Lessons learned from the Balvor/CSNews 2010 Tobacco Retailing Survey.

1. Convenience Store News faTobacco Roundtable
what Have We Learned?lessons learned from the Balvor/CSNews 2010 Tobacco Retailing Survey
40 CONVENIENCE STORE NEWS APRIL 12,2010
By David Bishop. Balvor LLC
dramatic if you realize that
the average is 25 percent
lower than just two years ago
when it was approximately
19 days.
The point is that lower in-
ventory levels are good if the
benefits (e.g., less product
shrink, lower working capital
requirements) are greater than
the costs (e.g., lost sales, un-
happy customers).
2010 Unit Volume Forecast
(Annual Average Growth Rate vs. Previous Year)
SOurce: 8aIvorlCOnvenience Store Ne'Ns Tobacco Retaillng~, February 2010
• Increased
• Decreased
hese are truly interesting times for conven-
ience retailers. Not only are convenience re-
tailers feeling the economic downturn like
everyone else, but they're challenged with
decreasing fuel margins that for some are
below what they need to run the business profitability,
and increasing uncertainty about what tomorrow will
bring for tobacco retailing.
From the perspective of the last point, the
BalvorlCSNews 2010 Tobacco Retailing Survey is in-
tended to help inform retailers about changing retail
practices and perspectives about the business. The fol-
lowing Ie ons learned are based on digging further
into survey findings and reinforce very fundamental
principles that retailers need to remember.
LESSON #1
You can't sell what you
don't have.
While having a good price is
important, we've heard over
the year about the cost related
to out of stocks, both in terms
of lost sales and customer de-
fections. Unfortunately, as in-
ventory costs increase, more
and more retailers are poten-
tially exposing their stores to
higher out-of-stock rates. In
fact, the survey highlighted
that nearly one-third of the
retailers perceive that they
ha ve h ig h ervwo rse out of
stocks in cigarettes today than
a year ago.
Why is that happening? Ac-
cording to the survey, retailers
are now averaging around 14
days-of-supply for cigarettes
with many indicating they're LESSON #2
even lower. This finding is There's more than one
Shelf Space
Allocations Trends
(Percent of Companies Responding)
Cigarettes Other Tobacco Products
Note: Percentages don't equal 100% as difference relates to those responding that space "remained the same" in 2010
SOurce: BaMJr!Convenience Store NeWsTobaCCO Retailing survey, FebruaIy 2010
Shelf Space Allocations Trends OTP*
(Percent of Companies Responding)
• Increased
• Decreased
Smokeless Cigars Papers Pipe/Cigarette Tobacco All OTP
Note: PercentageS don't equal 100% asdifference relates to those responding that space "retnafned the same" in 2010
•Ranking in C1escendingorder based on Shareof dollar shares
Source: Ba/vor/COn.e1ienceStore NevIS TObaCco RetafllngSUf'E'y, February 2010
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2. way to skin a cat.
This proverb teaches us that
a problem typically has more
than one potential solution.
In tobacco's case, the prob-
lem is the increasing costs
associated with carrying to-
bacco inventory and the sim-
ple solution is inventory
reduction, which we learned
under lesson No.1, can cre-
ate other problems if done
incorrectly.
What are some other, more
effective solutions? Digging
into the survey results re-
vealed that retailers who fo-
cused mainly on reducing
SKU counts were the least
likely to report that out of
stocks are worse"than last
year. On the other hand,
those who focused primarily
on lowering product supply
across the board were 29 per-
cent more likely to indicate
that out-of-stocks are higher
today vs. last year.
The point is that an effec-
tive approach to lowering in-
ventory should always
ensure that a stable supply is
available in the store. There-
fore, be careful about how
the stra tegy is executed
with top-selling SKUs,
while also using the op-
portunity to identify low-
value SKUs.
L1:SS0N #3
Inventory reduction
opens up other
possibilities.
Retailers understand they
need to find space in order
to add a new SKU. Con-
versely, when a retailer re-
moves an existing SKU
Convenience Store News fitTobacco Roundtable
The Balvor/Convenience Store News 2010 Tobacco Retailing survey found
convenience store retailers are currently averaging around 14 days of supply
for cigarettes, with many indicating they're even lower.
Percentage Change in Inventory
Levels - by Tobacco Segment
(Average Percent Change vs. Last Year)
-1.7% .{).8%
Smokeless Pipe/Cig All OTP papers Smokeless Cigars
Tobacco
source. aafvorlCOnvenience Store NeWSTObacco Retailing Survey, February 2010
In-Store Cigarette Inventory On-Hand
(Percent Responding)
14 to 16 Days
20 to 22 Days
17 to 19 Days
wtd average based
on store count 14.1 days
< 14 Days
SOurce: Ba/vor/COOvenience Store Neo.vs TobaCco Retailing su~, FebtueIY 2010
42 CONVENIENCE STORE NEWS APRIL 12. 2010
he/she needs to determine
what to do with the free
space. For instance, more
than 70 percent of retailer
are rationalizing cigarette
SKUs to some degree, but it
doesn't mean that their carry-
ing few SKUs.
What should you do? In
some cases retailers are shift-
ing some free space to im-
prove the in-stock position of
top-selling cigarette SKUs. In
other cases, many retailer
are expanding the assortment
in segments like subgenerid-
private label and fourth tier
to ensure stores are competi-
tively positioned for the ex-
tremely price-sensitive shopper..
The point is that inventory
reduction can help you broad-
en assortment where it make
sense while culling it back
where it doesn't. And, at the
same time, it can help you
strengthen the everyday avail-
ability of the core SKUs that
make up the base business.
Ultimately the process of
reducing inventory on-han
creates both opportunitie
and challenges that retailer
need to be aware of in order
to build their tobacco
business for tomorrow
and beyond regardless of
the economic or political
environment.
David Bishop spe-
cializes in conven-
ience retail and is
t the managing part-
ner at Baluoi: LLC, a sales
and marketing firm locat-
ed in Barrington, Ill., and
can be reached at david
bishop@balvor.com. -
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