By Sarah Stockton

Nicotine is a crucial yet complex sales category for most convenience stores (c-stores). Like fuel, nicotine products are a major draw for customers. By offering attractive pricing, convenience retailers encourage nicotine consumers to make frequent shopping trips that drive sales and boost overall store performance. 

The National Association of Convenience Stores (NACS) reports that cigarettes accounted for 20.3 percent of U.S. in-store sales for 2023 while other tobacco products (OTPs) accounted for another 7.5 percent, and e-cigarettes make up 27.7 percent of OTP sales. Beyond driving sales of nicotine products, a store’s tobacco offerings also encourage in-store sales for other categories, such as snacks, beverages and prepared foods. 

Despite nicotine’s importance, the category comes with unique pricing challenges. C-stores often struggle to navigate four main influences that dictate pricing decisions: 

1. Government regulations 

When pricing nicotine products, retailers must comply with a variety of regulations, including state and local taxes, minimum price laws and federal requirements. These regulations vary by region and are frequently updated, which adds even greater confusion and pressure for tobacco retailers. C-stores need to comply with ever-changing laws and regulations, or they’ll risk significant fines and penalties. 

Calculating the minimum price for a cigarette brand can be incredibly time-consuming. In the U.S., 25 states and the District of Columbia have minimum price laws for cigarettes, with calculation rules varying significantly by state and sometimes by local jurisdiction. For example, the Minneapolis City Council passed an ordinance earlier this year that requires retailers to sell a pack of cigarettes for at least $15. 

With over 100 brands to manage, staying on top of these ever-changing regulations is a daunting task for many c-stores. 

Of course, cigarettes are not the only regulated product. C-stores must also navigate regulatory compliance for products like cigars, e-cigarettes, chewing tobacco and other smokeless products. 

• Tobacco company requirements 

Tobacco companies impose strict contracts with retailers that include pricing rules. They often set the lowest allowable price for their brands and specify price differences between their products and those of other brands. To encourage retailers to promote their products, tobacco companies offer rebate programs known as “buydowns.” If retailers meet specific pricing criteria or maintain parity in brand pricing, they earn significant rebates from vendors. This practice plays a crucial role in boosting profitability. 

However, managing these programs is becoming increasingly difficult. Nicotine product manufacturers are rolling out new Tobacco Scan programs, more localized buydown agreements and multipack programs, forcing c-stores to juggle compliance with these varied incentives. Failure to do so can result in losing thousands of dollars in rebates. 

• Consumer behavior 

As society becomes increasingly health conscious, the consumer base for cigarettes is shrinking. A 2024 Gallup poll found that only 11 percent of U.S. adults now smoke combustible cigarettes, and that dwindling number has led to a dip in cigarette sales. In contrast, smokeless tobacco alternatives like oral nicotine pouches have surged in popularity, with Convenience Store News reporting a 63.5 percent increase in sales.

Moreover, c-stores face additional challenges as consumers become more price conscious. A significant portion of customers now prioritize price over brand loyalty, often switching between brands or nicotine-delivery systems based on promotions. C-stores are seeing customer preferences shift toward lower-tier and discount cigarettes, with some shoppers exploring vaping and pouches.

Overall, a shopper’s perceptionof a store’s nicotine pricing can make or break their purchasing decision, and c-stores lose out on customers who deem prices “too high.” NACS research has shown that some customers have shifted to alternative retail outlets like dollar stores due to price perceptions—even though many c-stores already set their prices at the state minimum. This puzzling behavior poses a big challenge for c-stores looking to shift consumers’ view of their pricing.

• Internal business goals 

On top of managing regulatory compliance, manufacturer requirements and customer expectations, c-stores must meet their own internal goals for profitability in the nicotine category. Balancing these objectives with pricing regulations and manufacturers’ programs adds further complexity to the entire process. 

The limitations of traditional pricing methods 

Given these factors, efficient and accurate nicotine pricing has become a nearly impossible task. Many c-stores still rely on outdated processes, like spreadsheets and manual calculations, to make pricing decisions. As a result, it can take two weeks or more to determine nicotine product prices. Some stores can only make changes three times to four times a year, leaving them vulnerable to market changes and noncompliance risks.

To remain competitive, compliant and profitable, c-stores need a more advanced and intelligent approach to pricing tobacco products. It all starts with ditching the spreadsheets and embracing automation. 

Stage 1: Automate 

Automation is the key to simplifying and streamlining nicotine product pricing. Today’s intelligent pricing systems can integrate with a c-store’s point-of-sale system, back-office systems, as well as leading tobacco manufacturers’ systems to support efficient pricing and compliance across the entire tobacco category. 

Powered by a comprehensive rules engine, this type of solution leverages machine learning (ML) to intelligently prioritize rules, resolve any conflicting priorities and deliver a price file that convenience retailers can rapidly and confidently apply. 

By automating nicotine product pricing, c-stores can: 

• reduce the time spent on pricing nicotine products from weeks to hours; 
• ensure proper markups and maintain manufacturer pricing rules;
• adjust prices more frequently in response to market changes; 
• remain compliant with local and federal regulations; and
• maximize rebate potential by ensuring 100 percent compliance with buydown programs.

Stage 2: Optimize 

Combining the power of data, ML and AI can help c-stores identify opportunities to achieve maximum tobacco category performance. Of course, many c-stores already set nicotine products at the lowest possible price, so they don’t have much leeway when it comes to optimization. However, OTPs, such as vaping products, have a different story. With more price-sensitive consumers trying vapes and pouches, c-stores can optimize OTP prices, depending on the product or regulation.

By analyzing sales data, intelligent pricing solutions can forecast demand, calculate price elasticity and identify trends in customer preferences—empowering c-stores to adjust prices dynamically and make smarter promotional decisions.

With an intelligent pricing optimization solution, c-stores can: 

• predict the impact of price changes and promotions on profitability;
• localize OTP pricing based on regional consumer preferences and regulations; and
• capitalize on product-level and market-specific optimization opportunities.

With an advanced pricing strategy based on data, automation and optimization, c-stores can streamline all the complexity of tobacco retailing. Convenience retailers can efficiently manage tobacco pricing while staying compliant, maximizing rebates and maintaining customer loyalty—allowing them to thrive in a highly competitive industry.

Sarah Stockton is vice president of product management for ClearDemand.