Cigarettes havelong been a staple at U.S.convenience stores, accounting for billions in pack and carton sales andboosting the profits from the average smoker's market basket.

For2012, total cigarette sales in convenience stores totaled more than $52billion, down a slight 1.68%. Units sold slipped 2.05% to 8.75 billion.

Whilesales may be down, the value of cigarette customers to the convenience storeindustry cannot be overstated. According to MSA and Paradigm Sample'sConvenience Consumer Insights Panel (cciPanel), approximately 50% of cigarettecustomers reported that they visit a convenience store at least two times a weekto purchase cigarettes. An additional one-third visits at least 2-3 times aweek. So while cigarette sales may be slipping, visits to the c-store bytobacco customers remains strong, and that provides a steady opportunity toboost the market basket.

Inan effort to learn the price tier of smokers' preferred cigarette brands,cciPanel participants were asked: "How would you classify the type ofcigarettes you buy most often?"

Amongcigarette buyers, three-quarters described the cigarettes that they most oftenpurchase as premium-priced brands. Given the vast majority of cigarettes areplanned purchases, an understanding of brand preferences is beneficial totobacco retailers in terms of managing SKU assortment and stocking preferredbrands to satisfy their customers.

Regulation Concerns

Thereare currently two federal lawsuits challenging the Food and DrugAdministration's (FDA) graphic cigarette health warning labels. Both lawsuitswere appealed to different U.S. Circuit Courts of Appeal with the Six CircuitCourt upholding the graphic warning labels as being constitutional and theDistrict of Columbia Circuit Court ruling that the graphic warnings areunconstitutional.

"Inshort, we have what is known as a 'conflict between the circuits' with twodifferent U.S. Circuit Courts of Appeal making seemingly contradictory rulingson the same issue," said Thomas Briant, executive director of the NationalAssociation of Tobacco Outlets (NATO).

Whenit comes to formulating a tobacco strategy, retailers should continue engagingconsumers about cigarettes.

"Price is the biggest challenge, and waiting on buy downs that are gettingbetter due to time and direct deposit," said Amer Hawatmeh, president andCEO of St. George Oil, which operates Coast to Coastconvenience stores.

Hawatmehfirmly believes that the restrictions will actually help ameliorate the effectsamong consumers. "We have absolutely no control over it. Ultimately, theconsumer is going to have to get used to it."