4 Insights From Top Tobacco Minds

By 
Angel Abcede, Senior Editor/Tobacco, CSP

Melissa Vonder Haar, Freelance Writer

Cigarettes on shelf

CHICAGO -- Despite many regulatory and marketplace challenges facing tobacco products, attendees at the annual CSP Total Nicotine Forum were surprisingly upbeat about the category.

In a preconference survey, retailers said they were overwhelmingly positive about the category, with 80% saying they were optimistic about growth in 2018. About 70 retailers and suppliers attended the conference, which was held in Chicago Aug. 1-3, 2017.

Speakers covered multiple issues regarding the state of tobacco, including the U.S. Food and Drug Administration’s new focus on low-nicotine products and delaying of new-product application deadlines. Most speakers and retailers approved of the delays and were hopeful that the announced process of scientific review and public comment would have pro-business outcomes.

Here are some insights from the conference …

1. Local danger

No Smoking sign

While federal regulation is a constant concern, Thomas Briant, executive director of Minneapolis-based NATO, said bigger threats lie closer to home. “Local ordinances are probably the greatest threat to retailers across the country,” he said.

NATO has been monitoring more than 700 local tobacco ordinances proposed so far in 2017, most of which are happening in California, Massachusetts, Minnesota and New York. Which isn’t to say retailers outside those areas can breathe easy.

“These trends start on the coasts, then move inward,” Briant said. “The end goal of advocacy groups is to not restrict the sale of tobacco products, but to prohibit the sale entirely.”

2. The bright side of flat

OTP

Total tobacco and nicotine sales were down just 0.3% across all retail channels during the 52 weeks ending July 1, 2017.

“The category isn’t declining,” according to Don Burke, senior vice president, Management Science Associates, Pittsburgh. “It’s pretty much flat, but with pretty major changes to the different segments.”

Cigarettes are down 3.3% (on par with expected declines) while other tobacco products (OTP) are up 7.8%. Bright spots in OTP include large cigars (i.e. cigarillos), moist smokeless tobacco and vaporizer sales, which were up 281% across all channels and 400% in convenience thanks to new products from the Vuse, Juul and Logic brands.

3. The menthol quandary

Menthol cigarettes

With cities like Minneapolis and San Francisco passing restrictions or sales bans on menthol-flavored tobacco products, the question for retailers is: How important is menthol? Burke’s data showed they account for 35% of cigarettes sold in the United States, averaging $25 billion annual sales and bringing in $4 billion of federal and $6 billion of state excise taxes per year.

NATO is tracking five other cities in California with pending flavor bans that include menthol, while lawmakers in St. Paul, Minn., are also talking about following the example of their sister city, Minneapolis.

4. Impact of new taxes

Cigarette tax

In assessing the impact of new excise taxes on tobacco sales, Burke showed results from studies done in California and Pennsylvania where increases of $2 per pack and $1 per pack, respectively, went into effect.

Essentially, sales of premium cigarettes fell, but sales rose in surrounding states. At the same time, sales of discount cigarettes increased. However, Burke said sales of deep-discount cigarettes did not typically rise.