Q2 Survey: Cigarette Volumes Returning to Historical Trends

NEW YORK — The lift seen in cigarette volumes — driven by COVID-19 and the work-from-home trend — is starting to ease.

Bonnie Herzog, managing director at Goldman Sachs, said the company remains "cautious on the U.S. tobacco/nicotine industry near term."

The sentiment comes as Goldman Sachs' Nicotine Nuggets second quarter survey found that consumption of tobacco and nicotine products remained strong overall but cigarette volumes have started to return to historical decline rates on tough comps and a return to work environment.

"The tobacco consumer remains broadly resilient but, as expected, usage occasions are down as work from home eases and pre-pandemic behaviors return," she said.

The survey represents approximately 42,000 retail locations across the United States, or roughly 30 percent of the total channel.

According to Herzog, 65 percent of the survey respondents said downtrading pressure intensified in the second quarter. This reflects "widening price gaps and increased pressure on wallets as government stimulus dries up and given more spending options with the reopening," she added.

In addition, retailers and wholesalers expressed increased concerns about greater regulation, including the Food and Drug Administration's (FDA) proposed menthol ban and nicotine cap, and the possibility of increased state and federal excise taxes to close COVID-related budget gaps, Herzog said.

Looking at other segments, retailers and wholesalers expect the electronic cigarette and vapor segment to in 2021 on easy comps, momentum in disposables and increased promo activity. However, the FDA's premarket tobacco application approval process remains biggest wild card, she added.

According to the survey, they expect the segment to grow 12.1 percent in 2021 vs. 11.9 percent last year and 10.2 percent in 2022.

Retailers and wholesalers also pointed to oral nicotine as the driver behind volume growth in the smokeless segment. The growth is supported by stepped up promotional activity, the survey found.