As on-demand delivery apps have skyrocketed in popularity in recent years, consumers have become accustomed to incredible convenience. With just a few taps on your phone, you can get hot meals, groceries, prescriptions, and countless other items brought right to your door in an hour or less. One product category that‘s remained largely absent from major delivery platforms, however, is cigarettes and other tobacco products.
Food delivery giant Grubhub has made some forays into the world of regulated goods, rolling out alcohol delivery in select markets starting in 2021, for example. But so far, Grubhub has not brought cigarettes into its product offerings. As a long-time retail industry analyst and consultant, I‘ve been following this issue closely to see if and how tobacco might follow the path of alcohol in the delivery space. Let‘s take a closer look at the logistical, financial and ethical considerations at play.
The Massive U.S. Cigarette Market
There‘s certainly no lack of consumer demand for cigarettes. Even with smoking rates declining in recent decades as health concerns have grown, tobacco remains a huge business. According to data from the Federal Trade Commission, American smokers consume over 200 billion cigarettes per year, generating over $50 billion in annual sales.
Some key cigarette industry statistics:
- 12.5% of U.S. adults (30.8 million people) smoke cigarettes as of 2020
- The average smoker consumes about 1-2 packs per day
- Cigarette sales declined by 6.5% in 2020 vs. 2019
- The three most popular cigarette brands are Marlboro, Newport and Camel
Given the massive size of the cigarette market, even capturing a small slice of it with on-demand delivery could translate into a meaningful new business line for Grubhub. Of course, the gradual long-term decline in smoking rates is a risk factor to consider. But cigarettes are powerfully addictive, and the tens of millions of remaining smokers are likely to be a sticky customer base for the foreseeable future.
Regulatory Challenges of Delivering Cigarettes
The biggest obstacle Grubhub would face in launching a cigarette delivery service is navigating the complex patchwork of laws and regulations around the sale of tobacco products. While alcohol delivery comes with its own set of legal hurdles, the rules for cigarettes are even more complicated and vary widely by jurisdiction.
At the federal level, the Food and Drug Administration oversees tobacco products and imposes some baseline requirements like health warning labels and a national minimum purchase age of 21. But states and localities have broad authority to layer additional restrictions on top of those guidelines. Here are some examples of the regulations on the books in different parts of the country:
- Licensing: Retailers generally must obtain a special license from the state and/or local government to sell cigarettes. There may be caps on the number of available licenses.
- Taxes: Cigarette taxes vary significantly between states, ranging from a low of 17 cents per pack in Missouri to $4.50 per pack in Washington D.C. as of 2022. Some cities tack on additional local taxes.
- Pricing: 25 states have minimum price laws that prohibit retailers from selling below a certain level. Some also ban discounts and coupons.
- Flavors: Several states have banned the sale of flavored cigarettes and other tobacco products.
- Displays: Some places restrict how cigarettes can be displayed and marketed in stores, like keeping them behind the counter vs. self-serve.
For a delivery service like Grubhub, adhering to this complex web of rules would be a massive undertaking. The company would likely need to obtain tobacco retail licenses in every state, county or city where it wished to deliver cigarettes. It would need to implement systems to ensure the proper taxes are collected based on the delivery destination.
And most importantly, Grubhub would need to put stringent age verification processes in place to prevent underage sales, as the penalties can be severe. The FDA can impose fines of up to $22,000 per violation for selling cigarettes to anyone under 21. Many states allow for criminal penalties as well, including jail time for repeat offenses. Delivery drivers could be held personally liable if they fail to check IDs properly.
Contrast this with the alcohol delivery system Grubhub has implemented so far. The licensing and tax collection is more manageable since the regulations are generally consistent state-wide. And while age verification is critical for alcohol too, there‘s more flexibility since the legal drinking age has been 21 across the board for decades. Not all smokers are aware of or used to the new Tobacco 21 law that went into effect in 2019.
The upshot is that Grubhub would be taking on considerable legal risk by delivering cigarettes. It‘s not impossible with the right procedures and safeguards in place, as competitor DoorDash has shown. But the regulatory hurdles help explain why Grubhub hasn‘t rushed to add cigarettes as its next major product category for delivery.
Health Concerns and Liability Risks
Even setting aside the legal and logistical challenges, there‘s an argument to be made that Grubhub has an ethical obligation not to deliver tobacco products given the well-established health risks of smoking. Cigarettes are the leading cause of preventable death in the U.S., with over 480,000 people dying from smoking-related illnesses each year.
In addition to the devastating human toll, the economic costs are staggering. Smoking-related healthcare expenses and productivity losses total over $300 billion annually in the U.S. alone. Even among smokers who don‘t suffer from conditions like lung cancer or emphysema, smoking can cause a host of other health problems that strain the medical system, from asthma to weakened immune function.
As awareness of these health impacts has grown in recent decades, we‘ve seen a profound cultural and policy shift around smoking. Cigarette ads have been banned from TV and radio since 1971. Restrictions on smoking in bars, restaurants, workplaces and other indoor public spaces are now the norm rather than the exception.
Cigarette manufacturers have been held liable for billions in damages for practices like marketing to teens and downplaying the risks of their products. The largest U.S. tobacco companies are now required to run stark advertising campaigns highlighting the dangers of smoking after losing a major lawsuit.
In this context, Grubhub may be hesitant to associate its brand with cigarettes, even indirectly through delivery. As a partner to restaurants and an increasingly essential service for many users, Grubhub likely wants to position itself as part of a healthy lifestyle rather than enabling a damaging addiction. Concerns about liability seem valid as well. If a Grubhub driver delivered cigarettes to someone underage who got sick, or a customer sued claiming the convenient access to cigarettes undermined their quit attempts, the potential damages could be substantial.
The Question of Profitability
Finally, even if Grubhub could find a way to manage the regulatory risks and felt comfortable with the optics of delivering cigarettes, it‘s not clear the service would be lucrative enough to justify the hassles involved. The logistics would be much more difficult and expensive compared to delivering a burger and fries.
As mentioned, Grubhub would need to secure special licenses, likely down to the local level in many cases. The company would then have to partner with licensed tobacco retailers and create a whole separate supply chain and fulfillment process for cigarettes. Drivers would require extra training on checking IDs and handling the sensitive products. More customer support resources to deal with issues like incorrect tax charges or confiscated deliveries. All for a product category with relatively low price points.
The average pack of cigarettes costs around $6.28 nationally, with prices ranging from about $5-8 on the low end in tobacco-growing states to over $10 in places like New York with hefty taxes. In most markets, that‘s significantly lower than the average order total for food delivery, which hovers around $30-40. Grubhub would have to rely on customers consistently adding cigarettes to their meal orders to make the economics work.
Think about DoorDash‘s experience so far. The rival service has been delivering cigarettes in some areas since 2019, but it remains a niche offering and hasn‘t seemed to move the needle much on overall revenue. On DoorDash, tobacco is usually a separate category from food. Customers might order a pack of Marlboros on its own without adding any other items, making the delivery fee and driver tip a big percentage of the total cost.
In theory, Grubhub could charge a big markup on cigarettes to improve margins. But that seems unlikely to drive adoption. Smokers are already a price-sensitive bunch, with downtrading to cheaper brands when their favorite smokes get too expensive. Paying a premium for delivery convenience might be a bridge too far. The whole value proposition of ordering cigarettes is predicated on beating the brick-and-mortar prices at the corner store. Wawa isn‘t quaking in its boots about Grubhub stealing its loyal Marlboro customers.
The Bottom Line on Grubhub and Cigarette Delivery
All things considered, it‘s not terribly surprising that Grubhub hasn‘t jumped into the cigarette delivery game as it has with alcohol. The regulatory challenges alone are daunting, requiring an intricate state-by-state approach. Stringent ID checks to keep tobacco away from underage users are a must. Actually executing those safeguards in an on-demand delivery environment is easier said than done.
There are thorny ethical questions for Grubhub to wrestle with as well. Does facilitating 24/7 access to cigarettes make the company complicit in the massive health toll of smoking? Even if it‘s legal, does it tarnish the brand image they want to cultivate? Fairly or not, cigarettes are arguably even more stigmatized these days than alcohol.
Finally, the unit economics of cigarette delivery are inherently challenging. With such low price points, Grubhub would be hard-pressed to make it profitable as a standalone service. Bundling smokes in with food orders might work, but it‘s a gamble whether customers will go for it at scale. DoorDash‘s experience so far suggests cigarette delivery is destined to remain a relative niche.
Zooming out, the difficulties Grubhub would face in delivering cigarettes reflects the broader direction of tobacco regulation in the U.S. With efforts to ban menthol cigarettes, restrict nicotine content, and shift smokers to "reduced risk" alternatives, the walls are closing in on traditional combustible cigarettes from every angle. Convenient delivery to your door could be a brief respite for smokers facing a disappearing retail landscape.
Ultimately, even mighty Grubhub can only do so much to disrupt a market as complex and fraught as cigarettes. For the small but stubborn group of smokers still puffing away, keeping a well-stocked glovebox and planning ahead seem destined to remain facts of life. The quick dopamine hit of an Uber Eats arrival with a fresh pack of Parliaments isn‘t coming anytime soon. Like so many vices, cigarettes resist the tidiness of the on-demand delivery model.
