3 Takeaways From Goldman Sachs 3rd-Quarter 2022 Nicotine Nuggets Survey

NEW YORK — Convenience-store retailers and have a cautious view on the outlook for the tobacco category, according to Goldman Sachs’ third-quarter 2022 Nicotine Nuggets survey. This was mainly due to inflation and lower discretionary income driving lower usage and increased downtrading.

The survey, analyzed by New York-based Goldman Herzog Managing Director Bonnie Herzog, represents about 76,000 c-store retail locations across the United States, or about half of the channel.

Click through to see what respondents’ takeaways were on cigarettes, smokeless and e-cigarettes…

Cigarette volume declines accelerated in the third quarter, and retailers and wholesalers expect them to continue to decline in 2023, Herzog said. Goldman Sachs expects cigarette volumes to decline 7% by the end of 2022, and to be down 5% in 2023.  

These declines reflect ongoing pressure on the consumer from broader inflation and frequent manufacturer price hikes, driving reduced tobacco purchase frequency and downtrading, or a shift to alternative products, Herzog said. High gas prices also remain a concern for the tobacco industry given the disproportionate drag higher gas prices have on disposable incomes of price-sensitive tobacco consumers, she said.

These factors are causing a negative affect on cigarette volumes, according to about 40% of survey respondents. More than 70% of retailers are seeing downtrading within cigarettes, and about 60% said they were seeing downtrading away from the cigarette category to more non-combustible options.

Customers also made less cigarette purchases per trip in the third quarter, according to 39% of survey respondents.  

Smokeless nicotine offerings remain strong, led by modern oral nicotine (MON) brands Zyn, from Swedish Match, and On, from Altria, both based in Richmond, Va.

Retailers and wholesalers remain optimistic about this segment, and said volumes increased by about 10% year-over-year in the third quarter. Zyn and On both grew more than 20% in volume in the third quarter, respondents said. Velo, from R.J. Reynolds Vapor Co., was flat, the survey said.

Price hikes are starting to affect volume growth for Copenhagen, Skoal and Grizzly.

E-cigarette volumes decelerated significantly in the third quarter, primarily reflecting volume pressures for Juul, Herzog said. Retailers and wholesalers said e-cigarette volumes grew by about 0.6% in the third quarter, compared to 3.9% in second quarter 2022.

The U.S. Food and Drug Administration (FDA) denied Juul’s premarket tobacco product application (PMTA), but it was later stayed pending further review, allowing the products to remain on the market for the time being. Juul’s recovery has been very slow following the marketing denial order (MDO), respondents said.

Retailers and wholesalers were more positive on Vuse, from R.J. Reynolds Vapor Co., Winston-Salem, N.C. They remain concerned about the FDA’s pending PMTA decisions for the e-cigarette category, which will be determined by June 2023, as well as the FDA’s regulatory oversight on synthetic nicotine and a potential total menthol ban, the survey showed.