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Increased Consumer Pressures Reflect in Backbar Sales

Smokeless nicotine volume growth accelerated while e-cigarette volumes decelerated in the third quarter.
Melissa Kress
The tobacco backbar in a convenience store

NEW YORK — The adult tobacco consumer continues to face challenges, which is impacting backbar sales. 

According to the Goldman Sachs third quarter "Nicotine Nuggets" survey, increased pressure from persistent inflation, pressure on discretionary incomes and tighter regulations are driving lower usage of cigarettes and further downtrading.

The survey gathers feedback from retailer and wholesaler contacts representing roughly 60,000 retail locations across the United States, or approximately 40 percent of all tobacco outlets. 

Cigarette volume declines accelerate at higher rates than in the third quarter, reflecting increased pressure on the consumer as cigarette manufacturer pricing actions grow stronger and more frequent, said Bonnie Herzog, senior financial analyst at Goldman Sachs. 

Most recently, The Altria Group Inc. increased the list price by 17 cents a pack on Marlboro, Basic, L&M and L&M Simple Tobacco, and increased the list price by 22 cents a pack on Benson & Hedges, Merit, Nat's, Parliament and Virginia Slims. The price increase went into effect on Oct. 15.

Additionally, British American Tobacco increased the list price of Newport (menthol and nonmenthol) by 15 cents to 25 cents per pack, Camel (menthol and nonmenthol) by 15 cents to 40 cents per pack, and Pall Mall Box by 15 cents per pack. The change went into effect in early October. 

According to Herzog, the price changes have led to reduced tobacco purchase frequency, downtrading to more affordable noncombustible options, fewer store trips and smaller basket sizes. 

Other key takeaways from the latest "Nicotine Nuggets" survey include:

  • The outlook is more cautious as retailers and wholesalers expressed concerns about consumers continuing to shift away from cigarettes or leave the category as higher costs/regulations and more competition in smoke-free options drive consumers to trade down or exit the category. 
  • Downtrading pressure was strong in the third quarter as inflationary pressures and a widening cigarette price gap (a record high at 45 percent) 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 55 percent of survey respondents, though down from 58 percent in the second quarter survey, with many highlighting that price increases are having a much stronger impact on cigarette volumes.
  • Smokeless nicotine volume growth accelerated in the third quarter, led by modern oral nicotine brands ZYN and on! despite a pullback in aggressive promotional spending, primarily by on!.
  • E-cigarette volumes decelerated reflecting the rising popularity of illicit disposable e-cigarettes, much of which is nonreported and a growing concern for the U.S. Food and Drug Administration (FDA) and category.
  • Uncertainty around the FDA’s approach to e-vapor premarket tobacco product applications and menthol remains a concern to the extent that it impedes innovation and the creation of a robust market of authorized e-vapor.
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