Balvor e volution of tobacco

Copyright © 2014 Balvor LLC. All Rights Reserved.

THE E-VOLUTION OF TOBACCO

David Bishop

Managing Partner

[email protected]

February 5, 2014


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

Copyright © 2014 Balvor LLC. All Rights Reserved. 3

Realize that it’s more than just e-cigarettes

E-cigarette

Vaporizer

E-cigar

E-hookah

END: Product subcategories

Electronic Nicotine Devices (END)


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


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


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


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


*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


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


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


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


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%)


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


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)


(a) = Actual; (p) = Projected


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


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


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


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


17

Most retailers tend to slowly expand across the segments

END: Segment availability


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

mailto:[email protected]

Documents

Balvor e volution of tobacco