Economic Pressures & Downtrading Continue to Nag the Backbar
NEW YORK — Similar to all categories in the convenience store, consumers' continued concerns over the economy are being reflected on the backbar.
"We are incrementally cautious on the U.S. tobacco/nicotine industry in the near term given increased pressure on the tobacco consumer from persistent inflation, pressure on discretionary incomes and tighter regulations, all of which are driving lower usage of cigarettes and further downtrading," said Bonnie Herzog, managing director at Goldman Sachs.
The observations are based on feedback from Goldman Sach's first quarter "Nicotine Nuggets" survey, which represents roughly 48,000 retail locations across the United States (or roughly 32% of all tobacco outlets).
According to the survey, cigarette volume declines accelerated sequentially at higher rates in the first three months of 2025, reflecting increased pressure on the consumer as cigarette manufacturer pricing actions grow stronger, driving reduced tobacco purchase frequency and downtrading to more affordable noncombustible options.
[Read more: Exploring Current & Future Bright Spots on the Backbar]
Additionally, the outlook is more cautious. Retailers and wholesalers expressed concerns about consumers continuing to shift away from cigarettes or leave the category as they shift to other categories with cheaper price points or quit altogether, which more retailers indicated in the first quarter survey.
Other key "Nicotine Nuggets" findings, according to Herzog, include:
- Downtrading pressure was strong in Q1 as inflationary pressures and weakening consumer sentiment weighed on consumer purchase decisions, driving a significant increase in market share of fourth tier/discount brands.
- Manufacturer pricing power is weakening relative to a year ago according to approximately 59% of survey respondents — although marginally lower from 61% in the Q4 2024 "Nicotine Nuggets" survey — with many highlighting that manufacturers are reaching a tipping point with consumers as brand loyalty is tested.
- Smokeless nicotine volume growth continued in Q1, led by modern oral nicotine brands ZYN and Rogue.
- E-cigarette volumes decelerated reflecting the rising popularity of illicit disposable flavored e-cigarettes, much of which is not reported and a growing concern for the U.S. Food and Drug Administration and the category.
- Promotional activity is picking up but mostly in oral nicotine.
"Our survey respondents have grown significantly more cautious about the health of the adult tobacco/nicotine consumer with 53% indicating a more negative outlook, up sharply from our Q4 survey when only 26% indicated a weaker view," Herzog added.