Cigarette Volume Pressure Remains Elevated in Q2 2019
NEW YORK — Declines is cigarette volume has become the norm over the past several years and this year is no different.
According to Wells Fargo Securities LLC's second-quarter Tobacco Talk survey, cigarette industry volume remained under pressure in the second quarter — led by Philip Morris USA's (PM USA) Marlboro following the latest price increase in mid-June. PM USA is an operating company of Richmond, Va.-based Altria Group Inc.
In addition, retailers expect cigarette volume pressure to remain elevated through the remainder of the year driven by rising dual-use and conversions to vapor products, higher cigarette prices and more alternative products on the backbar, according to Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.
Tobacco Talk surveys retailers representing approximately 60,000 convenience stores, or roughly 40 percent of the channel.
The outlook for cigarette volumes comes as the adult tobacco consumer remains stable, even though poor weather in May and June affected store traffic, Herzog added.
The quarterly survey also found:
- Price gaps continued to widen as fourth tier cigarette brands chose not to follow on price increases;
- Cigarette manufacturers' pricing power remains strong despite more frequent list price increases; and
- Retailer inventories are back to normal levels following first-quarter depletions — suggesting stronger second-quarter shipment volume.
According to Herzog, retailers remain bullish about IQOS and believe it has a competitive advantage with approval from the Food and Drug Administration.
Retailers are also broadly optimistic about the quickly developing oral nicotine category, led by Swedish Match's ZYN, Altria's investment in on!, and R.J. Reynolds Vapor Co.'s VELO. R.J. Reynolds Vapor is an operating company of Winston-Salem, N.C.-based Reynolds American Inc., a member of the British American Tobacco Group.