Do You See Something Wrong With This Chart?

The chart above is a compilation of the Quarterly Sales of 213 unique cigarette brands dressing the shelves of the average convenience store. If you are familiar with Excel spreadsheets, you will understand that not all brand names are displayed.

Most cigarette manufacturers think they are doing you a favor by paying you a fee to advertise their brands, but when you consider all of the other ancillary costs, including loss of working capital, and the loss of sales created by commandeering so much unprofitable space, etc., have you ever stopped to figure out how much of that cigarette rebate check is actually profit?

Cigarettes are leaders that drive customers into a store. They do what gas cannot do... get the customers onto your sales floor, so that hopefully they will add other things to the tender that will actually be profitable. This begs the question, "If I have customers that only come into my store to buy cigarettes, are they profitable customers, or are they nonprofitable customers?"

45 percent of all transactions are nonprofitable. Since transactions make up a tender, and tenders are built by customers, then it stands to reason that some 45 percent of customers are nonprofitable as well.

I remember an incident at a Chinese smorgasbord I frequented when I was working across the street from the Manned Spacecraft Center (MSC, later know as the Johnson Space Center) in Nassau Bay, Texas when LBJ flew down to announce the Lunar Receiving Laboratory (LRL) in 1966.

If you are not familiar with the term smorgasbord, basically it is an 'all-you-can-eat' buffet. One day at the height of the lunch hour, a totally irate Chinese restaurant owner appeared from out of the kitchen and verbally attacked a rather portly, frequent customer.

"How come you no eat vegetable?" the Asian owner screamed. "How come you only eat meat?" he added... "We no want you eat here... GET OUT!" The entire buffet erupted in laughter as the portly gentleman made his way to the exit.

Every time I see a customer make his or her way into a convenience store to buy cigarettes, I remember the portly smorgasbord customer and just how nonprofitable a nonprofitable customers can be.

So, when someone tells me they carry items that are not selling, in order to draw customers who don't buy the items they stock, I start into scratching my head. In fact, I do this so much, I no longer have hair on the top of my head. (Well that's my excuse anyway.)

Look, I am not suggesting all cigarette representatives are bad. In fact, I had a long discussion with a cigarette rep a couple of years ago, who was actually trying to convince a retailer to cut down on the number of tobacco brands he carried, but the customer was so afraid that he might lose traffic, he is still overstocked on cigarettes to this day.

What I am suggesting is that it may be time to rethink your cigarette contracts and sit down with your cigarette reps and discuss this issue. By cutting back on brands that only sell once or twice a week (or less), you may be able to save a treasure trove of cash that could be invested in areas that will increase your profits, not your nonprofitable traffic. 

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