OAKBROOK TERRACE, Ill. -- Last year might go down in record books as the year of the cigarette. After steady unit sale declines of 3% to 4%, Nielsen shows the segment slipped a minuscule 0.7% in 2015.
But what about a category in which “up” has long been the norm? That same Nielsen data shows smokeless sales were up 3.2% in 2015. However, what would be a great number for cigarettes actually marks a deceleration for moist smokeless tobacco (MST).
“That’s a little down,” said Don Burke, senior vice president for Pittsburgh-based Management Science Associates Inc. (MSA). “The growth rate in the smokeless category has generally ranged from 4% to 5% in past years.”
Just as there’s an obvious link between the improving economy and cigarette sales, analysts such as Nik Modi of RBC Capital Markets, New York, say booming cigarette sales and slumping MST sales are unrelated.
“What we’ve been seeing is ‘shifting,’ ” Modi said during CSP’s November 2015 Tobacco Update webinar. “In 2009, when gas prices spiked, you saw a lot of consumers go more to smokeless tobacco or roll-your-own. I think this kind of reversed itself in 2015: As gas prices moderated, you started to see smokeless slow.”
But not everyone accepts Modi’s correlation, nor do they necessarily accept that smokeless sales even decelerated all that much in 2015.
Manufacturers such as Darien, Conn.- based Swisher International Inc., don’t believe cigarette sales have been a “significant factor” for MST volumes.
“Smoking restrictions still create consumer demand for tobacco alternatives,” said Ron Carroll, Swisher’s vice president of smokeless marketing. “That has a positive effect to the overall OTP category.”
Burke added that some dual users might have migrated more heavily to cigarettes now that the economy is improving, but “we have not drawn the conclusion that moist has been losing volume to cigarettes.”
In fact, if any tobacco category might be having an effect on smokeless, it’s more likely a segment such as vaping, said Burke.
“Now, if consumers are unable to smoke cigarettes, they may still be able to use a vapor product, although vapor usage is also experiencing increased restrictions,” he said.
And it is not just vapor, but also other smokeless tobacco products such as snus, as well as newer alternatives that include Reynolds American Inc.’s Zonnic nicotine gum.
“It’s a dog-eat-dog world,” said Joe Teller, category management director for Swedish Match, Richmond, Va. “There are so many different ways to get nicotine satisfaction for adult consumers.”
Still, vapor represents a very small piece of the overall tobacco pie: Nielsen shows $667.4 million in convenience-store vapor sales in 2015, a fraction of the $5.4 billion in c-store smokeless sales. So what caused MST’s bump last year?
“Historical MST growth rates are just getting harder to attain on top of all those years of really good growth,” Teller said. “The bigger a category becomes over time, the harder it is to keep generating the high growth rates.”
The phenomenon has already happened in the category. While MSA data shows a 6% to 11% growth rate for 2009-2011, growth has been closer to 5% to 7% since 2012. Data actually suggests this most recent deceleration didn’t begin in 2015, with a 3.2% increase in unit sales, but in 2014, when unit sales increased 3.6% year over year.
“This trend is comparable to 2014’s growth,” said Carroll of Swisher. “[We] appear to be continuing on the same trajectory.”
If smokeless is indeed going through a natural deceleration, it should normalize in 2016, as the category is no longer attempting to match the 5% growth rates of previous years.
“I expect 4%-plus growth because the 2015 comparable numbers will be somewhat easy to overlap,” Teller said of this year.
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