Premium Cigarettes Still Lead The Pack

Cigarette category grows 3.8 percent on a per-store basis

Once all the numbers are crunched, premium cigarettes still come out on top as the convenience channel's largest in-store revenue-producing category, boosted in part by both price and tax increases put in place during 2010.

Average sales per store for premium brands rose to $365,871 in 2010, which represented a 5.3-percent increase from the year before. The sub generic/private label segment came in a distant second, ringing up $25,561 in average sales, followed closely by branded discount at $25,142 per store. Fourth-tier and import brands rounded out the cigarette category, posting $7,931 in average sales per store and $3,128, respectively.

Aside from premium brand cigarettes, only fourth-tier brands saw any increase, at 8.1 percent. However, the sales increase amounted to only $596 per store.

Taken all together, the category remains strong with recorded average sales per store of $427,633 in 2010. That represents a 3.8-percent uptick from the year before.

Premium brands also remained the leader in dollar share in 2010, coming in 1.2 points up from the year before to reach 85.6 percent dollar share. They were followed by sub generic/private label (6 percent), branded discount (5.9 percent), fourth tier (1.8 percent) and imports (0.7 percent).

However strong premium brands appear to be number-wise, the percent increase tagged to the segment could very well be a direct result of price increases (and to a lesser extent than in 2009, increased excise taxes). Right after Thanksgiving, the big three cigarette manufacturers put price increases into effect. Specifically, Lorillard instituted a 60-cents-per-carton increase on Newport, Kent and True. Lorillard's non-menthol brands were left out of the price change because they had just entered the market. RJ Reynolds and Philip Morris USA matched the move the next day, with both companies hiking their price per carton by 80 cents across the board.

That year-end hike marked the second time Lorillard raised prices on Newport in 2010. The first price increase came in February when a carton of Newport cigarettes went up 45 cents, followed by another 45-cent-per-carton increase in May.

Taxes also factored into the equation in 2010. New York State reached new heights when its excise levy jumped from $1.60 per pack to $4.35 per pack on July 1. While the move left New York adult smokers grumbling, neighboring states such as Vermont saw an uptick in cigarette sales. Across the country, Utah also raised its state cigarette tax on July 1, 2010 — more than doubling the levy from 69.5 cents per pack to $1.70 per pack.

The rise in taxes was not contained to the contiguous United States. Hawaii increased its levy by 40 cents tying it with Connecticut for the No. 4 position of highest U.S. cigarette tax rates at $3 per pack. Hawaii came in behind only New York, Rhode Island and Washington.

The trend may continue in 2011 as more states consider boosting their coffers via cigarette taxes. However, some states are saying enough is enough. Bills were introduced in New Hampshire, Rhode Island, New Jersey and Oregon to decrease the amount of taxes smokers pay per pack.

And as much as the 2010 cigarette picture looked liked a carbon copy of 2009, all bets could be off the table for 2011 if a proposed menthol ban goes into effect this year. After a yearlong review, the Food and Drug Administration's Tobacco Products Scientific Advisory Committee issued a report this past March that stated “the removal of menthol cigarettes from the marketplace would benefit public health in the United States.”

The recommendation does not signal the end of menthol cigarettes just yet. Dr. Lawrence R. Deyton, director of the FDA's Center for Tobacco Products, assured the industry the recommendation was just that, a recommendation, and the TPSAC would undergo a thorough review. The first progress report was to be issued approximately 90 days after the review — a date that is soon approaching.

Cigarette manufacturers welcome the comprehensive review and have expressed their willingness and intent to work with the FDA as the lightning rod issue moves forward.

For comments, please contact Melissa Kress, Associate Editor, at [email protected].