Shift in Nicotine Use Is Putting Pressure on Cigarette Segment

NEW YORK — Shifts in consumers' tobacco use is causing a stir on the backbar, according to a recent survey by Wells Fargo Securities LLC.

The firm's first quarter Tobacco Talk survey found that the adult tobacco consumer remains stable driven by effective loyalty programs and promotions, low unemployment and higher disposable income.

In addition, cigarette volume declines decelerated in the first quarter, according to the survey of retailers representing roughly 60,000 convenience stores.

However, retailers' outlook for cigarette volume in 2019 "has decelerated significantly" as dual usage and smoker conversion to e-vapor products like Juul has accelerated, explained Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

"It's increasingly clear to us that the tobacco industry is being disrupted as smoker conversion to e-vapor accelerates, negatively impacting cigarette volume as a result," she said.

Looking specifically at Juul, she noted that the San Francisco-based vapor company's growth "remains robust" despite efforts at the Food and Drug Administration to restrict flavors. According to Herzog, Juul users have switched to mint or menthol flavors.

Tobacco Talk also found that Juul has introduced new users into the category — accounting for more than 20 percent of its share — and is sourcing most of its share from other electronic cigarette and vapor products (greater than 50 percent), and Marlboro cigarette competitors at greater than 15 percent vs. Marlboro at less than 10 percent, Herzog said.

Marlboro is the leading cigarette brand of Phillip Morris USA, a wholly owned subsidiary of Richmond, Va.-based Altria Group Inc. In December, Altria reached an agreement to take a $12.8-billion minority stake in Juul, as Convenience Store News previously reported.