Retailer View: Tobacco

At Cumberland Farms, e-cigarettes a surprise hit

[EDITOR'S NOTE: As the first in a series of discussions with the industry’s best category experts, Convenience Store Products speaks with Cumberland Farms' Anne Flint. Part I of our conversation focuses on the retailer's expectations and opportunities in the tobacco category. Part II will highlight the industry's relationship with the FDA.]

Tobacco category managers know that when it comes to their flagship cigarette segment, it’s never been about profit performance so much as rock-solid consistency of sales—all spearheaded by a loyal customer base. So what happens when cigarette sales go south?

That’s when executives like Anne Flint, senior category manager of tobacco and other tobacco products (OTP) for Framingham, Mass.-based Cumberland Farms Gulf Oil, have their work cut out for them.

Through category retooling and subtle reinvention, Flint has been able to find some silver linings upon which to build new cornerstones for Cumberland Farms’ tobacco portfolio. Most of the retailer’s 600 stores in 11 East Coast states feature a cigarette back bar of 6 to 8 feet, with OTP offering including moist smokeless tobacco. In December 2011, the chain added e-cigarettes to the lineup, and Flint is pleased to report that this foray has gone exceedingly well.

How are you changing your category-management strategies, given the influx of e-cigarettes and OTP offerings, and ongoing softness in the cigarette category?
It’s been a fluid process, particularly with the influx of e-cigarettes, which are flying off our shelves. In December 2011, we did a test on e-cigarettes in Massachusetts. I was skeptical myself and nervous to get into this category. Plus, we launched the test the week before Christmas, and I was thinking that maybe we’d get some “stocking stuffer” sales, but sales just skyrocketed. The test in Massachusetts was then expanded to all 11 states we conduct business in. We tested four brands and settled on three: Blu, NJOY and Logic.

How do consumers perceive e-cigarettes?
Many people think it’s exclusively a smoking-cessation product—that this product will help wean them off the real thing. (The cessation perception is actually a misconception because e-cigarettes have nicotine.) And then with New Year’s resolutions, this is what might have triggered early trial and repeat sales.

Where are you positioning e-cigarettes in the stores? 
I bundled them on clip strips in the cigar section, but due to the great demand, we re-positioned them to the top shelf, and moved cigars—which had been on that top shelf—down one shelf. I am not making any decision on expansion of e-cigarettes until the FDA rules are announced.

How did OTP products fare in 2012 and what kind of growth do you project for 2013?
For starters, we will hold the line on expanding OTP until the FDA proposed regulations on other tobacco products are finalized. That said, OTP has fared well because of the smoking restrictions that people are up against. Looking at these trends, we did a tobacco reset two years ago and cut back cigarettes about 2 feet, while expanding moist product about 2 to 3 linear feet. The moist segment has been skyrocketing. The innovation with pouches is one driver of that, as pouches are more user-friendly.
With cigars, Swedish Match is the category captain in our stores. We carry premium products across the cigar segment and others. I believe in carrying the best of the best.

How can the soft sales in the cigarette category be repaired?
We are actually gaining share in cigarettes, even though there are fewer people smoking. People continue to seek deals on cigarettes and cigars. The cigarette customer remains the lower-income customer, and they are certainly remaining the c-store customer. They continue to look for lower-price brands and deals. That’s what brings them in, and it’s my job to have product out there to keep them coming back. One challenge we face is the “pre-priced” cigar constraints (imposed by manufacturers) that we’re subject to; this has made it hard to offer attractive deals because of the profit compression they cause.

Are there any new innovations occurring with cigarettes?
The line extensions that we typically see for cigarettes result in cannibalization rather than incremental growth. Surprisingly, private label has had a rebirth in our stores. Over the past couple of months, we have had huge success with the First Class brand, a private label manufactured by U.S. Flue Cured Tobacco. First Class is my new low-price brand, and in the first four weeks it has performed unbelievably.

What are the metrics in deciding if a new product or line extension deserves a place in your tobacco set permanently?
We give a new offering the right amount of time before pulling it. You reach a critical mass point where you know it’s not gaining ground. We work out a deal with the distributor to return product that’s proved to be “dead product.” 

Stay tuned to Convenience Store Products for Part II of our conversation with Cumberland Farms’ Flint, where we discuss the impact of FDA oversight on the category.