5 Insights From Goldman Sachs’ Q3 Nicotine Nuggets Survey

Tobacco retailers, manufacturers expect a return to cigarette, e-cigarette sales declines
Photograph: Shutterstock

NEW YORK — Tobacco retailers and wholesalers are increasingly concerned about potentially tighter regulation and tax increases on the category.

They also said consumption of nicotine products remained elevated in the third quarter of 2021 and downtrading pressure intensified, according to the third quarter 2021 Nicotine Nuggets survey from Goldman Sachs, New York.

Goldman Sachs Managing Director Bonnie Herzog analyzed the survey results, which represents 43,000 retail locations across the country, or about 30% of the channel. Here are the highlights:

  • Tobacco Consumer Broadly Resilient: While the tobacco consumer remains broadly resilient, lower usage occasions from easing work-from-home trends and lower discretionary income are weighing on the category, Herzog said. Just over half of survey respondents reported they believe tobacco consumption remains broadly the same compared to a year ago. A few retailers said they are starting to see more normalized tobacco consumption trends as the industry laps COVID-19 2020. One retailer noted the exceptional strength of modern oral nicotine (MON) products and flavored disposables, she said.
  • Cigarette Volumes Expected to Decline: Retailers and wholesalers expect cigarette category volumes to revert to historical declines, Herzog said. Goldman Sachs conservatively expects underlying industry volumes to decline 7.5% for third quarter 2021. Survey respondents attributed this pressure to excise tax increases at the state level, price increases and, in some cases, reduced manufacturer support. Reduced discretionary income as consumers confront high unemployment rates, surging gas prices and the end of federal stimulus payments also support those expectations.
  • E-Cigarette Volumes Expected to Decelerate: Reduced promotional activity, the U.S. Food and Drug Administration’s (FDA) premarket tobacco product application (PMTA) marketing denial orders and uncertainty on the PMTA decisions for Juul and Vuse Alto are causing retailers and wholesalers to expect e-cigarette volumes to decelerate in third quarter 2021, Herzog said. The FDA denied more than 1 million flavored electronic nicotine delivery system (ENDS) devices recently, which required their immediate removal from the market. And while it granted a marketing order for R.J. Reynold’s Vapor Co.’s Vuse Solo, retailers remain uncertain about the future of products like Juul, Vuse Alto, Logic and Blue, Herzog said.
  • Downtrading Pressure Persists: Several retailers noted a significant uptick in sales of fourth-tier cigarette brands as the federal stimulus program came to an end and given broad inflationary trends. Respondents also noted the improved availability of non-combustible options, like MONs, which may help encourage smoker conversions and ultimately accelerate cigarette volume declines, Herzog said.
  • Retailers Are Bracing for an Excise Tax Increase: All survey respondents had a starkly negative outlook on a House proposal to increase the federal excise tax (FET) on tobacco/nicotine products. This would include a doubling of the FET rate on cigarettes to $2.02 per pack and tax parity for all other tobacco and nicotine products. Some believe this would cause a 5% to 10% decrease to sales volumes, while others expect as much as a 15% decline, Herzog said. Retailers also noted other concerns, including potentially negative unintended consequences such as an increase in black-market sales, a shift in product mix to more packs (from cartons) as affordability declines, increased downtrading and reduced conversion to other forms of nicotine, she said.

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