NEW YORK -- Nielsen’s latest data shows that the strong cigarette volume trends from the first quarter of 2015 have continued into May: in the four-weeks ended May 16, 2015, U.S. cigarette industry volumes in c-stores and XAOC (food, drug, mass, and WMT panel data) were down just 0.3% (vs. a 0.5% increase in the first quarter).
“This is by far the most accommodative volume decline that we have seen in Nielsen channels since the beginning of 2013,” wrote Vivien Azer, a tobacco analyst at the New York-based Cowen Group, in a research note titled “Dare to Dream: U.S. Cigarette Recovery Scenario Analysis.”
“Consistent with the markedly healthier volume trends that were seen for the U.S. cigarette category in 1Q15, Nielsen data indicates a continued improvement in category fundamentals through mid-May,” she continued. “With comparisons remaining relatively easy in 2Q15 (as 2Q14 volumes were down 4.5%), the category is setting up for another strong quarter.”
More than just another strong quarter, Azer went on to predict that cigarette manufacturers and retailers are in for a strong year. Even in a worst-case scenario, 2015 is shaping up to be a historically positive year for cigarette volumes.
“Volumes over the last 12 months have fallen an average 4.2% (on a two-year stacked basis),” Azer said in describing a worst-case (or “bear”) scenario. “If we assume that the category reverts back to this average decline for the remainder of 2015, this would imply Nielsen volumes down 1.6%, which is still better than the 3-4% volume declines we have historically seen for the U.S. cigarette category.”
Azer’s “base” prediction worked off the assumption that Nielsen’s two-year stacked trends remain unchanged at a decline rate of 2.6%. This would result in a just a 0.2% decline in cigarette volumes for all of 2015.
The “bull” case (or most positive scenario) assumes that the positive numbers we saw in the first quarter continue for the entire year, resulting in an actual increase in cigarette volumes of 0.5% in 2015.
Though Azer expressed optimism over 2015 volumes, she was quick to point out that “on a long-term basis, U.S. cigarette industry volumes have consistently declined 3-4%” and there are some potential risks that could drive volumes back down. Those would include an increase in gas prices (though she noted prices have already risen some, while cigarette declines have continued to ease), a reversal in the demand for smokeless tobacco and cigarettes or what Azer described as a potentially “disruptive” excise tax increase.
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