Copyright © 2014 Balvor LLC. All Rights Reserved.
THE E-VOLUTION OF TOBACCO
David Bishop
Managing Partner
February 5, 2014
Copyright © 2014 Balvor LLC. All Rights Reserved.
Cigarettes only
Multiple tobacco products
Cigars only
Smokeless only Pipe only
Source: 2012 NSDUH: Substance Abuse and Mental Health Administration.
2
Over 1 in 5 adult tobacco consumers use multiple products
Tobacco: Usage amongst tobacco adult consumers
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Realize that it’s more than just e-cigarettes
E-cigarette
Vaporizer
E-cigar
E-hookah
END: Product subcategories
Electronic Nicotine Devices (END)
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2013
Dollar Sales
OTP
Cigarettes
4
Source: NACS SOI data, BALVOR/CSNEWS Research, December 2013; BLS; EIA; CDC; Balvor estimates; The Tax Burden on Tobacco, Vol. 47, Balvor estimates for CY13.
OTP continues to increase market share
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
0
5,000
10,000
15,000
20,000
25,000
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13e
Packs (Millions) PCYA
15-Yr CAGR
5-Yr CAGR
Many market forces are likely affecting the adult tobacco consumers, e.g.,
• Able to buy fewer products with personal income flat (+20 bps) vs. CPI (+150 bps) at the of end of ‘12
• Spend between $8 and $13 more per week on fuel when comparing current prices to ‘10 and ‘09 respectively
• Have around $12 less in weekly gross income due to the elimination of the payroll tax deduction
• Unable to smoke wherever they choose as 34 states in 4Q13 had 100% smoke-free bans in effect for bars and restaurants while 28 also covered private worksites
Observation
Annual Cigarette Consumption
OTP $ +6.7%
Cigarette $ -0.9%
Tobacco: Retail trends
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Source: 2012 NSDUH: SAMSHA. *Percent of total tobacco consumers
Between 14 and 27% of all tobacco consumers are dual users and 5 to 10% use both combustible and smokeless products
0 10 20 30 40 50 60 70
Multiple tobacco products
Pipe only
Cigars only
Smokeless tobacco only
Cigarettes only
Current Use of Tobacco Products*
0 2 4 6 8 10 12 14
Cigars + pipe only
Cigarettes + pipe only
Smokeless + cigars only
Cigarettes + cigars + pipe only
Cigarettes + smokeless + cigars only
Cigarettes + smokeless only
Cigarettes + cigars only
Uses Multi-Tobacco Products*
26 + years old 18-25 years old
Tobacco: Consumer insights
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0%
1%
2%
3%
4%
5%
6%
7%
8%
Ever Used ('10)
Ever Used ('11)
Currently Use ('11)
% of Adult Consumers - US
6
Source: HealthStyles Survey, 2011; ConsumerStyles Survey, 2010; Balvor estimates
Consumer trial is growing rapidly, but repeat is much lower
END: Consumer trends
0%
5%
10%
15%
20%
25%
Current Smoker
Former Smoker
Never Smoker
% of Consumers – Ever Used
2010 2011
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Smokeless Cigars
Electronic Nicotine Devices
Papers
Pipe/Cigarette
Tobacco Other
Tobacco & Pipes
Sales
7
APSW = Average Per Store Week *Based on self-reported performance measures.
Source: BALVOR/CSNEWS Research, December 2013 (N=82 retailers); NACS SOI data, BALVOR/CSNEWS Research, December 2013; Balvor estimates
END is making its presence felt at retail
Cigarettes
Pipe/Cigarette Tobacco
OTP Dollar Sales
END: Sales contribution
0%
5%
10%
15%
20%
25%
30%
35%
$50 or less
$51 to $100
$101 to $200
$201 or more
END Dollar Sales - APSW
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*Weighted based on sales.
Source: NACS SOI data; Balvor END Sales Analysis, January 2014
END is expanding OTP margins even further
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
2001 2012
Gross Margins
Cigarettes OTP
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Low Est. High Est.
Gross Margin*
Gross margins: Comparisons
END
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Feb '11 Feb '12 Oct '12 Dec '13
% of Retailers Offering ENDs*
9
*In at least one store. (Convenience only)
Source: BALVOR/CSNEWS Research, 2011 – 2014.
The category is rapidly building a physical foothold
END: Retail availability
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More than 12 months
ago
6 to 12 months
ago
Less than 6 months
ago
When END was First Offered
0%
50%
100%
150%
200%
Stores* Company**
Chain-wide Dollar Sales - PCYA
10
*Weighted based on store count **Weights each retailer equally regardless of store count
Source: BALVOR/CSNEWS Research, December 2013 (N=82 retailers)
END is enjoying strong sales growth
END: Retail trends
Copyright © 2014 Balvor LLC. All Rights Reserved.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Retailers Who Offer*
*Which brands do you currently offer whether in one or all stores? (Retailers selected) Top 20 brands
Source: BALVOR/CSNEWS Research, December 2013
11
Assortment is highly fragmented at retail today
Assortment: Average number of brands offered
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6%
12%
12%
55%
0% 20% 40% 60% 80%
Logic
Njoy
Don't know
BLU
Retailers Offing ANY Brand*
18%
20%
25%
63%
0% 10% 20% 30% 40% 50% 60% 70%
Njoy
Cigalectric
Logic
BLU
Retailers Offering THIS Brand
12
*% of retailers carrying: Blu (87%), Njoy (68%), Logic (24%)
Source: BALVOR/CSNEWS Research, December 2013
BLU is the dominant brand any way you look at it; however, Logic is next strongest brand when available
Assortment: Best-selling brand
Over half of all the retailers who offer END in stores indicate that BLU is their
best-selling brand today
Nearly two-third who offer BLU in their stores indicate that BLU
is the best-selling brand
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0 1 2 3 4 5 6
All other
Convenience store
Tobacco outlet store
Number Offered
13
Source: BALVOR/CSNEWS Research, December 2013 *Reflects retailers who carry in either all stores or some stores.
Expand product range as the business builds
END: Brand availability
0 2 4
Under 6 months
6 to 12 months ago
Over 12 months
Number Offered (Conv. Only)
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(a) = Actual; (p) = Projected
Source: BALVOR/CSNEWS Research, December 2013
14
END’s footprint in stores will grow this year
0.0
1.0
2.0
3.0
4.0
5.0
2013 (actual) 2014 (projected)
Avg. # of Brands Offered (Conv. Only)
END: Brand availability
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013
# of Display Locations
Three+
Two
One
Above the
counter on the
back bar
On the front
counter by the
register
Below the
counter on the
back bar
On the sales floor
Primary Display Location
15
Source: BALVOR/CSNEWS Research, October 2012 and December 2013
Be deliberate in where you place your product displays
Placement: In-store displays
Copyright © 2014 Balvor LLC. All Rights Reserved. 16
Source: BALVOR/CSNEWS Research, October 2012 and December 2013
Use signage to build awareness for END products
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013
# of Signs Currently Used
Three+
Two
One
Promotion: In-store signage
0% 20% 40%
Ceiling mobile
Counter mat
Price sign
Shelf dangler
Static cling
Signage Currently Used
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Single-units, disposable
Kits, basic / express
Single-units, rechargable
Multi-units, disposable
E-Cigars E-Hookahs Vaporizer / E-liquids
Segments Offered
Yes, all stores do Yes, but not all
Source: BALVOR/CSNEWS Research, December 2013
17
Most retailers tend to slowly expand across the segments
END: Segment availability
Copyright © 2014 Balvor LLC. All Rights Reserved. 18
David Bishop Managing Partner, Balvor LLC
David is the managing partner of Balvor LLC and provides analytic, consulting, research and sales-support services to retailers, product suppliers, and other organizations across foodservice and retail classes of trade with focus in convenience and grocery.
In the convenience channel, he has a deep knowledge of retail with experience across nearly all in-store foodservice and packaged good categories, examining new merchandising solutions, shopper behavior, category strategies, and category performance. He’s worked directly with many of the leading convenience retailers, including 7-Eleven, ExxonMobil, Kroger, Quick Chek, The Pantry, Ricker Oil, Shell, Valero, and Wawa, evaluating new retail concepts, enhancing internal category planning processes, and analyzing retail merchandising strategies. He’s helped product manufacturers and service providers improve their competitive positioning, trade programs, and category management capabilities by better understanding what retailers’ value while also benchmarking versus peer companies and evaluating sales and trade marketing programs. David provides on-going thought leadership to the channel via his industry involvement and proprietary insights generated through various trade group relationships. And, prior to founding Balvor in 2008, David spent 12 years at Willard Bishop , leading the convenience store practice. Before that David focused on beverage and financial programs while working at The Levy Restaurants in operations.
Public Accomplishments
White Papers
• Convenience Channel Opportunity: Insights for the Dairy Industry, Dairy Management Inc.
• Are Retailers Doing Enough? Preventing Underage Access to Tobacco at Retail, The We Card Program, Inc.
• Accelerating Cigar Profits Through an Increased Strategic Focus, John Middleton Inc. (Now part of Altria)
• How to Succeed in Convenience Retail: A Practical Guide for Product Suppliers, NACS.
Thought Leadership Initiatives
• Digital & Social Retail Practices, Convenience Store News, 2012 - present
• Convenience Retail Outlook, Convenience Store Decisions, 2010 - present
• State of Foodservice, Convenience Store Decisions, 2008 - present
• Tobacco Retail Survey, Convenience Store News, 2008 – present
Industry Involvement
• How to Foodservice Crew, Convenience Store News, 2013 – present
• Supplier Advisory Board, Convenience Store Decisions, 2006 – present
• Convenience Segment Leader, Brick Meets Click, 2011 – present
• Convention and Events Committee, NACS, 2007 – 2011
Phone: 847.722.2732 E-mail: [email protected]
Biography