But as he titled his presentation at the CSP Annual Tobacco Category Review Meeting, "It Could Be Worse." In fact, citing an exclusive [image-nocss] tobacco survey conducted by CSP Daily News and Modi, which asked c-store retailers how their cigarette trends have been, relative to their expectations of federal excise tax (FET) effects; "90% said in line or better than they expected.... So you guys are telling me it's not as bad as you thought," he said.
One impact since the FET took effect on April 1 has been consumers moving either to the premium end or fourth-tier cigarettes. "So you're getting this phenomenon with the middle, which is happening across a lot of other categories," he said. "It's getting squeezed. It's the really inexpensive stuff that's working, or people just saying, 'You know what, the price gaps are narrowed on a percentage basis, I'm just going to buy a pack of [premium]'."
And despite low first-half volume growth, industry profits actually have grown, based on price elasticity, for Reynolds (8.2%), Altria (3.8%) and Lorillard (21.4%).
Modi said that although he expects underlying cigarette industry volumes to be soft for three more quarters (reaching -9%), the first quarter of 2010 should show a return to a more normalized decline rate of -4%.
He added, however, that for a continued positive outlook, the industry needs to band together. "The tobacco industry has a massive army of people on the ground, but the industry is way too splintered and there's too much in-fighting," he said, adding that between retailers, managers, wholesalers and tobacco companies, the category has a lot of people behind it. "Given the amount of legislative pressure this industry is under, there is more that the industry can do, but it will require alignment."
For more information about the CSP Annual Tobacco Category Review Meeting, look for the October issue of CSP magazine.
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