Consumers Reverting to Old Tobacco Habits?

NEW YORK -- Sales volumes of cigarettes are trending back to normal declines, with at least one major convenience-store retailer noting a discernable move by consumers from cartons to packs.

Customers at Casey’s General Stores, Ankeny, Iowa, have been gradually moving away from buying cartons to packs in the past nine to 12 months, executives said in their quarterly earnings call last week, a sign that the euphoria of lower gasoline prices has ebbed. While the switch means people are less willing to spend more per visit, the change back to packs helps margins, said Bill Walljasper, senior vice president and CFO of Casey’s.

“[But] you really need to make a significant move to drive the margin,” he said, explaining why the trend has yet to affect their margins.

Fueling that shift toward a lower spend is a parallel move from full value to more generic brands, Walljasper said. “When that happens it obviously is a lower ring and it will affect the comps [or comparable data],” he said.

Overall, dollar sales of cigarettes were solid in the four weeks ending Feb. 25, according to Bonnie Herzog, managing director of beverage, tobacco and convenience-store research for Wells Fargo Securities LLC, New York. In that time period, dollar sales rose 0.7% due in part to a collective increase of 3.3% in pricing, said Herzog, citing “all channel” data from New York-based Nielsen. Volumes in that time period fell 2.5%. Herzog predicted overall cigarette-volume numbers for 2017 will revert back to a more normalized, annual decline of 3.8%.

Here’s how the tobacco category fared in recent weeks …

For the most part, cigarette sales and unit volumes for Altria Group Distribution Co., Richmond, Va., and Reynolds American Inc., Winston-Salem, N.C., follow national trend lines. Altria saw volumes decline by 2.2% in that four-week time period despite an increase of 3.1% in pricing. Marlboro dollar sales rose 0.8% on an increase of 3% in pricing and a 2.1% decline in volume.

Reynolds sales dropped 0.7% on a decrease in volume of 4.8% and an increase of 4.4% in pricing. Camel dollar sales declined 0.8% on a decrease of 4.7% in unit volume but a 4.1% increase in pricing. Newport sales increased 0.2%, driven by a 3.5% increase in pricing but a 3.2% decline in volume.

Calling smokeless dollar sales a “bright spot,” Herzog said that consumers are responding well to brand expansions. Dollar sales grew 4.9% in that four-week period, reflecting the acceptance of recent line extensions.

Reynolds' Grizzly sales outpaced Altria’s Copenhagen, with Grizzly up 10.3% and Copenhagen up 7.5%. Both Reynolds third-quarter launch of Grizzly Dark and Altria's continuing recall recovery have helped boost Reynolds' momentum. (In early February, Altria’s U.S. Smokeless Tobacco Co., Richmond, Va., announced a recall of 43 lines due to the contamination of some cans produced at their Franklin Park, Ill., facility, the company said. As of last week, several retailers were still waiting for replacement product to be delivered.)

Though a smaller part of the overall category, e-cigarettes rose in dollar sales a whopping 29.9%, driven not only by an 8.8% increase in pricing but a significant 19.4% increase in volume. Reynolds' Vuse, Altria’s MarkTen XL and blu from ITG Brands, Greensboro, N.C., were top sellers.