As the wants and needs of tobacco consumers change, the other tobacco products (OTP) category grows to a larger portion of c-store revenue.
Estimated reading time: 3 minute
Tobacco sales amount to 33% of the average convenience store annual revenue, with $575,000 in sales per store every year. According to NACS, the convenience industry sells 80% of tobacco products, including both cigarettes and other tobacco products (OTP). Tobacco products are a destination category for c-stores, meaning consumers are visiting c-stores specifically to purchase tobacco. When these customers visit a store to buy tobacco, they have the potential to buy additional products, such as snacks and drinks, which have higher margins than tobacco. For these reasons, the tobacco customer is essential to the success of c-stores. As the wants and needs of tobacco consumers change, savvy c-store retailers look to meet those needs to retain this vital clientele.
The OTP category is on the rise as consumers are more affected by economic issues like inflation and face more societal pressure against smoking cigarettes. When e-cigarettes were introduced to the United States in 2007, they were marketed towards consumers as a way to aid in smoking cessation in addition to nicotine gum and patches. However, in 2014, rates of vaping among the 18-24 age segment began to increase, reflecting an increase of consumer spending in the category across all ages that has continued to trend upwards for the past 10 years. According to NACS State of the Industry data, e-cigarettes made up 30.9% of the OTP category sold in 2022.
For many consumers, the appeal of e-cigarettes is in the ease of use and the perceived reduction in harm as compared to smoking. E-cigarettes are preferred for those who may find it inconvenient to light a cigarette with a live flame. According to the United Kingdom National Health Service, there is evidence to prove that vaping reduces user’s exposure to toxins they would inhale when smoking. Vaping also carries a lower cost per-use and does not have the same lingering, pungent smell as cigarettes— both of which are large factors in why many consumers choose to switch to vaping.
In addition to e-cigarettes, the OTP channel includes cigars, chewing tobacco, and nicotine pouches, like the highly popular Zyn brand, whose sales grew 62% from 2022 to 2023. Not only are nicotine pouches attractive to consumers because they are perceived as less risky than smoking, they’re also more convenient.
While cigarette and vape use is restricted to outdoor or private settings, nicotine patches can be consumed and concealed anywhere, including traditionally restricted locations such as airplanes or hospitals. Nicotine pouches also have use-based benefits over other smokeless categories, such as chewing tobacco, which requires the user to spit dirty tobacco out. Zyns and other pouch brands can be more discreetly disposed of in public settings. Many Major League Baseball players even switched to Zyn following the organization’s ban on chewing tobacco.
While adding new OTP options is a way to boost revenue, store owners also need to be careful in the face of regulation from the U.S. Food & Drug Administration (FDA). While retailers have long complied with regulations restricting the sale of tobacco by age, including adapting to 2019 legislation that raised the age required to purchase tobacco from 18 to 21, the regulations for new OTP are less clear. To discover more, read the second part of our two-part series on the changing tobacco consumer and what retailers should know about regulations, coming March 29, 2024.
