NEW YORK -- Typically, combustible cigarettes see a “New Year’s effect” decline in January, due to an uptick in New Year’s resolutions to quit smoking. The Nielsen data would suggest that 2015 will not be a typical year: cigarette dollar sales didn’t just hold up, they actually grew 3.8% in the four weeks ending Jan. 17, 2015 (compared to a 1.5% decrease last January).
Though sales weren’t as strong as the previous four weeks (dollar sales rose by 4.4% in December), combustible pricing was up 3% and unit sales increased by 0.7%.
“We believe c-store unit sales have been aided by CVS’s no longer selling tobacco,” Wells Fargo tobacco analyst Bonnie Herzog wrote in a research note. “Further, as mentioned in our ‘Tobacco Talk’ survey notes, lower gas prices are having a favorable effect on the category.”
“Tobacco Talk” respondents representing roughly 25,000 convenience stores acknowledged a “small positive impact” from CVS no longer selling tobacco products, with 37% seeing a somewhat positive impact, 59% seeing no impact, 2% seeing a very positive impact and 2% describing a negative impact.
“CVS volume was minimal so the dispersal in the marketplace was not as noticeable as other larger effects such as unemployment rate, minimum wage increases and weather,” said one retailer.
“We only had a few stores directly impacted by a CVS,” wrote another. “In one store we are seeing significant increases and in the other, only slight increases.”
There was less uncertainty over how lower prices at the pump were benefitting retailers.
“Our survey respondents noted 3.6% higher traffic in Q4 (2014), driven by greater disposable income given low gas prices,” said Herzog. “This benefitted several merchandise categories throughout the store, including foodservice, craft beer, cigarettes, and packaged beverages.”
“More money in the pocket equals more sales; consumers will spend up to their last dollar,” said one retailer. Another added “we’re definitely seeing an increase in foot traffic due to low cost of fuel.”
Retailers were so optimistic about the gas uptick that they predicted cigarette penny profits at 78 cents-per-pack in Q4 2014, representing an 8% increase from last year.
“Our contacts suggested that premium brands are benefitting,” Herzog wrote, “consistent with our view that lower gas prices have driven improved mix shift in the cigarette category, ultimately generating better net pricing for both manufacturers and retailers.”
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.