Dive Brief:
- Convenience store customers are continuing to trade down to cheaper alternatives of cigarettes, according to recent data from Circana.
- While third-quarter cigarette and other tobacco sales were down in convenience stores year over year, c-stores still performed better in tobacco categories than broader retail did, according to the Circana report.
- As c-stores continue to reckon with a long-standing decline in cigarette use, understanding consumers’ downtrading and focusing on promotions can help retailers retain these customers, Circana noted.
Dive Insight:
Value has been a focal point for convenience store foodservice programs in 2024 thanks to inflation and price-conscious shoppers. Tobacco has quietly settled into the same trend, leading retailers to tweak their assortments to appeal to shoppers with smaller budgets.
According to a report from Goldman Sachs, tobacco retailers are planning on reducing space for higher-priced cigarettes while boosting shelf space for deep discount cigarettes.
“We attribute this to continued pressure on certain consumers and higher prices in certain segments of cigarettes, driving demand to 4th tier products,” Goldman Sachs wrote.
In that same report, Goldman Sachs noted overall cigarette volume was down 5.8% year over year in the third quarter, and tobacco retailers expect full-year sales to drop 6.3% for 2024 and 7.2% in 2025.
Part of this may be price-driven, with a couple years of high inflation driving costs while some major tobacco companies move from two price increases per year to three or four, said Don Burke, senior vice president of information management company Management Sciences Associates.
“With those increased price increases, consumers are clearly feeling the pinch,” Burke said in an interview. “We're finding that many consumers are looking for lower-priced items.”
While many convenience stores are making space for more cost-effective options, they may also seek more promotional activity. Between Q2 and Q3, around 25% of retailers said they saw increased promotional activity in deep discount and second tier cigarettes, but only 20% saw a boost in premium cigarette promotions, mirroring the broader trend.
Circana noted that waiting for promotions from tobacco companies isn’t the only thing c-stores can consider.
“Inflationary pressures persist, and consumers are looking for promotions and more affordable options” the company wrote in its report. “Knowing what else is in tobacco buyers' baskets can unlock opportunities to cross-merchandise, including carbonated beverages, energy drinks, beer and chocolate candy.”
