Smokers Welcome! Circle K Sees Business in Shrinking Market

(Bloomberg) -- Cigarettes aren’t extinguished yet, and one of America’s biggest convenience-store chains wants to squeeze what it can from that shrinking market.

Alimentation Couche-Tard Inc., the Canadian owner of Circle K stores, launched a “Tobacco Club” earlier this year in the U.S. that offers discounts on Marlboro packs and other products to more than 4 million patrons who sign in with their mobile number. The company also expanded distribution of its own cigarette label to recently acquired chains, giving more customers a lower-priced alternative as the cost to light up climbs with tax increases on tobacco.

Smokers Welcome! Circle K Sees Business in Shrinking Market

The number of cigarette smokers has been dwindling in the U.S., and many retailers -- including Couche-Tard -- have their eyes on the burgeoning market for legal cannabis products. Yet, the convenience-store giant still wants to boost its share among the thinning ranks of the tobacco crowd, who are potential clients for high-margin products such as sandwiches. The booming market for products such as e-cigarettes also helps.

“We’re going to fight to take market share,” Couche-Tard Chief Executive Officer Brian Hannasch said in an interview after the company’s annual shareholder meeting last week outside Montreal. “We’re committed to that category, committed to that customer.”

Filling the Void

This will entail picking up some of the smokers who can no longer find their cigarettes at CVS Health Corp. and other retailers that stopped selling tobacco, said Jennifer Bartashus, an analyst at Bloomberg Intelligence. Vaping and other smoke-free devices offer another opportunity, she said.

With vaping, “once people are using the equipment, the role for a convenience store becomes a little easier in terms of refills, of the maintenance of the habit,” she said. “You’re starting to see some of the benefits of that behavior coming through, as well as additional attention that Couche-Tard is putting on the category.”

Hannasch was upbeat about U.S. tobacco growth on a call with analysts this month, when the company reported strengthening same-store sales in the country following a lull at the start of the year. He singled out “very, very, very strong sales” from newer categories such as e-cigarettes.

Loyalty Program

On the traditional tobacco front, the loyalty program is part of a push by Couche-Tard, which hired its first chief marketing officer last year, to create more targeted promotions and spur impulse purchases. The program is in place in about 5,000 of its almost 7,800 U.S. stores, Hannasch said in the interview.

The company has grown from a single store in a Montreal suburb in 1980 to a global giant with a footprint stretching from Norway to nearly every U.S. state. While it isn’t done with acquisitions, it is now looking for other ways to keep sales growing as it competes with grocery stores, fast-food restaurants and dollar stores.

Competition has weighed on the shares, which were little changed this year through Thursday’s close after rising 7.7 percent last year -- far short of the heady surges between 2009 and 2015, when the stock jumped more than 12-fold.

Couche-Tard has beefed up its food offerings worldwide, with more pastries and sandwiches, in addition to its stalwart creations such as mac-and-cheese-topped hot dogs. It’s also improved coffee quality and sees its greatest growth opportunity in the slew of new beverages that are emerging.

It’s keeping an eye on Amazon Go, too. Hannasch and Couche-Tard founder and Chairman Alain Bouchard visited one of the cashierless stores in Seattle and came back inspired rather than worried, even though plans to have more Couche-Tard locations in city centers could make Amazon.com Inc. more of a direct rival.

“I don’t feel this as a threat, I feel that they would help our industry to evolve better,” Bouchard said in an interview. “There’s room for a lot of convenience stores in this world and I think we can take our market share in the cities.”

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