CHICAGO -- Mirroring trends seen in brick-and-mortar, where high-end retail and value brands are draining operators in the middle, the extremes of superpremium and deep discount within the tobacco category appear to be causing similar strains on premium and discount brands—with category innovation defying all trends.
Retailers staying on top of those turbulent forces are reaping the benefits, said Don Burke, senior vice president of Management Science Associates Inc. (MSA), Pittsburgh. Speaking at CSP’s recent Behind the Counter tobacco conference in Chicago, Burke said convenience stores are seeing strong growth in superpremium cigarettes, large cigars, moist smokeless and vapor products.
The big picture involves multiple, socioeconomic circumstances, but a common thread for c-store retailers is rising gasoline prices. “Economic factors like gas prices are slowly creeping up in consumers’ mindsets,” Burke told the 60 attendees at the summer conference.
Tobacco consumers pressured by rising prices at the pump and in household goods are either trading up for higher-quality product or trading down to get more for their money, he said.
More specifically, shipment volumes of premium cigarettes from wholesale to retail have seen a 6% decline in the first quarter of the year vs. the same period in 2017. At the same time, superpremium cigarettes saw a slight gain of 2.2%. Assuming that some customers might have simply stopped smoking, Burke said a causal relationship could possibly involve an in-for-a-penny mindset, where a customer who is already paying a higher price point may trade up to get the best of the best.
At the other end of the spectrum, discount cigarettes saw a 9.2% decline, while deep-discount brands saw a 1% increase in shipment volume. Here too, a causal relationship could mean that a value-price customer, when pressured by an overall perception of rising prices, may simply opt for the cheapest cigarette they can buy.
Meanwhile, e-cigarette cartridges for closed-system vaping devices have seen shipment volumes grow 40.6% in first-quarter 2018 vs. the same period in 2017. Though making up a mere 0.6% of total nicotine volume in the first quarter, vaping has shown the greatest percentage gains of all tobacco subsegments, Burke said.