Digital innovations and legislation changes are transforming the tobacco industry from what products are being development to how they are marketed in-store.
In this week's episode of How Convenient, Greg Crow is joined by Koupon's Vice President of Product Strategy Brian Lind break down why retailers should focus promotions on tobacco today and in the future.
Listen and subscribe to the full episodes at one of the following links. Below is the episode’s transcript which has been edited for readability. If you have any comments, questions or would like to learn more, contact us below.
Listen on Apple Podcast here.
Listen on Spotify here.
Listen on Amazon here.
Listen on our blog here.
Transcript:
[Music]
Greg Crow: In this episode, we highlight where small and medium size C-store chains are outperforming their larger cousins. Welcome to How Convenient, new podcast about the essential role convenience stores play in the busy livGreg Crow: In this episode, we highlight where tobacco promotions are growing and shrinking. Welcome to How Convenient, new podcast about the essential role convenient stores play in the busy lives of consumers. Our hope is to equip innovative c-store leaders as they seek to earn lasting shopper loyalty. In each weekly episode, we'll briefly share an update on c-store sales trends and what we're learning from billions of in-store purchase transactions. Today's episode was recorded on April the 9th, 2021. I'm Greg Crow with Koupon. Today we have Brian Lind. Brian, introduce yourself and tell us what you've been thinking about recently.
Brian Lind: Hey Greg, happy to be here. I have been a Koupon employee for six going on seven years, which is a good old time. And as part of my journey at Koupon, I went from starting with our integrations and kind of the initiation of the offered network to leading our product strategy now and continuing to lead our implementation team. So, a whole lot of business with a whole lot of brands and retailers. I listened to a bunch of the podcasts before this, and I hear everyone talking about candy or Doritos or things like that. I guess what I've been snacking on lately is these new Snickers bars that just came out, that we ran an offer for.
Greg Crow: Fantastic. So as always, thanks for joining, and it's great to have you today, this is going to be a fun conversation. So, we would love your feedback. We'll let you know how you could share that with us in a few minutes.
We always start with our flash for the week. For the week ending March 28th in store sales are up 17% versus year ago. Alcohol 15, candy 4, beverages 2%, tobacco 1, foods plus 2% and snacks flats. In store trips are up 12%, basket dollars are up 6% so as we're getting to the time of year, 12 months, post COVID, some of the year over year metrics are certainly looking much better and as trips are growing, baskets are normalizing in terms of size. Hot products this week include Grippo's barbecue chips, 2.75 ounces up 8% versus a year ago. It's good to see both food and snacks are recovering, those are important categories for our clients, but as we get 12 months post COVID the year over year metrics can be a little misleading so we also want to look at week over week.
And so, on that basis, sales grew 1% versus the previous week and trips grew 1% as well. So, improving across the board. Brian over the last few weeks, we've gone from one in six adults, fully vaccinated to one in four U.S. adults. And we continue to see some good signs of recovery in terms of the economy, States are up. And as you mentioned, you do engage with a lot of clients on both sides of our business, both retailers and manufacturers on digital promotion so what are you seeing in terms of the recovery?
Brian Lind: Definitely seeing a lot of momentum on the brand and the retail side. We can think of it as kind of returning to life before COVID, but it's also life after COVID is how I'm thinking about it, where I'm seeing a lot of innovation in terms of how can we continue to engage people digitally now that we've all been inside for a year and digitally is how I'm communicating to them since I've got less eyeballs in the stores. I'm seeing a lot of new, heavy promotional activity, a lot of new products launching that maybe didn't launch last year, because we were holding back because of lower traffic or what have you. But again, with that digital engagement, we're also seeing a lot of innovation around touchless. How can I use digital to provide a post COVID experience in the store? Which also tends to help people engage in loyalty because digital and loyalty are the same thing. So, I expect that we continue to see this kind of momentum for digital, but also just additional promotions as people ramp back up and get the ball roll on like it was before COVID.
Greg Crow: Yeah, I think it's great that you always help us to come back to at the end of the day, all brands, both retail and CPG are working to engage consumers throughout the journey throughout the week and digital obviously is key to that. So, we wanted to focus on tobacco today because it is such a hotbed of activity for our retailers and we know that tobacco consumers drive a disproportionate share of business for convenient stores. Whether you measure that on the basis of monthly purchases, gross margin contribution, or program engagement from a loyalty perspective, as Brian mentioned. If you simply look at it on a sales basis, tobacco consumer spends more than twice as much as a non-tobacco consumer on a monthly basis. And yet on the other hand, there's some headwinds here. So, the number of adult tobacco users has been declining for a few years. Brian, help us make sense of this. Why should retailers focus on tobacco today and into the future?
Brian Lind: As you mentioned, it's certainly a really impactful category in c-store and as we continue to see legislation change and therefore marketing change, I think the pendulum is swinging back even more towards c-store as things like flavor bands and e-commerce bands make it probably harder for brands to directly market to consumers from their own channels. That puts a little power in the c-stores hand because now we want to market through the c-store channels. And in addition to that, though, we've seen a lot of competition in the products, again, as probably a result of these legislations, but also just technology innovations. On a previous podcast, we had Gregg Augustine mentioning that basically every tobacco brand now has committed to trying to convert users from combustible to a non-combustible product and that's just truly driving all this innovation that we're seeing but through that innovation, it's making the marketplace equal for emerging brands to finally get a stake there.
So, they don't have to compete necessarily against this monolith that we know exists in combustible, an emerging brand can go out there and really try to corner the market on their side through a lot of digital innovation, as opposed to the old standard means of innovation. And with that emerging brands, we certainly see in our data that maybe the legacy brands are losing market share, but the emerging brands are doing the opposite. And when you think about emerging brands, I do mean not the standard CPGs, but all the standard CPG certainly have emerging brands themselves too, as they try to get into these new growth categories.
Greg Crow: Yeah, absolutely. And I love your comment about consumers, I think are becoming open to additional options. And I think Altria came out recently and said, roughly 50% of combustible users want to look at additional options that are potentially lower risk and also, I love the concept of in many ways, I think digital levels the playing field, to your point for emerging manufacturers. Before we dig in, maybe just help us frame, we always want to do this. We really focus on a retailer perspective on the podcast, but what are the two or three key objectives or outcomes that manufacturers or vendors are prioritizing and is that different in tobacco versus say, candy?
Brian Lind: All manufacturers want to grow their consumer reach. They all want to build brand loyalty and they all want to use those dollars that they're doing to grow reach and build loyalty effectively. And again, not to say digital too much, but the effective way to do consumer reach and spend promotions wisely is through a digital means because I need to be able to target people, I need to be able to segment people and doing that without any sort of exchange of information between the end consumer and the CPG is difficult if not impossible. With that in mind though, it becomes harder for tobacco for really all the restricted categories because of that word restriction. As we continue to see additional legislation, some of these bands on e-commerce like we talked about earlier, this is a unique challenge for tobacco, but also tends to point things back into the c-store channel.
Greg Crow: Yeah, it is interesting in many ways there's some common objectives across every category, but certainly alcohol and tobacco in particular, they've got some unique things to navigate and I think to your point, digital is proven to be a very effective way to thread that needle. So, we wanted to talk about promotions activity. What we're seeing in the market is always interesting to watch how manufacturers are positioning and pricing their product across the country. What's the tit for tat that happens from a competitive standpoint in the category, obviously tobacco promotions vary widely at a state level, just given some tax dynamics and excise taxes and other things, but the national view illustrates some broad trends for us. So, in some categories in tobacco, we saw 2020 in two phases. And so, Brian talked about this, a pre COVID and a post COVID. For example, in the post COVID world, we saw a lot of premium and branded discount offers and a lot of engagement around those, not across every brand, but certainly across many brands.
We also, in post COVID vapor and particularly post flavor ban. We saw brands respond to a drop in sales and vapor as consumers, in many cases were reverting back to cigarettes and vapor manufacturers I think over indexed, if you will, on promotion value and engagement, we saw a wide range of offers in market and engagement in vapor began to pick up again in Q3 and Q4. And we also did see a lot of conquesting taking place in the category with views, really being the winner in a lot of the head-to-head battles. And then cigars were just a tough category in 2020 from a manufacturing standpoint, but engagement began to recover late in the year. It's interesting when we pivot over to smokeless, there really isn't this before and after view that we see in the other categories. And so MST and chewing tobacco largely were a steady state throughout the year at a national level, moderate oral continue to be on this just incredible tear, both in terms of promotion, as well as just engagement in that emerging category. And amongst the brands really on, I think, grew the share the most, but as in certainly is holding very strong, their high, high loyalty of Zen amongst its consumers. Brian, there's just so much going on in this space and we could probably do a dozen podcasts talking about tobacco, but I'd love to get your insight and thoughts on what have we learned over the last year and what's in the future for ‘21 and beyond.
Brian Lind: As you kind of broke it down, each category really has different lessons and similar lessons and vapor flavors got a different model than combustible vapor has a device and the things you use with that device. So, a lot of their promotions tend to be similar to the old razor-blade model where I want to get people to get the device and then make the money off of the pods collar though they're razorblades. And we see a lot of promotions focused on that really across that entire category and testing the value prop for an integrated versus open system with that in mind. Manufacturers, as we covered earlier, are really focusing on that noncombustible category and in order to do that focus, a lot of that is around category conversion and really that's part of their mission statement like we talked about. So, it's as a market that they're able to market to, but also what their goal is that category conversion.
And we're definitely going to keep seeing product innovation, especially in nicotine, but also, we're seeing laws change opinions, change on things like CBD and cannabis. And I imagine as far as where's it going to go in 2021 and then 2022, I think those categories are really going to emerge as something that also really makes sense in c-store. And then retailers, my message to them would be, as we just talked about, these brands have money to spend on promotions and they're getting limited ability to do those promotions directly and c-store tends to be the best place for them to do those promotions. So, if a retailer is sleeping on putting tobacco discounts in their apps and their loyalty programs, and they are sleeping on it and they need to really activate those offers to activate those users.
Greg Crow: I think you've hit on so many key points. We know it's somewhere in the neighborhood of 15 or 20% of consumers are tobacco users and I think we've just seen so much transformation happening over the past few years in terms of consumer behavior and additional options in the market. And so much of what I think retailers have as opportunity and as well as their responsibility, is to engage their tobacco users in a way that helps them accomplish whatever their intent is from a category perspective. And so, one of the things that we can look at the small independent tobacco shops and the vape shops, one of the things that I think we can learn in the C-store space from now is you've got a focus on education and helping consumers understand what all their options are. And I think at the end of the day, we obviously have an important objective to complete a transaction in a few seconds so we can't replicate the model exactly, that's not the right focus here.
We've got to make sure it's convenient for all consumers but yeah, definitely I think that that component of putting offers in front of consumers, trial offers in front of consumers that will resonate and get them to try new category or a new brand, as well as building a strategy around where that consumer is in their journey. And that's a huge opportunity for retailers to make sure that as consumers shifts into non-combustible the retailers maintain loyalty that they've earned over the years with the consumer. Brian, this has been fun. Any last thoughts you want to share with us?
Brian Lind: What's next week about?
Greg Crow: What's the next week about? That's a great question. So next week we're going to continue our series on insights in 2021. And so, we're going to continue that process, we're going category by category.
Brian Lind: Awesome.
Greg Crow: So great question. Fantastic. Well, thanks for joining. I think you've got a voice for radio my friend.
Brian Lind: I didn't know I was going to do this, but it happened. It's the headphones.
Greg Crow: It's the headphones. It's fantastic, yeah. Everyone tells me I sound NPR and we just got two NPR guys going right now. It's very cool. Fantastic. Well, thanks for joining us. Thank you for listening to how convenient we want to hear from you. You can reach us at koupon.com. It's Koupon with a K. Don't forget to subscribe and rate us. You can find more insights at blog.koupon.com.
Brian Lind: Hey Greg, happy to be here. I have been a Koupon employee for six going on seven years, which is a good old time. And as part of my journey at Koupon, I went from starting with our integrations and kind of the initiation of the offered network to leading our product strategy now and continuing to lead our implementation team. So, a whole lot of business with a whole lot of brands and retailers. I listened to a bunch of the podcasts before this, and I hear everyone talking about candy or Doritos or things like that. I guess what I've been snacking on lately is these new Snickers bars that just came out, that we ran an offer for.
Greg Crow: Fantastic. So as always, thanks for joining, and it's great to have you today, this is going to be a fun conversation. So, we would love your feedback. We'll let you know how you could share that with us in a few minutes.
We always start with our flash for the week. For the week ending March 28th in store sales are up 17% versus year ago. Alcohol 15, candy 4, beverages 2%, tobacco 1, foods plus 2% and snacks flats. In store trips are up 12%, basket dollars are up 6% so as we're getting to the time of year, 12 months, post COVID, some of the year over year metrics are certainly looking much better and as trips are growing, baskets are normalizing in terms of size. Hot products this week include Grippo's barbecue chips, 2.75 ounces up 8% versus a year ago. It's good to see both food and snacks are recovering, those are important categories for our clients, but as we get 12 months post COVID the year over year metrics can be a little misleading so we also want to look at week over week.
And so, on that basis, sales grew 1% versus the previous week and trips grew 1% as well. So, improving across the board. Brian over the last few weeks, we've gone from one in six adults, fully vaccinated to one in four U.S. adults. And we continue to see some good signs of recovery in terms of the economy, States are up. And as you mentioned, you do engage with a lot of clients on both sides of our business, both retailers and manufacturers on digital promotion so what are you seeing in terms of the recovery?
Brian Lind: Definitely seeing a lot of momentum on the brand and the retail side. We can think of it as kind of returning to life before COVID, but it's also life after COVID is how I'm thinking about it, where I'm seeing a lot of innovation in terms of how can we continue to engage people digitally now that we've all been inside for a year and digitally is how I'm communicating to them since I've got less eyeballs in the stores. I'm seeing a lot of new, heavy promotional activity, a lot of new products launching that maybe didn't launch last year, because we were holding back because of lower traffic or what have you. But again, with that digital engagement, we're also seeing a lot of innovation around touchless. How can I use digital to provide a post COVID experience in the store? Which also tends to help people engage in loyalty because digital and loyalty are the same thing. So, I expect that we continue to see this kind of momentum for digital, but also just additional promotions as people ramp back up and get the ball roll on like it was before COVID.
Greg Crow: Yeah, I think it's great that you always help us to come back to at the end of the day, all brands, both retail and CPG are working to engage consumers throughout the journey throughout the week and digital obviously is key to that. So, we wanted to focus on tobacco today because it is such a hotbed of activity for our retailers and we know that tobacco consumers drive a disproportionate share of business for convenient stores. Whether you measure that on the basis of monthly purchases, gross margin contribution, or program engagement from a loyalty perspective, as Brian mentioned. If you simply look at it on a sales basis, tobacco consumer spends more than twice as much as a non-tobacco consumer on a monthly basis. And yet on the other hand, there's some headwinds here. So, the number of adult tobacco users has been declining for a few years. Brian, help us make sense of this. Why should retailers focus on tobacco today and into the future?
Brian Lind: As you mentioned, it's certainly a really impactful category in c-store and as we continue to see legislation change and therefore marketing change, I think the pendulum is swinging back even more towards c-store as things like flavor bands and e-commerce bands make it probably harder for brands to directly market to consumers from their own channels. That puts a little power in the c-stores hand because now we want to market through the c-store channels. And in addition to that, though, we've seen a lot of competition in the products, again, as probably a result of these legislations, but also just technology innovations. On a previous podcast, we had Gregg Augustine mentioning that basically every tobacco brand now has committed to trying to convert users from combustible to a non-combustible product and that's just truly driving all this innovation that we're seeing but through that innovation, it's making the marketplace equal for emerging brands to finally get a stake there.
So, they don't have to compete necessarily against this monolith that we know exists in combustible, an emerging brand can go out there and really try to corner the market on their side through a lot of digital innovation, as opposed to the old standard means of innovation. And with that emerging brands, we certainly see in our data that maybe the legacy brands are losing market share, but the emerging brands are doing the opposite. And when you think about emerging brands, I do mean not the standard CPGs, but all the standard CPG certainly have emerging brands themselves too, as they try to get into these new growth categories.
Greg Crow: Yeah, absolutely. And I love your comment about consumers, I think are becoming open to additional options. And I think Altria came out recently and said, roughly 50% of combustible users want to look at additional options that are potentially lower risk and also, I love the concept of in many ways, I think digital levels the playing field, to your point for emerging manufacturers. Before we dig in, maybe just help us frame, we always want to do this. We really focus on a retailer perspective on the podcast, but what are the two or three key objectives or outcomes that manufacturers or vendors are prioritizing and is that different in tobacco versus say, candy?
Brian Lind: All manufacturers want to grow their consumer reach. They all want to build brand loyalty and they all want to use those dollars that they're doing to grow reach and build loyalty effectively. And again, not to say digital too much, but the effective way to do consumer reach and spend promotions wisely is through a digital means because I need to be able to target people, I need to be able to segment people and doing that without any sort of exchange of information between the end consumer and the CPG is difficult if not impossible. With that in mind though, it becomes harder for tobacco for really all the restricted categories because of that word restriction. As we continue to see additional legislation, some of these bands on e-commerce like we talked about earlier, this is a unique challenge for tobacco, but also tends to point things back into the c-store channel.
Greg Crow: Yeah, it is interesting in many ways there's some common objectives across every category, but certainly alcohol and tobacco in particular, they've got some unique things to navigate and I think to your point, digital is proven to be a very effective way to thread that needle. So, we wanted to talk about promotions activity. What we're seeing in the market is always interesting to watch how manufacturers are positioning and pricing their product across the country. What's the tit for tat that happens from a competitive standpoint in the category, obviously tobacco promotions vary widely at a state level, just given some tax dynamics and excise taxes and other things, but the national view illustrates some broad trends for us. So, in some categories in tobacco, we saw 2020 in two phases. And so, Brian talked about this, a pre COVID and a post COVID. For example, in the post COVID world, we saw a lot of premium and branded discount offers and a lot of engagement around those, not across every brand, but certainly across many brands.
We also, in post COVID vapor and particularly post flavor ban. We saw brands respond to a drop in sales and vapor as consumers, in many cases were reverting back to cigarettes and vapor manufacturers I think over indexed, if you will, on promotion value and engagement, we saw a wide range of offers in market and engagement in vapor began to pick up again in Q3 and Q4. And we also did see a lot of conquesting taking place in the category with views, really being the winner in a lot of the head-to-head battles. And then cigars were just a tough category in 2020 from a manufacturing standpoint, but engagement began to recover late in the year. It's interesting when we pivot over to smokeless, there really isn't this before and after view that we see in the other categories. And so MST and chewing tobacco largely were a steady state throughout the year at a national level, moderate oral continue to be on this just incredible tear, both in terms of promotion, as well as just engagement in that emerging category. And amongst the brands really on, I think, grew the share the most, but as in certainly is holding very strong, their high, high loyalty of Zen amongst its consumers. Brian, there's just so much going on in this space and we could probably do a dozen podcasts talking about tobacco, but I'd love to get your insight and thoughts on what have we learned over the last year and what's in the future for ‘21 and beyond.
Brian Lind: As you kind of broke it down, each category really has different lessons and similar lessons and vapor flavors got a different model than combustible vapor has a device and the things you use with that device. So, a lot of their promotions tend to be similar to the old razor-blade model where I want to get people to get the device and then make the money off of the pods collar though they're razorblades. And we see a lot of promotions focused on that really across that entire category and testing the value prop for an integrated versus open system with that in mind. Manufacturers, as we covered earlier, are really focusing on that noncombustible category and in order to do that focus, a lot of that is around category conversion and really that's part of their mission statement like we talked about. So, it's as a market that they're able to market to, but also what their goal is that category conversion.
And we're definitely going to keep seeing product innovation, especially in nicotine, but also, we're seeing laws change opinions, change on things like CBD and cannabis. And I imagine as far as where's it going to go in 2021 and then 2022, I think those categories are really going to emerge as something that also really makes sense in c-store. And then retailers, my message to them would be, as we just talked about, these brands have money to spend on promotions and they're getting limited ability to do those promotions directly and c-store tends to be the best place for them to do those promotions. So, if a retailer is sleeping on putting tobacco discounts in their apps and their loyalty programs, and they are sleeping on it and they need to really activate those offers to activate those users.
Greg Crow: I think you've hit on so many key points. We know it's somewhere in the neighborhood of 15 or 20% of consumers are tobacco users and I think we've just seen so much transformation happening over the past few years in terms of consumer behavior and additional options in the market. And so much of what I think retailers have as opportunity and as well as their responsibility, is to engage their tobacco users in a way that helps them accomplish whatever their intent is from a category perspective. And so, one of the things that we can look at the small independent tobacco shops and the vape shops, one of the things that I think we can learn in the C-store space from now is you've got a focus on education and helping consumers understand what all their options are. And I think at the end of the day, we obviously have an important objective to complete a transaction in a few seconds so we can't replicate the model exactly, that's not the right focus here.
We've got to make sure it's convenient for all consumers but yeah, definitely I think that that component of putting offers in front of consumers, trial offers in front of consumers that will resonate and get them to try new category or a new brand, as well as building a strategy around where that consumer is in their journey. And that's a huge opportunity for retailers to make sure that as consumers shifts into non-combustible the retailers maintain loyalty that they've earned over the years with the consumer. Brian, this has been fun. Any last thoughts you want to share with us?
Brian Lind: What's next week about?
Greg Crow: What's the next week about? That's a great question. So next week we're going to continue our series on insights in 2021. And so, we're going to continue that process, we're going category by category.
Brian Lind: Awesome.
Greg Crow: So great question. Fantastic. Well, thanks for joining. I think you've got a voice for radio my friend.
Brian Lind: I didn't know I was going to do this, but it happened. It's the headphones.
Greg Crow: It's the headphones. It's fantastic, yeah. Everyone tells me I sound NPR and we just got two NPR guys going right now. It's very cool. Fantastic. Well, thanks for joining us. Thank you for listening to how convenient we want to hear from you. You can reach us at koupon.com. It's Koupon with a K. Don't forget to subscribe and rate us. You can find more insights at blog.koupon.com.
[Music]
