Over the last half-century, Americans have become accustomed to the idea of being able to buy cigarettes

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Over the last half-century, Americans have become accustomed to the idea of being able to buy cigarettes at a variety of retail outlets ranging from vending machines in bars to restaurants, airports, supermarkets, convenience stores, gas stations, and discount stores. However, federal legislation may soon change the way tobacco is sold in the United States.

Walmart was one of the first major retailers to address the tobacco issue. In 1990, Sam Walton admitted in a letter to a consultant that he was “still in a quandry [sic] on our direction for this very important issue.” The next year, the retailer announced the banning of smoking on all Walmart property, including the stores, as well as the removal of any cigarette vending machines. At the time, Walton was not aware of any vending machines, but as a precaution, he issued the “ban” order. Later, when Walmart expanded into Canada by purchasing 127 Woolco stores, Walton met with the pharmacists from the newly acquired stores. At their request, Walmart dropped the sale of tobacco in its Canadian stores. Members of the chain’s executive committee decided to continue with the sale of cigarettes after Mr. Walton’s death.

At the same time, various state and local agencies began to enforce age restrictions on the sale of cigarettes and other products such as firearms, spray paint (which was used for painting gang slogans), and even glue. Walmart even introduced a program into its scanners that froze the cash register when the stock-keeping unit (SKU) for one of these products was recorded until the clerk ascertained the age of the purchaser. As a result of the increased enforcement, some retailers, especially supermarkets and drug stores, began to drop tobacco. How would this affect the sale of these legal products, which account for more than $60 billion in sales per year?

If such a change were to occur, what retailers would benefit? Some experts think that if cigarettes are dropped by the mass sellers, one of the best prepared retailers is John Roscoe’s family-owned Cigarettes Cheaper chain. This is a 400-store operation already doing $500 million in sales each year.

Cigarettes Cheaper, which sells only cigarettes in 1,200-square-foot outlets located primarily in strip malls, is second only to Walmart in total cigarette sales; it is a spin-off of Roscoe’s Customer Company convenience store chain. The name Customer Company was a reflection of Roscoe’s appreciation for his consumers. As a result, he offered the lowest possible prices on everything in the store. His tobacco stores follow the same philosophy by charging 20 percent less than nearby competitors for the average pack or carton of cigarettes.

The chain is able to charge such prices by taking advantage of every manufacturer discount available and realizing that its customers are not apt to buy just a pack or even a carton but will more likely purchase 10-12 cartons at a time. But low prices are not the only attraction. Roscoe’s store (and similar operations) has a broader range of brands and packaging than other retailers, a regular diet of promotions, and a welcoming attitude toward smokers that is not always the case elsewhere.

These facts about Roscoe’s operation are most impressive:

No member of John Roscoe’s family smokes, nor do any of them encourage anyone else to smoke.

The stores put in a great deal of effort into controlling underage customers. All stores have a large sign stating “No Minors Allowed Inside,” and a manager could lose his or her job for violating this rule.

Many retail experts think this might be the way all cigarettes are sold in the future. What do you think?

Roscoe says his stores are just there to serve the market. Do you agree with his right to do this? Do you agree with his decision to do this?

This case is based on information supplied by William Davidson and the late Robert Kahn, the two individuals to whom the third edition of this textbook was dedicated.