Dive Brief:
- Murphy USA experienced sizable gains in the tobacco category last quarter, with same-store merchandise sales in the segment increasing nearly 7% compared to this time last year, according to the convenience retailer’s 2024 first-quarter earnings report released on Thursday.
- Tobacco contribution dollars during the quarter increased close to 5% compared to this time last year, while non-tobacco contribution dollars grew less than 1%, according to the report.
- With tobacco regulations remaining hazy and the category continuing to be hit or miss for convenience retailers, Murphy USA credits its well-known low-cost structure and promotional activity for its success with tobacco, President and CEO Andrew Clyde said during the company’s earnings call on Thursday.
Dive Insight:
The tobacco category wasn’t looking great for many convenience retailers as of late 2023. According to a recent Goldman Sachs report, c-store retailers were concerned about consumers shifting away from cigarettes or leaving the tobacco category altogether amid higher costs and competition from smoke-free options.
That doesn’t appear to be the case for Murphy USA. In recent months, the convenience retailer has seen tobacco become a “non-discretionary” purchase to a growing base of customers who continue to trade down for value, Clyde said in Murphy’s earnings report. Beyond its growth in Murphy USA’s same-store merchandise sales, tobacco also surged over 6% in same-store merchandise margins last quarter, according to the report.
During the earnings call, Clyde said that units remain healthy across all nicotine categories, and that he expects to see strength in the tobacco category “as new pricing and promotional initiatives take hold.” He also noted that tobacco is Murphy USA’s largest category alongside fuel.
“I do feel like it's something that’s sustainable,” Clyde said when asked on the call about Murphy USA’s recent tobacco performance. “I think we have an advantage here, and we remain very focused on the category and do it in a responsible way [while] also giving that value to the customer.”
El Dorado, Arkansas-based Murphy USA operates more than 1,700 c-stores in 27 states.
