Retailing

The retailer is a critical link in the supply chain of tobacco. Retailers serve as the bridge between the tobacco manufacturers and the consumers of tobacco products. Retailing practices have changed substantially since the introduction of commercially produced tobacco products. However, the importance of the retailer to the viability and prosperity of the tobacco companies has remained constant.

History

In the middle of the nineteenth century, Americans were the heaviest per capita consumers of tobacco. Most Americans lived in rural areas and the "typical citizen was a native-born outdoorsman, short on cash and uneager to spend what he earned on things he could grow himself or swap with a neighbor or a traveling peddler. He tended to take his tobacco Indian-style, either chewing it or smoking it in a pipe, in an age when brand-name goods hardly existed" (Kluger). At that time, the most popular commercial tobacco products were chew and plug tobacco, which was sold by the town's old-time tobacconist and rural crossroads storekeepers.

These tobacco products featured imaginative names such as My Wife's Hat, Wiggletail Twist, and Sweet Buy & Buy. Outside the front door, a carved figure of a Native American often signaled the location of the local tobacconist shop. These shops were popular in America between the 1870s and the 1930s. In fact, the U.S. Census Bureau estimated that there were 580,000 cigar and tobacco shops in the United States in 1917.

Tobacco shops were a place of leisure and refuge and "possessed special qualities—warmth, camaraderie and congeniality—that appealed strongly to male senses. It became a pleasantly informal neighborhood forum with back rooms for pinochle, stud poker or just plain conversation. . . . The bastion of togetherness, a well-frequented social club, took on an atmosphere of exclusivity and privacy only surpassed by the local saloon. The price of admission was only a five-cent cigar" (Petrone 1996).

Eventually sales of cigarettes and smoking tobacco exceeded sales of chewing tobacco after concerns that chewing tobacco and spitting was a messy habit, socially inappropriate in a more crowded urban America, and a cause of tuberculosis and other diseases. Moreover, cigarettes were being mass manufactured very cheaply by Durham, North Carolina, entrepreneur named Buck Duke.

Another Durham resident, a farmer named John R. Green, pioneered tobacco merchandising after he purchased a smoking tobacco company in 1862. He launched a smoking tobacco under the name Bull Durham and widely advertised it, gave gifts to frequent buyers, and gave special premiums to dealers. Buck Duke also excelled in promoting his tobacco products by heavily advertising and giving under-the-table payment to tobacco retailers who most aggressively pushed his brands. He also gave them special premiums such as floor mops and imitation diamond stickpins. Other companies followed suit. In its early days before it became a major powerhouse company, underling Philip Morris even gave company stock to select retailers for helping launch its brands and giving them preferential display treatment.

Current Retailing

In the twenty-first century, tobacco products are sold in a wide variety of stores, including convenience stores, gas stations, liquor stores, supermarkets, and pharmacies. Cigarettes are sold in bowling alleys, donut shops, bars, and smoking paraphernalia shops known as "head shops." Some bars and restaurants sell cigarettes by the pack from the bartender or a vending machine. Of these different locations, the highest sales volume of tobacco occurs at convenience stores, where more than half of all cigarettes are sold in the United States.

Most contemporary tobacco retailers offer several types of tobacco products, such as cigarettes, cigars, bidis (a type of cigarette imported from India), smokeless tobacco, and loose-leaf tobacco. A handful of specialty stores offer a selection of loose-leaf tobaccos (for example, flue-cured Bright leaf, thick-cut Virginia blend, and Turkish blend) and allow customers to roll their own cigarettes by loading their blends into premanufactured filter tubes.

Importance of Retail Outlets

The retail outlet is a critical venue for the tobacco industry. Stores are the primary location where tobacco products are sold to consumers. Cigarettes are an $80-billion industry each year in America. Scholars do not know the exact number of retail outlets that sell tobacco products in the United States, but estimates range from 534,000 to more than 1.3 million. Having cigarettes available in so many locations keeps them readily accessible twenty-four hours a day to the country's 50 million smokers. Even though it is cheaper for smokers to buy their cigarettes by the carton than the pack, most smokers still purchase them by the pack. Economists have suggested that this is probably because many smokers do not want an excess quantity of cigarettes at their disposal, which may tempt them to smoke more. Many smokers also want to quit smoking and want to feel that each pack is their last.

In addition to providing the supply of tobacco, retail outlets also feature advertising and promotional materials that convey the image of cigarette enjoyment to customers in the store. This helps stimulate demand for the product. Although cigarette advertising has been banned on radio, television, and some print channels in many industrialized nations, there are few restrictions on cigarette advertising at stores. U.S. stores that sell cigarettes contain approximately ten to twenty distinct cigarette advertising and promotional items. Branded cigarette advertising appears everywhere on posters, window decals, lighted signs, display racks, clocks, and gas pumps. All customers, both youth and adult, are exposed to these advertisements. Some of these advertisements are displayed near candy shelves or video games, or at 3 feet or below, the eye level of a small child. Point-of-sale advertising may encourage youth smokers to experiment with a particular brand. These advertisements are also tempting to former smokers who can experience cigarette cravings when seeing the imagery of their former brand. According to point-of-sale marketing experts, well-designed cigarette advertising and point-of-sale displays can boost product sales by up to 10 to 20 percent.

Virtually all companies want their products to be displayed in the prime locations. They also want strategically placed point-of-sale advertising that promotes their brand imagery. How are the tobacco companies so successful in securing prime placement of their products and advertising in the most coveted locations inside of stores? The short answer is that they pay retailers. According to a 2001 report on cigarette industry advertising and promotional expenditures filed with the U.S. Federal Trade Commission, the major cigarettes companies spend over 85 percent of their $11.2 billion promotional budget at the retail outlet. Some of this money is for promotional allowances, which are paid to retailers to ensure that tobacco products get the best and most visible shelf space in the store. Cigarette companies also give payments to retailers and special discounts on cigarettes for prime placement of cigarette advertising and promotional materials. Finally, the companies also spend money on value-added promotions, which include offering multipack specials whereby customers can "buy two packs, and get one free."

Regulation

PREVENTING YOUTH ACCESS. Although some states have had laws in place since the early 1900s making it illegal for merchants to sell tobacco products to minors, this issue began to receive heightened attention in the late 1980s. In 1987, a researcher published a study showing that an eleven-year-old girl was successful in purchasing cigarettes in 75 of 100 attempts at stores (Difranza 1987). Subsequent studies confirmed the finding that underage youth had easy access to cigarettes. The most effective solution is a law that bans tobacco sales to minors and is actively enforced by penalizing storeowners or clerks who sell to underage youth. In the 2000s, as required by a 1992 federal law known as the Synar Amendment, all U.S. states prohibit the sale of tobacco products to individuals under age eighteen (a few states have nineteen as their minimum age of sale) and must show evidence that they are enforcing these restrictions. When the U.S. Food and Drug Administration (FDA) claimed jurisdiction over tobacco products in 1996, it created a federal policy banning tobacco sales to minors and it created a nationwide enforcement system. However, a coalition of major tobacco companies and retailers, including the National Association of Convenience Stores, challenged the FDA's legal authority over tobacco products and prevailed in a Supreme Court ruling delivered in March 2000. Even though the federal level enforcement system was disbanded, all state laws banning sales to minors remain in place.

Some regulations govern the manner of tobacco sales. For instance, some communities and states ban self-service of tobacco products, which requires that the product be kept behind the counter or in an overhead bin accessible only to the clerk. This prevents customers, especially teen tobacco users, from stealing the product from shelves. Communities in countries such as Australia, Canada, Iceland, and Ireland have banned tobacco product displays. That is, tobacco products must be kept under the counter or in some other location that is not visible to consumers.

Some laws prohibit minors from purchasing, using, or possessing tobacco products. Florida has some of the strictest laws banning youth possession of tobacco products, whereby minors are subject to having their driver's license revoked after multiple violations.

The exact impact on youth tobacco use of these laws is hotly contested. Several studies in the early 1990s demonstrated large decreases in youth smoking when enforcement actions lowered the rate of cigarette sales to minors. These studies did not have control groups, and controlled studies of the effect of enforcement on youth smoking rates showed that the impact was either modest or nonexistent. Restrictions on retail sales to youth may simply drive them to find other means of obtaining cigarettes. However, studies do indicate that comprehensive programs aimed at preventing youth initiation, using a combination of media campaigns, cessation programs, and changes in the retail environment, may help reduce youth initiation. Additionally, a newer research area is examining the impact of policies that impose penalties on youth for purchasing, using, or possessing the product. This area is also controversial with some evidence suggesting that these policies may have an impact on reducing youth smoking. However, many tobacco control advocates criticize this punitive approach for focusing on youth rather than on the adults who manufacture, distribute, advertise, and sell tobacco products to youth.

TOBACCO PRICING. Sales and excise taxes are commonly applied to tobacco products. Most excise taxes are paid prior to their distribution to retailers, but retailers are responsible for charging sales taxes if they are levied in that area. Half of the states in the United States are "fair trade" states, which means that they have laws that establish a minimum price for cigarettes. The minimum price is a set percentage markup applied to the manufacturer's invoice price at the wholesaler and retailer level. Despite the fact that tobacco products are addictive, increased tobacco prices reduce consumption by cutting down on both the number of people using the product as well as the amount that they consume. Youth are especially sensitive to prices, so higher prices have a greater impact on reducing their consumption than they do on the behavior of adults.

TOBACCO ADVERTISING AND MARKETING. In the United States, cigarette advertising is preempted by federal law, which means that states are blocked by the federal government from regulating tobacco advertising. In 1999, Massachusetts attempted to ban all outdoor cigarette advertising within 1,000 feet of schools and playgrounds and prohibited advertisements placed lower than 5 feet. This would have curtailed advertising at stores in close proximity to schools. However, the tobacco companies challenged the legality of the policy and won in a U.S. Supreme Court decision handed down in June 2001. This case highlighted the many challenges in regulating tobacco advertising in countries such as the United States that have constitutional provisions protecting freedom of speech.

The Master Settlement Agreement (MSA) between the major cigarette manufacturers and forty-six state Attorneys General contains some restrictions on tobacco advertising, but the only restriction on retailers is that they cannot display tobacco advertisements that are larger than 14 square feet.

Several countries have comprehensive bans on tobacco advertising, including advertising at retail locations. These countries include Canada, Finland, Norway, France, Italy, New Zealand, Portugal, Jordan, Singapore, and Thailand. Moreover, the European Union has agreed to phase out all tobacco advertising by 2006.

Internet Tobacco Sales

Websites selling tobacco products started appearing in the mid-1990s. Scholars do not have reliable data on the number of vendors over time, but one study identified 88 Internet cigarette vendors in January 2000 and more than 800 in January 2004. Some industry analysts predict that Internet cigarette vendors will sell more than $5 billion worth of cigarettes by 2005.

Although the majority of English-language websites are located in the United States, Internet vendors are located all over the world. Many of these international vendors sell duty -free cigarettes at prices that are far cheaper than cigarettes sold in retail outlets because taxes and duties are not collected on these products. Duty-free vendors are located in the British Virgin Islands, Netherlands Antilles, Panama, and Portugal, but most are in Switzerland. Nearly half of the Internet vendors located in America are located on Native American reservations. Members of the Seneca tribe in western New York State have more than 100 websites selling cigarettes and this area has been called the "Internet cigarette capital of the world by one reporter for the Buffalo News named Michael Beebe who writes about Internet cigarette sales." Tribal vendors tout on their websites that they sell from sovereign land and that their treaties with the United States allow them to sell cigarettes tax free. The U.S. government disputes this position and the U.S. Supreme Court has ruled that tribal entities can sell products tax free only to tribal members, which means that they cannot sell tax-free cigarettes to non-tribal members either on or off of tribal lands. The other location where many Internet vendors are located is in tobacco-producing states in the southeastern United States. This is mainly because these states have very low cigarette excise taxes and the website owners can purchase cigarettes very cheaply for resale online.

In the 2000s, few regulations affect these Internet vendors, but several laws have been proposed. These policies affect both youth access and tax collection. One study published in 2003 by researchers at the University of North Carolina at Chapel Hill (Ribisl et al.) showed that youth aged eleven to fifteen were successful in purchasing cigarettes from Internet vendors in 92 percent of purchase attempts. This fueled interest in a federal law banning Internet tobacco sales to minors. Several states, such as California, Maine, and Rhode Island already have such laws, but have experienced difficulty enforcing them against out-of-state vendors, which suggests that a federal law may be needed. Some proposed laws would require Internet vendors to collect the excise taxes at the level that they are charged in the customer's state. Traditional (non-online) tobacco retailers regularly support these regulations. They feel the market is not a fair one because Internet vendors can sell tobacco products more cheaply. Finally, given the global reach of the Internet, the World Health Organization has been interested in regulating Internet tobacco marketing. Cigarette advertising on the Internet is prohibited under the terms of the Framework Convention on Tobacco Control, an international tobacco control treaty created by the World Health Assembly, but countries must ratify the treaty for it to go into effect.

See Also Marketing; State Tobacco Monopolies; Trade.

▌ KURT RIBISL

BIBLIOGRAPHY

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Feighery, Ellen. C., et al. "How the Tobacco Companies Ensure Prime Placement of Their Advertising and Products in Stores: Interviews with Retailers about Tobacco Company Incentive Programs." Tobacco Control 12 (2003): 184–188.

Jacobson, Peter D., et al. Combating Teen Smoking: Research and Policy Strategies. Ann Arbor: University of Michigan Press, 2001.

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Ribisl, Kurt M., et al. (2003) "Internet Cigarette Sales to Minors." Journal of the American Medical Association 290 (2003): 1356–1359.

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——. "Reducing Tobacco Use: A Report of the Surgeon General." Atlanta, Ga.: U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, National Center for Chronic Disease Prevention and Health Promotion, Office on Smoking and Health, 2000.

plug a small, compressed cake of flavored tobacco usually cut into pieces for chewing.

bidis thin, hand-rolled cigarettes produced in India. Bidis are often flavored with strawberry or other fruits and are popular with teenagers.

flue-cured tobacco also called Bright Leaf, a variety of leaf tobacco dried (or cured) in air-tight barns using artificial heat. Heat is distributed through a network of pipes, or flues, near the barn floor.

duty a tax, usually on certain products by type or origin; a tariff.