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The Opportunity Outlook

• Modern oral nicotine “looks promising, but is still in the early days,” according to Bonnie Herzog, managing director at Goldman Sachs, which puts the subcategory at around 1.7 percent of the U.S. tobacco market currently, but growing. Perhaps best of all, she noted the segment has attractive demographics: younger, more affluent, better educated, urban consumers.

• “Oral pouches are hot, but we think the unquestionable hottest trend in nicotine this year is disposable e-cigarettes,” stated Alex Morrison, senior business analyst at Cadent Consulting Group, based in Wilton, Conn. “These products have exploded since the FDA’s June ban on non-disposable flavored vapes, unintentionally opening the floodgates for such products to come to market.”

• While most retailers have experienced an increase in sales of flavored vapor disposables and added to their product selection in this segment, Management Science Associates Inc. (MSA), a Pittsburgh-based company focused on analytics and informatics, is beginning to see an increase in tobacco and menthol varieties as well. “This is something to watch during this year — it could be that as more retailers are stocking a wider selection of disposables, more consumers are developing an affinity for this product form and are purchasing it for more than the flavor options,” explained Don Burke, senior vice president of MSA.

• Currently low in volume but starting to grow, Burke views low-nicotine and no-nicotine vapor items as an emerging trend in the industry.

• Make-your-own cigarettes are experiencing somewhat of a resurgence. They provide adult consumers with “a less-expensive alternative to factory-made cigarettes, allow them to build the perfect taste for themselves, and make them feel that they’re crafting something themselves,” according to Becky Roll, chief revenue officer at Glenview, Ill.-based Republic Brands.

• “Retailers are using digital media within their owned channels to drive adult nicotine consumer engagement with c-store loyalty programs. “Those that are leveraging this technology are outpacing their competition,” reported Mike Wilson, vice president of trade strategy and operations for Reynolds Marketing Services Co., based in Winston-Salem, N.C. “Retailers are also leveraging digital content within their owned channels to increase consumer awareness of new product introductions and multiunit sales offers.”

Morrison of Cadent Consulting concurs that there is widespread industry confusion, citing headlines regarding the market removal of certain popular vape items. “By all accounts, these products should no longer be available,” he relayed to CSNews. “With seemingly no enforcement being taken in the last several months, we believe that the biggest backbar challenge in 2023 will be for c-stores to juggle the products offered on-shelf while the regulatory environment is increasingly unclear.”

Haynes offered a prudent way for retailers to deal with the uncertainty in the meantime. “They can take a level of diligence with the companies they deal with,” he said. “This is not rocket science. Deal only with reputable companies that have the resources to undertake compliance. Then, seek to understand at a basic level where they have undertaken regulatory efforts by asking them or consulting some of the publicly available resources on the FDA website.”

Richmond, Va.-based Altria Group Inc., one of the world’s largest producers and marketers of tobacco products, believes more could be done by the FDA to advance harm reduction in the United States.

“The FDA should move more deliberately toward creating a market of authorized smoke-free products to help accelerate smoker transition away from cigarettes,” CEO Billy Gifford stated during Altria’s third-quarter earnings call. “The fact remains that to date, only a small percentage of e-vapor volume has been authorized, and no oral nicotine pouch products have received market authorization. We believe collaboration and accountability from all stakeholders are required for this market transition to take place.”

An Untapped Dance

On the opposite end of the challenge spectrum lies opportunities, and industry experts are quick to point out that 2023 is robust with potential.

One under-recognized trend MSA is beginning to see this year is “a return to growth in the pipe and roll-your-own tobacco segments,” according to Burke. “While these segments did not particularly fare well during the pandemic, the current ongoing economic conditions of high inflation and higher gas prices are encouraging more consumers to make their own cigarettes.”

Republic Brands is also observing a resurgence in the RYO space. Convenience store retailers can choose to become a top-of-mind destination for these items by carving out dedicated space in their stores for RYO, Roll advised.

Meanwhile, Burke of MSA has several pieces of advice for c-store operators looking to maximize their tobacco/nicotine business this year. First, stock items with a lower product quantity and/or a lower price point. Second, use window and in-store window signage to make note of your value-priced tobacco items. Also, maintain strong product selection in what Burke identifies as growing categories: value cigarettes, value moist, modern oral and vapor disposables.

On the topic of modern oral, Morrison made note of oral pouch promotions, particularly three-for-one manufacturer deals that retailers across the country are starting to tap into. These promotions are drawing new adult users into the subcategory.

Reynolds Marketing Services’ Wilson believes consumer choice across segments remains one of the greatest untapped opportunities. “Many adult consumers are looking for potentially lessrisky products and as these consumers continue to navigate away from combustible cigarettes, polyusage continues to rise,” he told CSNews

To meet the demand, c-store retailers need a robust nicotine offering. “The days of backbars entirely dedicated to cigarettes are gone,” Wilson said. “Year after year, we see that adult nicotine consumers are looking for different ways to enjoy the category. Incorporating next-generation products into your backbar provides consumers the option to explore new ways to enjoy nicotine.”

Staying on the forefront of nicotine innovation also means retailers should constantly evolve their programs, the Reynolds executive added, citing digital partnership programs that provide additional resources to retailers.

“Beyond technology, remaining engaged with the category with new-product offerings helps ensure your customers will stay loyal to your location,” Wilson said.

The way Herzog sees it, strong promotional activity and loyalty programs will mitigate downtrading to some extent. Also, a shift to more noncombustible alternatives and more affordable options will continue as cigarette pricing remains high. CSN

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