NEW YORK — Retailers and wholesalers in the convenience channel hold a cautious outlook in the tobacco category as consumers continue to feel pressure from outside sources.
According to Goldman Sachs' first quarter "Nicotine Nuggets" survey, the health of the tobacco consumer appears weaker given broad-based inflationary pressures, lower discretionary income and tightening regulations continue to drive lower usage and downtrading.
The survey gathered feedback from retailer and wholesaler contacts representing approximately 65,00 retailer locations across the United States, or roughly 40 percent of all tobacco outlets.
"Nicotine Nuggets" found that cigarette volume declines accelerated sequentially in the first three months of 2023, reflecting ongoing pressure on the consumer from broader inflation and frequent manufacturer price hikes — driving reduced tobacco purchase frequency, downtrading to affordable noncombustible options and fewer store trips but higher spending per store trip driven by inflation, according to Bonnie Herzog, Goldman Sachs senior financial analyst.
"The outlook is incrementally cautious as retailers and wholesalers expressed increased concerns about consumers shifting away from cigarettes or completely exiting the category given higher prices, accelerated downtrading, regulatory tightening and continued uncertainty around electronic cigarettes," Herzog said.
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Other key takeaways from Nicotine Nuggets survey include:
- Downtrading pressure remained elevated in the quarter as inflationary pressures, including cigarette list price increases, weigh on consumer purchase decisions, driving a significant increase in market share of fourth tier/discount brands.
- Manufacturer pricing power is lower today vs. last year, according to 66 percent of respondents, with many highlighting that price increases are starting to have a significant impact on cigarette volumes and drive accelerated downtrading.
- Smokeless nicotine offerings remain strong, led by modern oral nicotine brands ZYN and on!, supported by increased promotional activity.
- E-cigarette volumes decelerated, primarily reflecting weakness in JUUL, but VUSE Alto remains a bright spot of growth as it continues to capture market share from JUUL.
- The promotional environment remained broadly unchanged for most nicotine categories; however, promotion levels were notably higher for premium cigarettes and nicotine pouches.