ALEXANDRIA, Va. — Several tobacco-related trends emerged from the recent NACS State of the Industry (SOI) Virtual Summit earlier this month, including the growing relevance of other tobacco products (OTP) and effects of the coronavirus pandemic on the overall category.
Tracking February and March data, Caitlyn Battaglia, associate client director for New York-based Nielsen, said mass merchants and wholesale clubs saw an initial surge in sales as consumers stockpiled necessities. But then as shelter-in-place orders took effect, people saw c-stores as a more convenient place to restock their pantries with what they viewed as preferred products. In this “restricted living” environment, many subcategories of tobacco saw significant increases.
The data also showed the continued dominance of the channel for tobacco and vaping products, with convenience stores far outpacing food outlets, drugstores and mass merchants.
Here are several important trends that came from the SOI data …
Across all retail channels, c-stores dominate the tobacco business, said Chuck Maggelet, chief adventure guide for Maverik, Salt Lake City. Citing Nielsen data for the 52 weeks ending Dec. 14, 2019, he said 92.4% of cigarettes and 90.4% of OTP units sold in the United States went through the convenience channel. The food channel moved 5.0% of cigarette units and 1.4% of OTP, while drugstores moved 2.5% of cigarettes and 7.4% of OTP.
Wake of coronavirus pandemic
Consumers abiding by shelter-in-place orders eventually saw c-stores as a fill-in option, not just for grocery items and other staples but also for tobacco and vape. For premium cigarettes, the dollar difference before and after customers settled into their homes was $97 million, Battaglia of Nielsen said. For smokeless products, the difference was $35 million; for e-cigarettes, it was $31 million, she said.
Rise of OTP
For the first time in SOI history, OTP outpaced beer to become the third-highest generator of gross profit dollars at an average $4,898 per store per month in 2019. Gross profit dollars for beer were $3,312 last year. No. 1 was packaged beverages at $13,726; in second was cigarettes at $8,433, according to NACS and its CSX figures.
Tobacco 21 ramifications
With the federal government raising the legal age to purchase tobacco products to 21 from 18 late last year, the potential effects on the category were unclear. Maggelet shed some light on the matter, saying that by NACS estimates, 5% of c-store tobacco shoppers are 18-20 years old. That would mean a loss of 3%-5% in cigarette sales volumes, a 15% loss for e-cigarettes and a 4% loss for OTP, he said, citing data from the NACS Convenience Tracking Program for 2019.
For the overall tobacco category, Maggelet said the industry may lose about 5% of tobacco category dollars.
Effects of pulling flavored cartridges
In its latest guidance document released earlier this year, the U.S. Food and Drug Administration (FDA) took flavored vaping cartridges off its authorized list, pending the new-product review process that will soon pick up in earnest later this year. (In April, federal courts approved an extension of the FDA’s premarket tobacco application, or PMTA, deadline to Sept. 9, 2020, from May 12.)
As a result of the new restrictions, NACS’ CSX data group predicted vape sales in the first half of 2020 would fall by 35%.