• Extend the "seasons" by partnering with manufacturers for promotional campaigns and tie-ins. For example, Scarpelli said his company purchased a quantity of leftover collectible Christmas houses and sold them at $2.99 with other purchases.
• Bring in a little fun. His company is taking advantage of popular kid’s movies and TV shows for product tie-ins and promotions.
• Pay attention to inventory management. "When Tropicana went from 24-packs to 12-packs, it helped us carry more SKUs in the store. When we can get smaller package sizes, it helps to turn more product through the stores."
• Take advantage of technology. "Suppliers and retailers are able to get more data and rework sets in the store. We’re digging into the details of categories and subcategories. Intranet communications is being used by FasMart, Shivington said.
• Labor. Scarpelli said he is finding ways to give employees "ownership" within the stores by having them handle ordering and shelf sets, rather than suppliers, engenders pride and improves performance and productivity.
• New items management. "It’s very important not to confuse customers," Chivington said. "Getting information to the retailer in a timely manner and coordinating with advertising and adapting to various store configurations is essential." There must also be an "exit strategy" to deal with non performers.

What’s new in cigars?
Who would have expected all the changes in the state of the tobacco industry, questioned Norman Sharp, president of the Cigar Association of America (CAA), during a Tuesday Summit session. Some of the most dramatic events to impact the tobacco and, in particular, the cigar industry, include the Master Settlement Agreement, the anti-tobacco movement and price/tax increases.

"We never could have envisioned the events that have gotten us where we are today," Sharp told attendees. "The MSA reverberations are still being felt." Sharp provided a look at cigar sales and consumption, noting that the sale of large cigars first peaked in 1964 at 9 billion units, but then plunged to 2.14 billion units in the years following. Sales peaked again in 1997 at 4.18 billion.

Sharp said that premium cigars represent 5 percent of all large cigar sales, and that most of them are imported. Little cigars have come under increased scrutiny lately, he said, because the Treasury Department’s Alcohol and Tobacco Tax and Trade Division is trying to differentiate between little cigars and cigarettes.

Tobacco’s hot legislative issues
Two top officials of major tobacco companies urged distributors to press their representatives in Congress to support legislation aimed at preventing the sale of counterfeit tobacco products from entering the United States.

Referring to a new study just published by AWMA, Brennan Dawson, senior vice president of government relations at R.J. Reynolds Tobacco Company and John Hoel, vice president, government affairs-tobacco, Altria Corporate Services, Inc., said unstamped cigarettes are being sold on the internet, causing unfair competition to legitimate retailers that play by the rules, and costing the states and federal governments millions of dollars.

They expressed the hope that provisions can be included in legislation to extend the Patriot Act, still working its way through Congress.

AWMA President Scott Ramminger said the association has sent the study to every member of Congress and all 50 state attorneys general. "We are trying to lay the groundwork and raise awareness of the issue as Congress begins to refocus following Hurricane Katrina and the Supreme Court vacancies," he explained. "We should be able to agree that we’re all under the same siege here."

They also outlined other key federal and state legislative issues involving tobacco products.

A Wall Street view of the tobacco industry
The bottom line of Christine Farkas’ presentation was this—yes, the tobacco industry is in a fairly good position for a price increase, and it could happen in the next few months. However, noted Farkas, director, Merrill Lynch Beverage & Tobacco Research, it’s hard to predict if and when it will happen.

She noted that the United States holds the world’s largest cigarette market by volume. She also said that despite large tax increases in the states, it pales in comparison to other international locales, like the EU, which have increases as high as 75 to 80 percent per pack.

"The average price per pack in the United States is $3.55, which is still below the international average," Farkas said.

Farkas painted a picture of today’s smoker—most likely to be male, less educated and of lower income. She also said that 76 percent of African American smokers smoke menthol flavored products. With the national health objective to decrease the number of smokers to 12 percent by 2010, the industry has its challenges.

A look at the political landscape
Top political analyst Charlie Cook, a nationally known journalist and television commentator, had some surprising observations regarding the 2006 Congressional and 2008 Presidential election campaigns.

Speaking to a packed luncheon, Cook said it will be virtually impossible for the Democrats to wrestle control of either house of Congress from the Republicans, barring some unforeseen development. But looking forward to 2008, Cook had these observations:

• Sen. Hilary Clinton (D-NY) may not get the Democratic nomination for President. Democrats may well seek a candidate less controversial who party leaders believe can actually win the general election. "She’s trying to move more to the center," he said. "But changing preconceived notions is pretty hard. I’m not convinced she will be the nominee."
• Candidates to watch, he said, include Senator Evan Bayh (D-IN) and Virginia Governor Mark Warner (D-VA).
• Republicans are likely to nominate a centrist as well. Former New York Mayor Rudolph Giuliano is strongly disliked by many conservatives because of his pro-choice, pro-gun control and pro-gay rights positions, Cook said. Sen. John McCain (R-AZ) is also "loathed" by conservatives, but if they believe Clinton will be the Democratic candidate, he may have a shot.
• A candidate to watch is Virginia Senator George Allen, a former Congressman and governor who is "plain spoken, direct talking, and relates well to normal people. I would watch him very closely."
• Overall, Cook said, "Social issues will dominate."

Other hot topics
Michelle Gloecker, vice president of consumer marketing for The Hershey Company, shared Hershey’s strategy for drawing consumer attention to their confection and snack products and creating excitement.

She urged the audience to put themselves in the shoes of the consumer— think, act and be like one. The key to successful merchandising, she said, is to "bring the consumer connection into the store. You need to appeal to the emotions, the senses, and create a feeling of fun."

C-store retailers need to find better ways of making money inside the store, according to industry consultant Kit Dietz who has been working with the Joint Warehouse-Delivered Snack Committee to develop a smart strategy to help achieve that goal while building business for distributors.

The result is the new multi-vendor end cap (MVE), which Dietz told Summit attendees gives retailers more profitable options to grow their snack business and that of distributors as well.

Dietz provided materials to help distributors take advantage of the new MVE program, pointing out that warehouse delivered snacks (WDS) provide an average margin of 40 to 50 percent compared to the 28-33 percent margin range for DSD snacks.

"WDS deserves a prominent position in the store," declared Dietz. "It’s about doing the right thing in the category; it’s about total category growth."

Brad Chivington, vice president of marketing, FasMart Convenience Stores, Inc., told distributors that he is extremely pleased with the results of the MVEs placed in his company’s stores.

Industry consultant Al Bates, president, Profit Planning Group, cautioned distributors that many companies in the industry are dangerously close to liquidation unless they "reinvent" the way they do business.

Bates said there are significant opportunities, and advised companies to find ways to do a better job of controlling payroll and other expenses in order to return more money to the bottom line. He said that compared to other distribution sectors, c-store distributors are substantially behind in terms of return on assets.

"Of the 95 industries that we deal with, almost all distributors had an upturn in 2004. (Convenience store) distributors are one of the few that had profit erosion in the face of a pretty good economic environment," he said.




ABX Meets Expectations

The ABX, a new program that debuted at the 2004 Summit, was such a hit with participants that the reserved suites were full for this year’s event. The ABX provided a unique forum for one-on-one communication between manufacturers and wholesale distributors to discuss issues affecting day-to-day operations. ABX features a fast-paced schedule of pre-arranged meetings with important trading partners.

On Wednesday and Thursday following the Summit, manufactures and distributors met in pre-arranged meetings. During the two-day period, participants could hold up to 26 thirty-five minute meetings per ABX team in a private setting.

The goal of ABX planners was to keep this program efficient, effective and focused. Based on feedback from participants, the organizers met these goals.

"The ABX went very well. The AWMA staff did an excellent job," said Howard Stroud, GSC Enterprises, Inc. Stroud’s comments were echoed throughout the program as well as in follow-up communications.

You won’t want to miss the 2006 ABX—the industry’s most innovative and refreshing way to do business. For more information, contact AWMA’s Robert Pignato at robertp@awmanet.org.

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