Adjusting The Product Mix In Tobacco

 

During the last eight or nine years, most of the presentations in high level or quarterly sales meetings have in some way focused on how to increase fresh foods sales by keeping the right product mix according to store needs. Also during these meetings attention is drawn to the drop in cigarette sales, even though it is still a strong category. There’s no arguing that the soft economy and increased taxes on cigarettes have resulted in high retail prices, which has played a significant role in reducing revenues generated by this category. Additionally, smoking bans in public places have motivated some consumers to switch to chewing tobacco. However, there are opportunities to augment tobacco sales with single cigarillos and single cigars. Single cigarettes would also be a boon, but tobacco license rules in most states do not allow retailers to sell individual cigarettes, perhaps because they are not individually wrapped.

Stores in low-income neighborhoods have experienced an increase in sales of single and multi-pack cigars, as well as other tobacco products like wraps and cigarillos, because tax increases for these products have not been as high as for cigarettes. Also, guests have a choice to buy these products in singles. This consumer trend of purchasing singles has been going on for the last few years, but unfortunately our merchandising department has not paid much attention to this, despite the strong sales figures.

We should be taking advantage of all the cigarillo and cigar singles promos being offered, of which there are plenty. But before we can do so, changes must be made in the system to allow us to easily order these products. As it presently stands, most times the promo items are only shipped once and we run out of them in the first week. To make matters worse, stores have no way of registering the items as “carried” in our system so we can reorder. In some cases, even if we can register the items as carried, McLane can be out of them. A good example is White Owl Fresh Green and Red Sweets for 99 cents—McLane usually runs out but local vendors have them all the time. New items in this category also take a longer time to get approved, like White Owl Cigarillos all flavors “2 for $1.49” and White Owl Singles all flavors for 79 cents.

Another problem is that some good sellers are being deleted and are no longer available, such as Swisher Sweets “Buy Two Get One Free” and Mini Swisher Sweets. I had a chance to discuss the availability of these promotional items with my Swisher Sweets account manager, and was informed that these items are blocked by SEI in certain areas and are not available through McLane.

Adding to the conundrum is the fact that the product information screens for these items are not accurate, and show some promo and items as having negative gross profits and percentage, which affects our ability to make reasonable decisions on which to order. Also, the cost from McLane is higher in some cases than buying from another distributor or sales rep. Examples: Swisher Sweets Cigarillos are $27.44 from McLane and $23 from a local rep; the Swisher Sweets “5 For $3” promo costs $52.84 per box from McLane and $43 from a local rep; White Owl Cigarillos from McLane are $26.36, local rep $23. We could have higher GP percentage and dollars from these items and promos if we can get the same costs through McLane.

OTP singles has been a well-established category for the last two or three years, and is still growing in low-income area stores. This is reason enough for SEI’s buyers to negotiate a better cost through McLane. This way we won’t have to look around for street deals through local reps or vendors, and we can stay competitive not only with other convenience stores, but with smoke shops as well. There’s no doubt our future lies in fresh foods, but other categories like tobacco will remain important until our stores are clearly established as foodservice destinations.