Uncertainties Reside in All Segments of Tobacco

WILLIAMSBURG, Va. — With the tobacco category making up a large portion of the convenience channel's business, a lot of focus has been placed on what the future of tobacco holds.

At the Tobacco Merchants Association's (TMA) Centennial Celebration & Conference, which kicked off May 18, industry players broke down the category's possibilities by segment. Although cigarette volume has been on a slow and steady decline, there are bright spots in the tobacco category.

"It's been an interesting few years to be in the cigar industry," said Joe Augustus, senior vice president of external affairs at Swisher International.

Swisher is "cautiously optimistic" moving forward, he said. For example, there has been some stability in the marketplace for cigar products, and consumer preference changes have forced cigar manufacturers to adapt to the evolving landscape. In addition, state economies have begun to recover so legislatures are relying less on tobacco excise tax increases as a revenue booster.

That is not to say the cigar industry is worry-free. The Food and Drug Administration's (FDA) deeming regulation looms over the industry, according to Augustus. Of particular concern for cigars is the proposed fee structure and 2007 predicate date.

"The process is a guessing game for all of us because you don't know how or when the agency will act," he said.

The future of pipe tobacco and roll-your-own (RYO) products also hinges on the FDA. Leonard Wortzel, vice president of marketing and product development at Scandinavian Tobacco Group, said there could be "some significant upside" for RYO because FDA regulation will equalize tobacco and create a level playing field. 

On the other hand, FDA rules — especially the predicate date — could prove tricky for pipe tobacco. Ninety percent of pipe products on the market today were launched after 2009, putting them past the grandfather date.

As for smokeless tobacco, future potential may lie in modified risk. In August, Swedish Match North America became the first company to submit to the FDA a Modified Risk Tobacco Product application for its General snus line. The agency's Tobacco Products Scientific Advisory Committee (TPSAC) reviewed the application in April and while the FDA has not issued a final decision, Jim Solyst, director of federal government affairs at Swedish Match, said the application alone has increased awareness for the snus segment.

Time will tell what impact this awareness — which is acting as an education tool about snus to many U.S. consumers — will have on the product. Swedish Match believes the attention "will certainly impact our sales in the U.S.," Solyst told TMA Conference attendees. "But perhaps the longer-term message will be on harm reduction."

FDA regulation is also the elephant in the room with e-vapor products. John Wiesehan Jr., CEO of Mistic-Ballantyne Brands, said he's the first to admit what the agency decides is anyone's guess. Two things are evident, though. In the past 24 months, vapor technology has changed rapidly and distribution has changed along with it.

"We've seen the e-vapor product go from a disposable cigalike to now that being one of the smallest product segments at retail," Wiesehan explained. "Since August, the industry took a left turn all the way to personal vaporizers." E-vapor products will continue in that direction, he believes, as consumers look to personalize flavors and nicotine levels.

As for distribution, vape shops are drawing more business and making a name for themselves, he pointed out. "Three years ago, we didn't really pay attention to them. Now, in our guess, there are between 5,000 and 7,000 vape stores that are strictly vapor products. They do a ton of business, especially in liquid."

Technology will continue to evolve, Wiesehan predicts. "We haven't seen the best of the best yet. We are still working on it," he said. 

TMA's 100th Annual Meeting & Conference runs through May 20 at Kingsmill Resort & Spa in Williamsburg. U.S. Senate Majority Leader Mitch McConnell (R-Ky.) kicked off the conference on May 18.