Convenience Store Retailers Report Continued Downtrading on the Backbar
NEW YORK — Ongoing economic pressures continue to weigh on consumers, affecting all areas of the convenience store and the backbar is no exception.
According to the Goldman Sachs third quarter "Nicotine Survey," the tobacco consumer is downtrading to cheaper alternatives such as fourth tier/deep discount cigarettes and modern oral tobacco products or moving to the illicit/gray market for disposable vapor products.
The survey gathers feedback from retailer and wholesaler contacts representing approximately 40,000 retail locations across the United States, or about 27% of all tobacco outlets.
[Read more: Value-Seeking Tobacco Consumers Impact Cigarette Sales]
However, the survey points to a positive risk-reward for The Altria Group Inc. According to Bonnie Herzog, managing director at Goldman Sachs, the survey indicated:
- Marlboro broadly maintained share with solid contributions from Marlboro Special Select;
- on! is benefiting from promotional activity and ZYN out-of-stocks; and
- NJOY is performing well.
"Given these tailwinds, and our expectation that Altria's net price realization in the third quarter was strong (we estimate +10.2%, up from 9.5% prior), we believe this should be more than enough to offset accelerated cigarette volume declines," Herzog said, adjusting the estimate declines at -8.7%, down from -7.9%.
Other takeaways from the latest "Nicotine Nuggets" survey include:
- Cigarette industry volumes remain pressured with declines mostly steady in Q3 and reflecting a slight improvement in expectations to -5.8% for Q3 (vs. -6.2% in Q2).
- Manufacturer pricing power appears weaker relative to a year ago, according to a majority of survey respondents (61%), which is somewhat worse than the first quarter survey at 54%.
- Downtrading trends continued in Q3 as wide price gaps continue to spur downtrading to cheaper alternatives including fourth tier/deep discount cigarette brands, nicotine pouches and vapor.
- Promotional activity strengthened across e-cigarettes and oral nicotine pouches as manufacturers invest to drive volume and market share.
- Illicit market activity in e-cigarettes continues to be a big concern and is getting worse as the U.S. Food and Drug Administration measures enforcement struggles to contain the problem.