Competitive Environment Around Tobacco Improves | ConvenienceStoreNews
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    Competitive Environment Around Tobacco Improves

    NEW YORK -- Despite channel wars heating up in the tobacco category, convenience store retailers are reporting that cigarette volume declines held steady in the second quarter.

    According to Wells Fargo Securities LLC's latest Tobacco Talk survey, 53 percent of respondents indicated a slightly more competitive environment in the second quarter, down from 63 percent in the first quarter of 2014.

    Wells Fargo Securities conducted the survey with its tobacco retailer and wholesaler contacts representing more than 30,000 convenience stores across the United States.

    In addition, 60 percent of respondents indicated flat/reduced downtrading pressure. Nearly 50 percent of the respondents believe cigarette manufacturers have more pricing power today vs. a year ago -- up from 30 percent last quarter, which bodes well for continued industry pricing power, according to Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities.

    She added that second-quarter industry volume -- underlying and shipment -- was down 3.5 percent.

    Looking at specific brands, respondents said upcoming packaging changes and more aggressive price promotions and buydowns for Lorillard Inc.'s Newport Gold Non Menthol could drive increased trial and awareness.

    In addition, many retailers believe Reynolds American Inc.'s (RAI) decision to keep its Natural American Spirit business separate has played a role in the brand's success. "Several respondents echoed our view that keeping Natural American Spirit separate enables RAI to more easily unlock value, possibly as a spinoff/sale where we think Natural American Spirit could fetch up to $6 billion," Herzog said.

    Moving to vapor products, Herzog predicts the segment will see 23-percent growth this year. Vapors/tanks/mods (VTMs) are expected to comprise 50 percent of the vapor mix in c-stores vs. 30 percent today. The remainder will be electronic cigarettes, she added.

    "Though most stores have not gotten VUSE or MarkTen yet, these brands are expected to comprise approximately 20 percent of c-stores' vapor mix in six months -- up from approximately 7 percent today. We believe VUSE and MarkTen could help reaccelerate e-cigarette category growth," Herzog said.

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