officer for Chicago-based Black Buffalo, a modern oral nicotine product that mimics moist smokeless tobacco but without the tobacco leaf.
Mike Wilson, vice president of trade strategy and operations for Reynolds Marketing Services Co., headquartered in Winston-Salem, N.C., echoes that the use of digital media to drive adult nicotine consumer engagement with c-store loyalty programs is a must for retailers that want to outpace their competition. New product introductions and reduced pricing/promotions are crucial messages for adult tobacco/nicotine consumers in these downtrading times, he said.
Altria, too, has increased its digital efforts at retail. At the highest level of participation, once a consumer is verified, a retailer can provide targeted offers and messaging within its app.
Source: Convenience Store News