Report Analyzes Impact of Value Segment in Moist Smokeless

BARRINGTON, Ill. ? A new report from consulting firm Willard Bishop reveals that since the late 1990s, retailers -- particularly convenience and discount tobacco stores -- have experienced the rapid expansion of a deep-discount price segment (sub-price/value) in the moist smokeless tobacco (MST) category. The report,
"Examining Growth Opportunities in Moist Smokeless Tobacco," analyzes the impact of the sub-price/value segment on MST and challenges the underlying assumptions of the role it plays at retail.

The fastest-growing segment in the moist smokeless tobacco category, the sub-price/value category, grew 40.1 percent during the 52 weeks ending the first quarter 2005, according to Willard Bishop Consulting of Barrington, Ill., which recently looked at how this third price-point is reshaping the category's total sales and profitability.

In its white paper, which can be viewed CLICK HERE, Willard Bishop analyzed the moist smokeless tobacco business in eight convenience store chains, which operate more than 12,000 stores nationwide.

"Everyone sees the very big growth number for sub-price/value, but we wanted to put some context to that," said director David Bishop, noting that the premium brands still account for 77.6 percent of the total categories' dollar sales growth. "To assess the opportunity and its value to the business, it's important for a retailer to understand how unit sales will react to the introduction of a sub-price/value product."

While sales of premium moist smokeless tobacco brands are growing at a much slower rate, they still account for the vast majority of the sales. "Secondly, while sub-price/value has a role in the market, retailers still need to have a compelling reason for why they are expanding the assortment to include the lower price segment," Bishop said.

The No. 1 reason retailers give for adding the sub-price/value segment is to "maintain a competitive assortment."

Only 10 percent believe that adding these brands will "attract the more price-conscious customer," and even fewer think they "meet consumer demands."

"If the last two points are true, it's difficult to understand how maintaining a competitive assortment is a valid rationale for adding sub-price/value," Bishop said.

Wawa Inc. added the brands in mid-2004 "to some degree" in all of its 540-plus stores, with the most SKUs going into larger sets. Of the 32 SKUs of moist smokeless tobacco carried by the chain, four are price/value and seven are sub-price/value brands.

"The lower-tier brands appeal to the value shopper and were required to be competitive," said Bob Dawson, category manager for the Wawa, Pa.-based chain.

While carrying a lower penny profit, sales of the third-tier brands have been "good," he said, adding the category mix will be reconsidered in 2006, after the new SKUs have "time to perform."

The second most cited reason by the retailers for adding the sub-price/value segment is "capturing incremental sales," according to the study. "{It is important for the retailer to understand if that goal is accomplished," Bishop said. "Is it true for all markets or ones with specific demographic and customer variables?"