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 2024 "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.