C-store Retailers Report 'Lots of Confusion' in Tobacco Category

NEW YORK — As a leading traffic driver in the convenience channel, there are several things about the tobacco category that can keep retailers up at night. The consumer is not one of them. Regulations are a different story.

According to Wells Fargo Securities LLC's recent Tobacco Talk survey, the adult tobacco consumer remains stable but there is a lot of uncertainty surrounding actions by the Food and Drug Administration (FDA), and health and electronic cigarette concerns.

The third quarter survey polls retailers representing roughly 50,000 convenience stores.

"In states with e-cigarette flavor bans in place, consistent themes include 'confusion,' retailers 'thinning' e-cigarette inventories, and consumer pantry-loading," explained Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

As a result, she added, retailers expect cigarette volume pressure to ease next year as consumers who use vapor products shift back to cigarettes under an FDA e-cigarette flavor ban.

In September, Health and Human Services Secretary Alex Azar announced the FDA would make removing unauthorized non-tobacco flavored e-cigarettes from the market a priority, as Convenience Store News previously reported.

With FDA action on the table, retailers surveyed said any e-cigarettes action by the agency would most benefit Philip Morris USA's Marlboro brand, Reynolds American Inc.'s Newport brand, fourth-tier cigarettes and IQOS.

IQOS is a Philip Morris International heat-not-burn product that Altria Group Inc. is commercializing in the United States.

Juul Labs Inc.'s growth is expected to "substantially moderate in 2020," Herzog added, and IQOS "is widely expected to benefit as the only FDA-authorized reduced risk product for mint/menthol flavors."