The competitive environment is one more reason for convenience store retailers to worry about tobacco sales trends, according to a recent survey of c-store retailers and wholesalers. “Our survey respondents indicated the competitive environment was slightly more intense vs. last quarter,” wrote Bonnie Herzog, senior analyst for Wells Fargo Securities in the Q1 2013 U.S. Tobacco Retailer Survey.
Among the concerns weighing on retailers’ minds:
Dollar and drug stores have gotten more meaningfully involved in the tobacco category.
Cool weather, high gas prices, and higher payroll taxes impacted the low-to-middle income consumer.
The relative price gap widened slightly, resulting in increased down-trading pressure.
Deep discount brand activity has picked up slightly.
E-cigarettes appear to be taking a share of the total tobacco category.
Herzog said the “outlook is increasingly rosy for e-cigarettes as nearly 90% of our respondents indicated the category accelerated in Q1 vs. Q4, with annual growth topping 30%.” Retailers have become incrementally more positive on the category, she said, and have praised the advertising and marketing efforts of e-cig manufacturers.
Cigarette sales account for about 45%-50% of merchandise sales for the average c-store, but profits on cigarettes have been squeezed by the manufacturers, with gross margins of only about 20% vs. 30% gross margins on most other merchandise and 50% gross margins on food service, Herzog said. (CSP Daily News: www.cspnet.com)