Tobacco taxes are on the rise again after staying relatively stable in 2012, according to an article in CSP.net last month. President Obama has proposed a new 94-cent tax and several states are also pushing to tack on additional taxes ranging from 80 cents to $2 per pack, a trend lawmakers hope will raise revenue while further driving down smoking rates, although critics say higher taxes will only be good news for criminals selling cheaper smokes on the black market.
Whether ever-higher cigarette taxes stub out smoking rates, drive smokers to the black market to find their fix or some combination of the two, the reality means fewer tobacco sales for convenience stores, a trend the c-store industry began coming to terms with several years ago.
Industry experts warned c-store operators that if they didn’t shift their focus from cigarettes to something more sustainable, many would eventually go out of business. Instead, the number of U.S. convenience stores hit a record 149,220 by the end of last year, according to the National Association of Convenience Stores. The reason? Operators heeded the warning and beefed up their prepared food and beverage operations to replace lost cigarette sales.
“Tthe industry turned around. They started hiring chefs and consultants, and started making investments like never before in prepared foods,” said T. Fuqua, shopper marketing brand manager for Tyson Foods. Tyson has ramped up its efforts to work with convenience store operators and the distributors that serve them in the past 24 months, as have the folks at Insight Beverages, which works with convenience stores and restaurant chains to develop coffee drinks, frozen beverages and the systems that make and serve them.
“We’re seeing a lot of focus on better-for-you options and functional beverages,” said Insight’s sales and marketing director Sharon Porter. “And then we’re also [seeing]crossover with brands from other areas of operators’ locations, especially the confectionary flavors. We have Hershey in cappuccino and hot chocolate and Jolly Rancher for frozen beverages.”
As they boost their prepared food and beverage options, c-stores are competing against both quickservice restaurant chains and grocery stores, which have responded to growing competition for grocery customers with their own expanded prepared food sections.
Convenience stores and convenience foods go hand-in-hand, a fact foodservice companies keep in mind as they work with their c-store customers to develop new products, Fuqua said.
“All things begin with consumer needs. There’s been a huge move toward handheld snack foods. First it was chicken tenders, then boneless wings — there’s been a great demand for that product.”
The process for developing new prepared food offerings can take a year or more from start to finish, and it typically starts with data and other evidence showing where the trends are headed next, Fuqua said. “There has to be a consumer demand and you have to get retailers involved early on, because they are actually cooking and investing in the products themselves. We have to be able to show ‘here’s what consumers want and need, here’s where we’ve proven it.’ We have to be a good stewards of company’s investments.”
Data plays a key role on the beverage side as well, said Porter, and these days that can mean everything from industry reports from Technomic, Datamonitor and NPD Group to blogs, Twitter and other social sites that offer real-time clues on where customers’ tastes are heading next.
“Then we work with the customer to understand who their customers are, what their strategies are and whether there are regionality issues,” she said.
Regional tastes, demographics and daypart all play a role in determining which new items will resonate with customers, and c-store chains have gotten much of the inventory management down to a science, Fuqua said.
“The sophistication of many of the retailers with 30 stores or more is incredible. They’re hooked up electronically, and they are inventorying the shelves at certain parts of the day for the next day. It’s more common to see a c-store manager or team member taking inventory or doing scans of shelves at 10 a.m., after the morning rush.”