How Convenient, Episode 27: Embracing Innovation in Age-Restricted

 

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Greg Crow: In this episode, we highlight the innovation that's happening in the age-restricted space. Welcome to How Convenient, a new podcast about the essential role convenience 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 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 is recorded on September the 17th, 2021. I'm Greg Crow with Koupon, with me today is Ryan Griffin. For those who don't know you, tell us about yourself.

Ryan Griffin: Thanks Greg. This is my first podcast, and I've always wanted to say this on the radio, but I'm going take that to podcasting here today. Longtime listener, first time caller. I appreciate the introduction, Ryan Griffin. I'm the National Director of Age Restricted Solutions here at Koupon, where I work with our tobacco and cannabinoid clients to put their brands front and center to consumers. Prior to joining Koupon, I spent 15 years learning the tobacco industry through a host of sales and trade marketing roles over at Altria Group, but excited to be here today.

Greg Crow: I'm so excited to have you. So, the flash for this week beginning September the 12th, in store sales are minus one versus a year ago. Food is leading that plus 12, package beverage sales four, candy plus four, tobacco is flat, snacks minus three, and alcohol minus seven.

We've got a lot to cover today so we're going get right into it. Ryan, there's so much innovation that's happening in the C-store channel today. In our last episode, we talked about our partnership with Label Insight and what we're seeing in terms of the better-for-you behavior that consumers are exhibiting, we wanted to shift in this episode to talk about the innovation happening in the age restricted space.

Ryan one thing that you've taught me over the last year is it all starts with the consumers. So, help ground us in the consumer. Tell us about the adult tobacco consumer today and what are some of the trends?

Ryan Griffin: Absolutely. And innovation is an incredibly important space, especially in the tobacco category and some of the trends that we're going talk about while not new, we continue to see a shift toward nicotine products that have less social friction and combustible cigarettes in traditional MST. We're all well aware of the explosive growth and modern oral nicotine. There's been a lot of activity in the vapor category lately, as well as other oral alternatives. The vapor category has experienced a really turbulent past couple years, and we'll continue to gain clarity from the FDA and their due decisions on the PMTA process. There's a lot of uncertainty and the category to keep a really close eye on as that transparency comes and it sounds like we're going to be somewhat drip fed that here over the coming months most likely. At a high level let's come to cigarettes, we're seeing continued down trading to the discount category as pricing pressures continue to mount from taxation as well as list price increases. And that continues to put pressure on that combustible consumer over time.

Greg Crow: Yeah, it's funny. We looked at target price for top UPCs and cigarette categories and prices are up about 6%, so that's continuing a trend that it's really just been building over the last few years. Function of manufacture price increases, as you said, as well as taxation at the state level, it's actually a bit higher interestingly for branded discount products than premium on a percentage basis, but consumers definitely seeing higher prices. Ryan, you talked about how the consumer's behavior is changing a little bit. How are manufacturers attempting to capture the consumers share?

Ryan Griffin: It's a great question. And while we're talking about products that all fall into the nicotine pool, the tactics manufacturers use really shift based on the subcategory within the pool. And so, let's look at modern oral nicotine for example. We continue to see a race for trial and retention, and everyone is gunning for the market leaders Zyn. And there are new challenger brands with unique product positioning, hitting the marketplace today. And one of particular interest is the brand Fre, which is targeting the MST user with higher nicotine offerings as high as 12 milligrams nicotine per pouch. And so, they're really looking to meet an unmet need for consumers that are looking for more intense dipping experience with less social friction and that's where they're finding a gap in some of the innovation we're seeing in the innovative space already.

For an experience closer to the MST core, Silver Back brand hit the market earlier this year with a spitless tobacco product that's extremely discreet. And it sits up in your upper lip, it doesn't activate the salvatory glands, giving that discrete field while also delivering an intense experience based on the tobaccos that they're using. These brands are using all some deep consumer insights to introduce products to the changing needs of the tobacco consumer and they have a very close eye on those shifts as they move.
But coming back to cigarettes, Lucky Strike has had a lot of momentum here by creating really great digital engagement with consumers. What's unique is this engagement really is a premium experience and they're making it incredibly easy for consumers to migrate from premium products to a traditionally discount cigarette. And they're doing all the right engagement steps along the way to make that happen.

Greg Crow: A couple of interesting things there, when we look at modern oral the growth rate is moderating just slightly. It's gone from a hundred plus percent a year, it's reduced just a little bit. When we dig into that more deeply, what we're seeing is units are definitely growing, but there's definitely some price pressure that's happening at a UPC level due to just very heavy promotions that we're seeing in the marketplace as some of the more larger manufacturers are getting into this segment, introducing their consumers to that category. Ryan, talk about what are some of the unique challenges that emerging brands have in reaching the adult tobacco consumer?

Ryan Griffin: The traditional manufacturers in the tobacco category have used a lot of strong defensive maneuvers over the years to make it difficult for emerging brands. Program elements like contracting a majority of the real estate on the back bar, which is the primary point of engagement for consumers to identify with, see and shop tobacco brands and this creates real challenges for emerging brands to achieve distribution and breakthrough awareness. Like any CPG product, getting a distribution is going be the starting point or that's your first frontier, but awareness is the key driver for consumer trial and consumers need to be able to find your product to connect with it, which ultimately lead to trial and conversion and in a highly regulated category like tobacco, not having that breakthrough visibility or having that additional challenge to connect with the consumer at the point of purchase is a real hurdle for a lot of brands. Those are big challenges that they have. And for these brands, it starts with having a great product that consumers understand and aligns their consumer needs, but understanding the competitive landscape and the challenges that landscape creates is imperative to being able to drive success and push through to that next level.

Greg Crow: I think one of the things that we've learned over the years is it's really critical for those emerging manufacturers to be very clear. And we saw this, I think in the most recent episode that Gregg Augustine did, to clearly understand the consumer that they are targeting and where those trials are sourcing from and what are the aspects of the product that are resonating with the market and to your point, how you can communicate that value proposition to retailers to help them understand why they should make space in their assortments for your products. So more about that in a minute, talking about Gregg Augustine, the episode that he did with Pete at Canadips, he talked about how diverse the CBD consumer is in terms of their demographics and need states. We know there is some overlap adult tobacco consumers, I'm just curious, how are brands approaching the C-store opportunity in this quickly evolving market? And how should we think about maybe the overlap between the traditional tobacco nicotine space and CBD?

Ryan Griffin: It's a great question and I'll tell you it's one that all CBD brands are highly interested and highly motivated to learn more about. And it's really an exciting time for CBD brands in convenience. This is a category that's traditionally been dominated by eCommerce, but brands and retailers are testing and learning about consumer interest in brick and mortar in I'll tell you, there's a lot of it from every study that we've looked at internally and even externally. From a form factor, gummies continue to be the leading form in C-store. The beverage is really starting to take off and the reason behind that is that's a very approachable form of coming into the CBD category. Everybody is used to pack bev, it is core to the C-store vertical and bringing the CBD line into that bev form just makes a lot of sense and it resonates with consumers.

One brand that's doing this really well is Kill Cliff with their CBD line. They're leveraging their great direct to consumer model scaling distribution and C-store with really impressive digital engagement along the way. Now, given that many consumers have an education opportunity on CBD, and this is especially true with the C-store vertical, brands need to balance not just their brand proposition to consumers, but also the benefits of the entire CBD category and to close that education gap. Now that's a tall order for a lot of brands because it's tough enough just to be able to educate a consumer in the little time that you have to engage with them at retail on just your brand alone. Now, what we need to do is expand beyond the brand, educate on the category, what are the real benefits for the consumer of the product, and then why your brand. These are exciting challenges to take on and technology is the bridge that can make that happen and the timeframe that consumers really have the time to dedicate to that experience.

But coming back to the brand, I expect to see really strong first mover advantage plays out for Kill Cliff here, given the beverage form and the approachable flavors of their products, it all makes for a great first consumer experience with CBD when you take all those things into account. As far as how does this resonate with the adult tobacco consumer, I think there's a couple different ways to look at that one is going to be based on form. So, we talked about bev, we've talked about ingestibles and gummies, and I think those appeal more to a mass audience, but we're also starting to see more and more products come out in the vapor space that have CBD included. What you start to see here is an early segmentation of form factor from the CBD consumer. Now this is all happening at the same time that brands are trying to learn what forms are going resonate the most so there's some test and learn happening here. But as you look at other form factors like a vapor, or you mentioned Cannadips being on last week with an oral product, these are alternatives to tobacco that the ATC consumer we know is looking for and CBD provides a vehicle that can potentially migrate consumers from traditional nicotine products to alternatives with familiar form factors.

Greg Crow: Yeah, it is so exciting to watch and CBD is fun. We're tracking more than two dozen brands today in C-store channel and to your point, what's exciting about it is not the traditional kind of backbar footprint, it really is very broad in the number of categories that it spans a very high margin opportunity for retailers so I think as we talk about the need for retailers to reach a broad and diverse audience, that's going be a key area to look at in terms of the category assortment. It's not all challenges for emerging brands. What are some of the advantages that emerging brands have to leap frog the more established competitors?

Ryan Griffin: Now, that's just it, Greg, it's not all uphill for these brands. They have a host of advantages at their back and lots of tailwinds like agility. They have the flexibility to maneuver and pivot quickly and beyond that they can really work with retailers on a one-on-one basis to create strategies that are going be mutually beneficial for the retailer, for the brand and for consumer at the end of the day because a lot of these retailers know their consumers the best, and in order to get the optimal outcome, they can create unique strategies at the retail level. In the world tobacco space talking really modern world nicotine here, CBD pouches, tobacco smokeless, many of these have established or even started as e-com companies and that direct-to-consumer model is incredibly effective in building brand equity and driving loyalty. These brands are willing and excited to bring their products to retail into that brick-and-mortar audience and are willing to compress some of those really rich online margins in order to gain that access to that broad retail consumer base. And so, when you think about flexibility, you think about agility, you think about the broad opportunity retail presents, all of these combined to create a really strong proposition for these emerging brands and they have the ability to do it quickly and support the retailer along the way.

Greg Crow: I think you hit on a couple of key things that are not necessarily unique to the age restricted space. We've seen CPG 2.0, these innovative manufacturers across a lot of categories that come to the table with the focus first and foremost on understanding the consumer needs state and what they can do to carve out sustainable position in the consumer's mind. And also, you talked about the DTC components, all these manufacturers today are focused on that very early in the life cycle, listening to the consumer understanding and responding to consumer behavior, making adjustments, whether it be in the be in product positioning, pricing, and also that e-com element of organizations that have grown up in the internet age, where you can have these direct relationships with consumers and so they're very insights driven in their approach. So while the more established manufacturers certainly have the advantage of shell space and some of those field sales forces that are in the stores, I think there's a lot of insights and there's some leverage to your point that the emerging brands can take advantage of and maybe just to pivot to that, so can you talk a little bit of about how Koupon can help brands, but specifically emerging brands? Because we know that there is a lot of innovation that's happening, particularly in the long tail this space and love just to get some feedback on how can Koupon bring value to the table for consumers as well as manufacturers and retailers.

Ryan Griffin: Every brand is unique and has specific goals that trying to accomplish so Koupon support will be unique to each brand. But there are a few key wins emerging brands need and they fall into a few buckets. So, like we talked before, you won't have success if your product isn't available to consumers. So, distribution's going be that foundation and that's critical to all CPG, but Koupon's retailer network today over 57,000 C-stores provides brands with the exposure they need to open the door to a sales meeting to support that initial distribution. And these are some of the top C-stores in the country, this is where consumers are shopping. But Koupon has the digital platform to get brands in front of consumers and that level of awareness leads to trial. We help brands identify what that right trial value is that will best lead to a purchase and then towards conversion and move that consumer to becoming brand loyal to the brand, all powered by the right insights. And the Koupon insights have helped countless brands to better understand consumer engagement and how to better market their products and over time, refining those offers so that you can increase the return on investment of that trade spend. The solutions really all work together, drive sales loyalty, and build the brand's ability to connect with individuals as they scale the footprint and grow the business. So, you look at it holistically, I would say those are the three or four ways that Koupon can best support emerging and brands coming into this space.

Greg Crow: There one is insight into how consumers are behaving today in terms of what their category and brand loyalty is. That's something that we can bring to the table and that conversation help and that can be anything from what's happening from a buy rate standpoint, how consumers segment in terms of loyalty, where trial is sourcing from what are some of the price trends that we are seeing out there. Also, this notion of just being able to reach those consumers digitally. Here's the kinds of promotions that we think will really resonate with them and iterate and learn the big advantage that digital offers manufacturers today, is so key in being able to put a proposition out there to AB test it and to respond in real time. That's not something you can traditionally do with a TPR and so very, very key. So, I'm going put you on the spot. You've been around C-stores for a very long time. When did you really fall in love with C-stores? And what was the experience that drove that?

Ryan Griffin: It goes way back. And I live in Chicago now, I grew up in suburban Chicago and it probably started when I was six or seven years old. Anybody listening that at was in Chicago in the seventies, eighties and nineties would remember a chain called White Hen Pantry. These were C-stores all over the place. And we would go down, my grandma and grandpa would babysit us, my parents would go out. And every time we did, my grandma would walk us down the street to the White Hen store and we got to pick out two or three pieces of candy. And I just remember walking up and down those aisles. And when you're two feet tall or three feet tall, when you're that age, you look up, it seems like those aisles go up like skyscrapers, like you're in Willy Wonka's factory. And all the colors and the shininess, I just remember being at awe by that. Certainly, that shifts as you get older and you learn more of the business model of things, but there's an element of magic, I think, to what happens in C-stores, and that's unique to everybody. But it probably started way back then and fast forward a couple decades later, I'm still working with these retailers and these brands to grow this vertical and it's been a lot of fun.

Greg Crow: That's awesome. Thanks for sharing that story. Thanks Griff. We call you Griff because we've got so many Ryans. Thank you, Ryan Griffin for spending so much time today and sharing your insights. Our next episode, we will highlight innovation in some other categories and talk about emerging brands. Thank you for listening to How Convenient. We do want to hear from you, you can reach us at koupon.com. Don't forget to subscribe, rate us and give us a review. If you'd like to learn more about Koupon or meet us, we'll be at the next show in Chicago in a couple weeks booth 4258. We'd love to meet you and learn more about what your objectives are. You can find more insights on blog.koupon.com.