E-cigarettes, tobacco-free products offer smokers alternatives
When it comes to tobacco sales, it is all about the angle you are looking from.
For those who remain optimistic about the category, they can point to individual unit sales of nearly $250 billion annually and price points that can hover around $10 a pack. They also can say that while the number of users is down dramatically over the last 20 years, the most loyal cigarette smokers continue to purchase the product at a steady rate and, surveys find, will continue to do so for years to come.
Finally, they also note the dramatic growth of e-cigarettes and the smaller, but still significant, growth of smokeless tobacco products. It is enough for one retailer to say, “we do not care where the sales are coming from as long as they keep coming in. We make money off of this category.”
Of course, the tobacco category is tainted by years of bad press and health studies that show that smoking is a leading cause of a number of different illnesses, including lung cancer, heart disease and other lung and circulatory diseases. They note that fewer consumers want tobacco products for these and other health reasons and for the significant increase in price points, due mainly to increased federal and state taxes on cigarettes.
The bottom line, some note, is that smoking traditional cigarettes is not cool anymore, and some shoppers are so vehemently against tobacco they will not shop at stores that carry these items.
So what is a retailer to do?
CVS, for one, made a well-publicized decision to end all tobacco sales in its stores a few years back. Other retailers have cut down on the size of their tobacco sections, and it is pretty difficult to find a mass retailer that publicizes the fact that they are still in the business of selling tobacco products. Some merchants that have stayed in the business have placed their tobacco departments safely behind a service counter, allaying the fears that minors can buy them and pretty much stopping any consumer pilferage.
Enter the hoopla over e-cigarettes. The booming category is producing solid double-digit dollar sales growth, despite concerns from some health groups that it is no safer than traditional cigarettes. But, many e-cigarette manufacturers counter by saying their products are a healthier alternative to tobacco-based products and can serve as a transition for someone looking to quit the category completely.
Regardless, the category is extremely hot. Some industry figures estimate that nearly 4 million Americans are daily e-cigarette users, and that figure could double within five years.
“What makes this category so interesting is that it has really fragmented and segmented over the years,” said Dave Savoca, president of Sandy Hook, Conn.-based Smokey Mountain Chew. “There are a lot of new products out there, and consumers have a much better opportunity to move from one to another to see what they like best.”
Industry officials stress that retailers need to pay close attention to the consumer demographics as they set up a tobacco category. Defining the shopper profile can help merchants determine the type of products to stock in the category, as well as what price points to highlight. They said that consumers are picking products for two reasons: price and usage.
“Some consumers are totally at ease with paying top dollar for tobacco products, while others want the best price out there,” said a director of marketing at a major tobacco company. “Plus more consumers want a choice, and we have to see exactly what they are looking for.”
Feeding frenzy: As Amazon and Walmart get hungrier, the industry wonders what’s next
Can other retailers find a comfortable — and profitable — niche in the marketplace, while Amazon.com and Walmart go toe-to-toe in their seemingly endless battle for retail supremacy?
The answer will not only define retail for the next generation or two, but also determine who will survive what many call the “new normal” in what is becoming a more complex and risky arena.
There is no hiding the fact that Walmart and Amazon are locked in a vicious campaign for the hearts, minds and wallets of the consumer. Each is taking strategic steps to become better merchandisers in the other’s space. Walmart’s $3 billion-plus acquisition of Jet.com last year, as well as other moves into e-commerce, shows that the Bentonville, Ark.-based chain is serious about learning as much as it can about e-commerce merchandising as quickly as possible.
“Walmart is getting its mojo back,” said Jim Wisner, president of Chicago-based Wisner Marketing Group. “The company has learned a lot from Jet and is accelerating its online performance to better interact with its thousands of physical locations. The company is definitely leveraging its relationships with manufacturers to build its e-commerce business.”
Amazon is not sitting still either. Its $13.4-billion purchase of Whole Foods this summer just confirms that the Seattle-based company is committed to being a serious player in just about every segment of the retail world — online and through traditional storefronts. And, many industry observers say they would not be shocked if Amazon followed up on its last purchase with another blockbuster, this time possibly a drug store chain or pharmacy distributor to close Walmart’s lead in that extremely profitable segment.
“It’s all about gaining distribution points,” said Ken Morris, a principal at Boston Retail Partners. “One big reason Amazon bought Whole Foods is to get what, in essence, are distribution centers across the country. About 90% of the population lives within 10 miles of a Walmart store. Think about what this will mean for same-day shipping.”
Where does all this activity by these two companies leave other retailers in the field?
Opinions may vary on pricing and selection strategies, but most industry officials stress that knowing as much about your potential consumer is vital for survival in the marketplace.
“Let the two gorillas in the room fight it out among themselves,” said Farla Efros, president of Toronto-based HRC Retail Advisory. “Stay the course. Going head on with them would be like chasing a ghost. Other retailers need to carve out a niche that emphasizes unique products and service. They need to spend more time learning who their shoppers are and what they can do for them.”
Morris feels that other merchants need to be more aggressive in their approach. While agreeing that retailers need to carve out a niche and understand their customers’ demands, he said that they must also make shopping a more entertaining experience.
“If you are just going to sell a commodity, these guys are going to eat you up,” he said. “Entertainment is the key. Retailers have to make their stores more fun and exciting, and convince consumers that they actually want to come into the store. That will especially be true for the malls, where more entertainment venues like restaurants, movies and bowling alleys will attract consumers.”
Phil Lempert, a Santa Monica, Calif.-based retail analyst, said there is a silver lining for other retailers, especially with Amazon’s recent acquisition. “Suddenly everyone wants to work in retail,” he said. “The Whole Foods deal made retail an attractive employment alternative for many Silicon Valley types. They are going to join retailers and bring new ideas that will help them understand shoppers better and bring more of them to the store or their websites. They are going to help rethink the overall shopping experience.”
In the end, it is going to come down to customer loyalty, and everyone agrees that is a fleeting thing. “Retailers are going to have to get their shoppers hooked on what they offer, including their own store brands,” said Wisner. “They are going to have to stay up on everything to make sure they offer shoppers what they want, when they want it and at a fair price. It is not going to get any easier for anyone.”
Rite Aid names EVP operations from Northeast and Midwest division
CAMP HILL, Pa. — Rite Aid on Tuesday promoted Derek Griffith from SVP operations in the Northeast and Midwest to EVP store operations. In this position, Griffith will be responsible for all aspects of the company's chainwide store operations. He will report to Bryan Everett, COO Rite Aid stores.
"Derek is a seasoned retail operator with demonstrated expertise in developing and implementing operational initiatives to drive and increase financial performance," Everett said. "Since joining Rite Aid nearly 10 years ago, he has made significant contributions to the company and our associates. As we move forward, his leadership and knowledge will help us successfully execute our operational plan and grow our business while further enhancing both the associate and customer experience in our stores."
Griffith brings to bear more than 30 years of experience in store operations. He joined Rite Aid in 2008 as a regional VP store operations. In 2010, he was promoted to his current role, with responsibility for more than 1,100 Rite Aid stores in the Northeast and Midwest. Prior to joining Rite Aid, Griffith held various store operations roles with increasing responsibility at Target and Home Depot.
Griffith holds a bachelor's degree in petroleum engineering from West Virginia University.