Consumer Pressures Continue to Weigh on Cigarette Volumes

The latest Nicotine Nuggets survey found downtrading to affordable tobacco products picked up in the fourth quarter of 2022.
cigarette sales

NEW YORK — The adult tobacco consumer is feeling squeezed and it is beginning to show on the backbar.

According to Bonnie Herzog, managing director at Goldman Sachs, the health of the tobacco consumer appears weaker as broad-based inflationary pressures, lower discretionary income and tightening regulation continue to drive lower usage and downtrading.

Based on feedback from its retailer and wholesaler contacts in its fourth quarter 2022 Nicotine Nuggets survey, Goldman Sachs remains cautious on the U.S. tobacco and nicotine industry in the near term, she added.

The contacts in the survey represent approximately 104,000 convenience store locations across the United States, or roughly 70 percent of the channel.  

The survey found that cigarette volume declines accelerated in the fourth quarter, reflecting ongoing pressure on the consumer from broader inflation and frequent manufacturer price hikes. Those pressures are driving reduced tobacco purchase frequency, downtrading to affordable non-combustible options, a shift to single packs vs. cartons/multipacks, and fewer store trips and lower spending per store trip on tobacco/nicotine products.

Herzog pointed out that downtrading pressure remained elevated and approximately 55 percent of the survey respondents noted that despite easing gas prices, fourth-tier and discount brands are increasing their market share.

Additionally, 64 percent of respondents said manufacturer pricing power is lower today vs. last year. Many respondents, according to Herzog, highlighted that price increases are starting to have a significant impact on cigarette volumes and drive accelerated downtrading.

Other key Nicotine Nuggets takeaways include:

  • Smokeless nicotine offerings remain strong, led by modern oral nicotine brands ZYN and on!, supported by increased promotional activity.
  • Electronic cigarette volumes decelerated, primarily reflecting weakness in Juul following confusion created by the Food and Drug Administration's marketing denial orders in June, partially offset by strength in Vuse Alto which continues to capture market share from Juul.
  • The promotional environment remained broadly unchanged for most nicotine categories; however, promotion levels were lower for premium cigarettes, while oral nicotine pouch promotions were higher sequentially.

Price Increases

Most recently, British American Tobacco (BAT) took a cigarette list price increase of 15 cents per pack on Newport (menthol), Camel and Pall Mall Box; 25 cents per pack on Newport (non-menthol); and 38 cents per pack on Pall Mall Non-Filter and Pall Mall Vintage Gold.

Separately, BAT also announced several list price increases on oral tobacco, including 9 cents to 13 cents per tin increases on Camel Snus and Grizzly Snus, and three other oral brands, as well as a 10-cents per pouch increase and 40 cents per tin increase on Natural American Spirit RYO.

Winston-Salem-based Reynolds American Inc. is a U.S. subsidiary of BAT. The increases are effective with orders and deliveries on or after Jan. 2, as Convenience Store News previously reported.

Richmond, Va.-based Altria Group Inc. followed suit and implemented a cigarette list price hike of 15 cents per pack, or 2 percent to 3 percent increase, on Marlboro, Basic, Chesterfield, L&M and L&M Simple Tobacco. The manufacturer also increased the list price of Benson & Hedges, Merit, Nat's, Parliament and Virginia Slims by 20 cents per pack, according to Herzog.

Altria's increases went into effect on Jan. 22.