The 2016 Forecast for Tobacco

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The 2016 Forecast for Tobacco

By Melissa Kress, Convenience Store News - 01/18/2016

NATIONAL REPORT — Any tobacco retailer knows the category has been faced with some challenges over the past few years, especially with cigarette volumes steadily decreasing and alternative products fighting for space. But 2015 told a different story and 2016 is expected to be a continuation of that tale.

After many cycles of decline, cigarettes rebounded slightly in the past year with 2015 unit volume growth per store estimated at 0.7 percent and total industry unit volume growth estimated at 1.5 percent. That's quite a jump from 2014 declines of 3.1 percent and 1.9 percent respectively.

The upswing is expected to continue this year, albeit at a slightly lower rate, according to the exclusive 2016 Convenience Store News Industry Forecast Study. Specifically, the 2016 forecast places unit volume growth per store at 0.3 percent and total industry unit volume growth at 1.2 percent.

And no surprise here: Cigarette costs are expected to rise again. Manufacturer list prices are forecast to jump from $36.14 per carton in 2014 to $38.14 this year. Taxes are also increasing. Federal, state and local taxes combined per carton are forecast to rise from $20.92 in 2014 to 21.32 in 2016. New York still has the highest state levy at $4.35 per pack, a number that has held steady over the past few years and almost $3 more than the average state tax.

From the retailer point-of-view, c-store operators are pretty evenly split on what they think will happen with cigarettes in 2016. Only 13.9 percent believe sales will stay the same.

Meanwhile, other tobacco products (OTP) continues to be a shining star behind the register. When the final numbers come in, 2015 is expected to have been a banner year for OTP. Estimates put unit volume per store at a 6.9-percent increase, with dollar sales per store ticking up 4.6 percent and total industry dollar sales increasing 5.4 percent.

These coming 12 months call for a similar forecast: a 5.7-percent increase in unit volume per store, 3.9-percent increase in dollar sales per store and 4.8-percent increase in total industry dollar sales.

The one OTP segment that seems to be struggling a bit lately, though, is cigars. Unit volume per store saw a 6.6-percent increase in 2014, yet the segment was only estimated to post a 5-percent increase in 2015. 2016 forecasted growth is even lower at 2.6 percent.

Still, c-store retailers remain bullish on OTP. Roughly 70 percent of the retailers CSNews polled expect their OTP sales to increase in 2016, with only 16.2 percent predicting a decrease.

Retailers do agree on one thing: OTP performance in 2016 hinges on regulation, specifically the Food and Drug Administration's final deeming rule, which will impact electronic cigarettes and cigars as well as other segments of the tobacco category.

For full results of our 14th annual Forecast Study, including dollar and unit projections in other key c-store product categories, look in the January issue of Convenience Store News.