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Marlboro maker slammed by Juul investment, takes $4B charge

Unknown-1The company that makes Marlboro cigarettes saw in late 2018 the opportunity to offset declining tobacco sales with a $13 billion investment in Juul, the e-cigarette maker.

That investment has come at a tremendous cost, the latest a $4.1 billion hit announced Thursday by Altria as legal cases against the company continue to mount. That follows a $4.5 billion writedown in October, when Altria slashed the value of its investment in Juul Labs by a third.

Since October, the company said the number of legal cases against Juul have spiked 80%. A wave of vaping illnesses and deaths have raised concerns about the products. The outbreak of vaping-related lung injuries continues, but new cases are on the decline.

More than 2,500 cases of vaping illness have been reported by all 50 states. There have been 54 deaths and more deaths are under investigation.

Tobacco companies like Philip Morris International are attempting to develop new technologies that could serve as an alternative to traditional tobacco use.

Smoking has been declining for more than five decades. Some 42% of U.S. adults smoked in the early 1960s. That was down to 14% in the latest report from the Centers for Disease Control and Prevention.

Efforts to capitalize on new technologies such as e-cigarettes is crucial for for companies like Altria, which took a 35% stake in Juul at the end of 2018. But few saw the risks involved.

The Richmond, Virginia, company on Thursday reported that it had swung to a loss in the fourth quarter from the associated costs, citing burgeoning legal cases that it expects to grow.

It also announced revised terms for its investment in Juul. Juul will restructure its board to include two directors designated by Altria, three independent directors, the Juul CEO and three directors designated by Juul stockholders other than Altria. The board restructuring will take place once Juul receives antitrust clearance from the Federal Trade Commission. Juul will add a nominating committee and a litigation oversight committee to its existing compensation and audit committees once it receives antitrust clearance.

Altria Group Inc. now expects no earnings contributions from Juul through 2022, and it’s lowering its adjusted earnings growth forecast for 2020 through 2022 to between 4% and 7%. It previously had forecast 5% to 8% growth.

For 2020, Altria anticipates adjusted earnings of $4.39 to $4.51 per share. Analysts polled by FactSet predict $4.45 per share.

Shares fell slightly before the market opened.

 


The OCSA shares 9 tips to help c-store adjust to plain packaging

cigarette-1642232_1920-1024x783By now many convenience stores will have started to receive some of their higher volume cigarettes and tobacco products in the new plain packaging. These have arrived while much of the previous stock remains on the shelf, causing confusion.

Retailers have until February 7, 2020 to sell through their slower moving coloured products and the following checklist will assist you in identifying product lineups and new requirements as you reconfigured your tobacco section to ensure speed of service, staff awareness and ease of reordering going forward.

This transition will not be easy as you will have an array of sales people from all the various tobacco companies coaching or influencing you to favour their concepts. Some easy ideas for all retailers to follow can be:

1) train staff as new products arrive in the areas of placement for ease of service.

2) sell through all coloured packaging first and rotate the plain in behind.

3) explain to your customers the change while assuring them that the colours are as fresh as the plain (ask for patience)

4) decide on the best set up for your tobacco section (ie. alphabetical or dedicated flaps for each major product) and minimize the influences to continually change the shelf by tobacco reps.

5) track your sales/inventory closely. This is a good time to re-evaluate which products are most popular as many consumers may move to the cheaper products on the shelf when there is no difference in packaging.

6) ensure you have reviewed your security needs and procedures for the handling of plain packaging from receiving an order, inventory counts and replenishment through proper rotation.

7) work with your local tobacco representatives on product returns and product issues and swap out slower formats as you define the shelves.

8) be patient as this will be somewhat of an operational frustration of the business and spend time with employees to insure they have an understanding of this change

9) be mindful of underground sellers and don’t be influenced to purchase coloured packaging from anyone or compromise your tobacco business with anyone.

Originally published by the Ontario Convenience Stores Association


U.S. endorses tobacco pouches as less risky than cigarettes

For the first time, U.S. health regulators have judged a type of smokeless tobacco to be less harmful than cigarettes, a decision that could open the door to other less risky options for smokers.

The milestone announcement last month makes Swedish Match tobacco pouches the first so-called reduced-risk tobacco product ever sanctioned by the Food and Drug Administration.

FDA regulators stressed that their decision does not mean the pouches are safe, just less harmful, and that all tobacco products pose risks. The pouches will still bear mandatory government warnings that they can cause mouth cancer, gum disease and tooth loss.

But the company will be able to advertise its tobacco pouches as posing a lower risk of lung cancer, bronchitis, heart disease and other diseases than cigarettes.

The pouches of ground tobacco, called snus—Swedish for snuff and pronounced “snoose”—have been popular in Scandinavian countries for decades but are a tiny part of the U.S. tobacco market.

Users stick the teabag-like pouches between their cheek and gum to absorb nicotine. Unlike regular chewing tobacco, the liquid from snus is generally swallowed, rather than spit out. Chewing tobacco is fermented; snus goes through a steamed pasteurization process.

FDA acting commissioner Ned Sharpless said the agency based its decision on long-term, population-level data showing lower levels of lung cancer, emphysema and other smoking-related disease with the use of snus.

Sharpless added that the agency will closely monitor Swedish Match’s marketing efforts to ensure they target adult tobacco users.

“Anyone who does not currently use tobacco products, especially youth, should refrain from doing so,” he said in a statement.

Stockholm-based Swedish Match sells its snus under the brand name, General, in mint, wintergreen and other flavours. They compete against pouches from rivals Altria and R.J. Reynolds. But pouches account for just 5% of the $9.1 billion-dollar U.S. market for chew and other smokeless tobaccoproducts, according to Euromonitor market research firm.

And public health experts questioned whether U.S. smokers would be willing to switch to the niche product.

“Snus products have a bit of a challenge” among smokers who are used to inhaling their nicotine, said Vaughan Rees, director of Harvard University’s Center for Global Tobacco Control.

The U.S. smoking rate has fallen to an all-time low of 14% of adults, or roughly 34 million Americans. But smoking remains the leading cause of preventable disease and death in the U.S., responsible for some 480,000 deaths annually.

The FDA’s decision has been closely watched by both public health experts and tobacco companies.

Public health experts have long hoped that alternatives like the pouches could benefit Americans who are unable or unwilling to quit cigarettes and other traditional tobacco products. Tobacco companies are looking for new products to sell as they face declining cigarette demand due to tax increases, health concerns, smoking bans and social stigma.

The FDA itself also has much at stake in the review of snus and similar tobacco alternatives.

Congress gave the FDA the power to regulate key aspects of the tobacco industry in 2009, including designating new tobacco products as “modified risk,” compared with traditional cigarettes, chew and other products.

But until now, the FDA had never granted permission for any company to make such claims for its products.

The FDA is reviewing several other products vying for “reduced risk” status, including a heat-not-burn cigarette alternative made by Philip Morris International. While electronic cigarettes are generally considered less harmful than the tobacco-and-paper variety, they have not been scientifically reviewed as posing a lower risk.


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Plain cigarette packs to hit shelves as ‘best in the world’ regulations kick in

Screen Shot 2019-11-01 at 10.35.38 AMSmokers will soon see their cigarette packs stripped of logos and distinctive designs as federal rules make drab brown the default colour for tobacco brands.

Plain-packaged cigarettes have started to pop up on shelves as the tobacco industry prepares for Health Canada’s regulations to take effect on Nov. 9, after which retailers will have a 90-day window to offload their remaining inventory.

All packaging will feature the same brown base colour, basic grey text and minimalist layout under the new requirements. The measures will also standardize the size and appearance of cigarettes, cigars and other products inside the packages.

Health experts and advocates say the policy positions Canada at the forefront of a global push to curb the appeal of cigarette brands, particularly among youth, and eliminate packages as pocket-sized promotions for Big Tobacco.

Rob Cunningham, a senior policy analyst at the Canadian Cancer Society, lauded Canada’s plain-packaging regulations as “the best in the world,” having learned from the examples of at least 13 other countries that have adopted similar measures.

Cunningham adds that Canada is leading the charge in eliminating extra-long and “slim” cigarettes, which tend to be marketed to women.

In 2021, slide-and-shell packages will become mandatory in Canada, providing a wider surface area that will display the largest health warnings in the world, he said.

“This measure is going to have an important difference, especially over time,” said Cunningham. “We will have kids who will grow up not exposed to branded packages.”

As regulators have cracked down on many forms of tobacco advertising, packages have become powerful branding tools to appeal to consumers, said University of Waterloo psychology professor Geoffrey Fong.

“The package designs (are) really amazingly glitzy and very attractive, especially to kids,” said Fong, the founder and chief principal investigator of the International Tobacco Control Policy Evaluation Project.

“What we’ve found is that plain packaging has tremendous effects on reducing the appeal of these deadly products.”

Fong said cigarette packages are designed to deceive consumers into thinking some brands are less harmful than others. For example, he said, studies indicate that cigarette packages with light colours and white space are perceived to have lower health risks than dark-toned products.

Fong said there’s evidence suggesting that plain packaging reduces these misconceptions, while making health warnings more salient by eliminating eye-catching distractions.

In his own research, Fong found that less than 29 per cent of Canadian smokers were in favour of plain packaging – a lower level of support than any other “endgame” tobacco measure tested in the 2016 survey.

He interprets this result not as opposition to the policy, but uncertainty about what it will entail, projecting that approval will rise as smokers acclimate to the new norm.

Tobacco manufacturers expect there will be a learning curve as consumers adjust to the new look, and in some cases, new names of their preferred brands.

For example, Belmont Silver will be known as Belmont Select under the new rules for brand names prohibiting references to colours or filter characteristics.

Jeff Gaulin, director of external affairs at Rothmans, Benson & Hedges, said the company has been working to ensure that retailers are aware of the changes by updating the names in its ordering system months in advance, as well as setting up a website for consumers to find out what products will be affected.

“I think things will go pretty smoothly,” said Gaulin. “That said, there will still be some hiccups… There may be shortages, but if there are, I think they’ll be very, very minimal.”

While he said Rothmans, Benson & Hedges doesn’t oppose plain packaging for conventional cigarettes, Imperial Tobacco Canada objects to the policy on several fronts, said head of regulatory affairs Eric Gagnon.

“You’re changing the entire supply chain,” said Gagnon. “It’s not like you just turn a key on and off. You need to change all your artwork, all your equipment, retool all your machines, so obviously, it’s very costly and a very complex operation.”

Gagnon contends that plain packaging doesn’t work and boosts the illicit sale of tobacco products.

Other industry members have mounted similar criticisms, which the World Health Organization has described as “baseless” and “not supported by the evidence.”

Gagnon declined to comment on whether Imperial Tobacco is considering challenging the regulations in court, but Cunningham of the Canadian Cancer Society notes that tobacco companies have been fighting plain packaging in Canada since public-health officials first put forward proposals in 1994.

In the 25 years since, Cunningham said efforts have been bolstered by a growing body of evidence suggesting these policies have had an impact in other countries, and Canada may be next.

“All of these countries wouldn’t be doing this in the face of strong opposition from the tobacco industry if it wouldn’t work,” he said. “It’s a highly effective measure, and that’s why they’ve opposed it for so long, and that’s why we place great emphasis on it.”


Stay of legal proceedings for tobacco companies extended to mid March

An order suspending legal proceedings against three major tobacco companies has been extended until mid-March.

Ontario Superior Court Justice Thomas McEwen agreed to again renew the stay on Wednesday but said he would wait until the next day to set an end date, and release his reasons later.

The order was first granted in March after the companies – JTI-Macdonald Corp., Rothmans, Benson & Hedges and Imperial Tobacco Canada Ltd. – lost an appeal in a multibillion-dollar class-action lawsuit in Quebec.

The stay is meant to maintain the status quo as the companies negotiate a global settlement with their creditors, including the class-action members and several provincial governments seeking to recover smoking-related health-care costs.

The companies told the court they needed a five-month extension so they can continue to operate while they work towards a settlement.

Lawyers representing the Quebec claimants, however, said the stay should only stretch to mid-January so the companies will be motivated to present a proposal.

Mark Meland said Wednesday the companies are no closer to making a settlement offer than they were in March, and it’s not enough to simply take part in mediation.

The companies obtained the stay as part of the creditor protection process after Quebec’s highest court upheld a landmark ruling that ordered them to pay billions in compensation to smokers in two class-action lawsuits.

McEwen also ruled Thursday a motion by the Canadian Cancer Society, which sought to participate in the court case and mediation despite not being one of the companies’ creditors.

The judge said the organization could take part in the court case but not in the mediation. His reasons for that decision will also be released at a later date.


Consumer insights: The C-store tobacco buyer

Screen Shot 2019-05-31 at 8.33.25 AMDespite the many challenges of the tobacco business — declining volume, new regulations, legislative scrutiny, and more — it remains a crucial business for convenience store operators.

The c-store tobacco consumer, however, is evolving as new nicotine products continue to hit the market. Here’s a look at some of the latest consumer insights around tobacco purchasing.

Click here for a special report from Convenience Store News. 


Tips for adjusting to changing tobacco trends

Cigarettes Generic Lg_100517The tobacco industry is changing at a rapid pace. Cigarette sales are declining year after year, while vape and smokeless products have been on the rise. Now, there are new products out there that fit into the growing “ANDS” (alternative nicotine delivery systems) category, such as nicotine toothpicks, pouches and dip (no tobacco leaf present in any of these).

Modernizing categories and planograms will be a necessity for convenience retail chains looking to hold onto revenue.

While consumers are quitting cigarettes in droves, most would agree they are not quitting nicotine. Many consumers switched from cigarettes to ENDS (electronic nicotine delivery systems) such as Logic, blu and Juul. Other consumers have moved into smokeless tobacco products such as dip and spitless snus.

The rise of smokeless tobacco options and ENDS products in the past 10 years is a clear indicator that consumers aren’t quitting their nicotine altogether, but instead they have become open to finding their nicotine in other products.

Some of these products I like to call “ANDS” products. These are non-combustible alternative nicotine delivery systems that would otherwise not be able to be categorized into current and obsolete product groupings. ANDS are a fairly new subcategory of other tobacco products (OTP) and are increasingly gaining customers. People are tending to move away from tobacco leaf products, both combustible and non-combustible, and move to products that deliver nicotine.

Nicotine toothpicks and pouches are very similar. Both are flavored oral nicotine products that did away with the tobacco leaf. The toothpicks are infused with nicotine and food-grade flavorings, while the pouches are tea bags that are filled with powdered nicotine and food-grade flavorings.

Another ANDS product is nicotine dip that is made using mint leaves instead of tobacco leaves.  Nicotine dips are made with nicotine applied to chopped mint leaves. They can be used just like traditional tobacco dips like Skoal, Copenhagen or Grizzly.

ARE ‘ANDS’ RIGHT FOR YOUR BUSINESS?

So, should your business sell ANDS? It all comes down to whether your convenience store or chain is positioned to make the investment to secure customers for the present and future.

In discussions with CEOs of many of these ANDS manufacturers, they say consumers are constantly asking them where they can buy the product. Store owners should embrace this and use it to their advantage. A retailer can acquire new customers just by carrying a product that is newer to distribution. This is especially true when the products being considered have already started to take sales away from cigarettes, moist snuff and ENDS products.

By adding new SKUs to their tobacco categories, retailers will need to eliminate others or increase the real estate space for their tobacco products section as a whole.

When choosing new product lines in the ANDS category, a category manager should evaluate a manufacturer or a brand based on such factors as sell-through, branding, customer experience, customer adoption, marketing, and point-of-sale (POS) merchandising support.

Behind-the-scenes items that are also crucial toward the long-term success of the store(s) and the brands they carry include Food and Drug Administration (FDA) compliance, quality control, shelf life, liability insurance and vendor/retailer support.

We already know that Juul has emerged as the leader in the ENDS category. Which ANDS products are in line to solidify a spot on your shelf? Which ANDS manufacturers and brands meet the qualifications stated in the previous paragraph?

With sell-through and compliance being the most important direct and indirect items of importance, there are certain brands and products leading the pack on this newly paved road. Here are three types of ANDS that hold promise for the convenience channel:

Nicotine Pouches

Nicotine pouches have created a nice following throughout the country — both online and in stores. Nicotine pouches function just like spitless snus.

Nicotine Toothpicks

While nicotine toothpicks might seem like a new idea, they have been around since 2013. When merchandised and branded properly, nicotine toothpicks see sell-through. They also function as an upsell that increases a store’s average order value.  Toothpicks are one of the few products being used by smokers, dippers and vapers alike.

Nicotine Dip

Nicotine dip is another product making its way into stores. I like the idea. Why have tobacco leaves pressed up against your gums when you can have mint leaves and nicotine instead? I can see these products leading to the abolishment of traditional tobacco leaf dips.

In the end, consumers want to feel empowered to make a choice. Nobody goes to the ice cream parlour that only carries three flavours when the parlour across the street has 15 flavours plus 10 different topping options.

With the guidelines and requirements mentioned earlier, choose one to three items from each of the three ANDS subcategories (pouches, toothpicks and dip). Find products that aren’t selling well on your shelves and remove them.

The way I see it, ANDS are the future of the category. The status quo has changed. Non-combustible ANDS products should be part of your offering in order to solidify your store’s ability to sustain long-term growth and success.

By: Evan Grossman is an entrepreneur and industry advocate. In 2013, he founded Pixotine Products, launching Pixotine Nicotine Toothpicks. Before founding Pixotine Products, Grossman co-founded Trans World Jets in 2011, a jet charter consulting and contracting business.

Originally published at Convenience Store News. 


Court agrees to suspend legal proceedings against tobacco companies until fall

An Ontario court has agreed to extend an order suspending legal proceedings against three major tobacco companies as they negotiate a settlement with their creditors after losing an appeal in a multibillion-dollar case in Quebec.

The stay of proceedings was granted in March as part of the creditor protection process and upheld the following month after some of the companies’ creditors challenged it.

The order was set to expire June 28, but will now be renewed until Oct. 4.

The companies – JTI-Macdonald Corp., Rothmans, Benson & Hedges and Imperial Tobacco Canada Ltd. – had initially sought to prolong the stay until December but presented a revised proposal last week.

The order was first obtained shortly after Quebec’s highest court upheld a landmark decision that ordered the tobacco companies to pay more than $15 billion to smokers in two class-action lawsuits.

The stay is meant to maintain the status quo while the companies go through mediation with all those who have claims against them, including the class-action members and several provincial governments.

Lawyers representing the class members argued in April that the stay in their case should be revoked if the companies plan to appeal the Quebec ruling to the Supreme Court of Canada.

Ontario Superior Court Justice Thomas McEwen rejected their request, saying it would give an unfair advantage to the Quebec creditors over the others.

But he ruled the stay would also prevent any of the companies from seeking leave to appeal to Canada’s top court unless they obtain the court’s permission.

McEwen also denied Ontario’s bid to push forward with a lawsuit that aims to recover smoking-related health-care costs from a dozen Canadian firms and their parent companies, including the three companies granted the stay.

The judge said allowing the lawsuit to proceed before settlement talks are complete would favour Ontario over other provincial governments seeking similar relief.

Health groups have also opposed the stay, calling it a delay tactic by companies whose profitability isn’t immediately threatened.

In a statement issued this week, the groups say the companies “have not even initiated settlement discussions, and have set no time limits to address the claims made against them.”


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McCowan: Secure tobacco merchandising is our business

image001Secure tobacco merchandising is an important factor in the Gas Convenience business! McCowan has been at the forefront of designing secure tobacco merchandising solutions that meet “Dark Market” regulations.

Security will always be on the minds of retailers who are concerned about the safety of their employees and the control of their inventory. In addition to tobacco merchandisers, McCowan manufactures backroom lock-ups, vape merchandisers and pass-through boxes for retailers who serve late night shoppers.

 

Secure counter top tobacco cabinet.

Secure counter top tobacco cabinet.

  • Industry Standard. McCowan Tobacco Merchandisers and Security Products have been an industry standard for 25 years. More than 10,000 Secure Tobacco Merchandisers have been sold!
  • Floor, Counter Top and Under Counter Solutions. McCowan offers secure tobacco merchandising solutions to accommodate any space. Floor models are 72” tall, counter top models are 52” tall; both are available in 36” and 48” widths. Under counter models are designed to fit seamlessly under your cash desk counter.
  • Pushers & Dividers for Easy Vending. McCowan provides pushers and dividers to keep tobacco or vape inventory organized for operators.
  • High Capacity. McCowan Tobacco Merchandisers are designed to hold a large inventory of tobacco products and manage multiple SKUs.
  • Anti-Theft Lock System and Security Door. The McCowan anti-theft lock system and security door have been tried and tested in the market for 25 years.
  • Dark Market Regulations. McCowan Tobacco Merchandisers meet all provincial regulations.
  • Vape Merchandising Solutions. McCowan offers locking cabinets with clear or frosted glass doors to merchandise vape products.
  • Backroom Lock-Ups. McCowan offers high capacity backroom lock-ups with anti-theft doors and locks.
  • Secure under counter tobacco cabinet with door closed.

    Secure under counter tobacco cabinet with door closed.

    Pass-Through Boxes. McCowan offers pass-through boxes to assist operators in safely serving late-night customers.

  • Built to Last. Made from high quality materials and finished with a durable powder coat.
  • Industry Leading Turnaround Times. McCowan has a long history of consistently delivering to stores in unrivalled lead times.

Call 416-291-7111 or e-mail sales@mccowan.ca for a catalogue!

For more information, visit our website.

Under counter cabinet with door closed and door open

Under counter cabinet with door closed and door open


3 tips for protecting your tobacco sales

CigsAs the convenience channel moves away from its traditional cokes-and-smokes reputation and toward fresh and healthier offerings, it is easy to overlook the cigarettes category — with its diminishing volumes and tight margins. But, that would be a mistake, according to the experts.

As 7-Eleven Inc.’s Alan Beach stressed during the NACS State of the Industry Summit last year: “You can’t ignore this. We need to protect this; it is what got us here,”

He’s right. While cigarette sales are declining, they are still a hot in-store purchase that attracts customers and keeps them coming back for more. That alone should make c-store operators sit up and pay attention.

“Tobacco continues to be really important, particularly to the convenience retailer, by far,” says Don Burke, senior vice president of Management Science Associates Inc. “We are seeing a little bit greater decline; however…. Tobacco continues to be a very important category, and we project that it will be for many more years.”

Therein lies the reality that convenience store operators need to protect their tobacco category, and the strategy to do that is twofold: assortment and other tobacco products (OTPs).

“In a study we did in the past several years, we found that about 30% of convenience stores are able to increase their tobacco category sales each year,” says Burke.

Here’s how:

  1. “Make sure you are carrying the right number of SKUs, the right number of products and the right amount of selection. When consumers shop convenience, they are looking for selection,” says Burke.
  2. C-stores need to embrace the large cigar segment, which has one of the greatest growth rates of all the tobacco segments. “One of things we found recently is that pre-priced items, which most convenience stores don’t like, have helped this category considerably,” he noted. If a retailer does not want pre-priced items, then it needs to offer a range of price points within the large cigar segment to meet consumer demand.
  3. Take advantage of consumer interest in the vapor category, particularly in the vaporizers that typically retail for $20-plus, Burke explained. “That’s a high cash-register ring for the tobacco category and contributes considerably to revenue growth in convenience.”

A version of this article was originally published by Convenience Store News.