5 Trends From CSP's 2019 Tobacco Forum

ROSEMONT, Ill. — Retailers attending the recent CSP Behind the Counter Form focused on product innovation, evolving regulation and emerging trends around nicotine and tobacco products.

The conference, held July 30-Aug. 1 in the Chicago suburb of Rosemont, Ill., gathered about 50 retailer and supplier attendees, with speakers including industry analysts and channel researchers.

Here are several insights from the three-day conference …

Even taking into account San Francisco-based Juul pulling flavored vaping cartridges (or pods) last fall, e-cigarettes and their components continue to increase in both volume and sales for c-stores, said Don Burke, senior vice president of Management Science Associates (MSA), an industry research firm based in Pittsburgh.

Cartridge volume grew 171.7% by serving units at convenience stores for the year ending June 29, compared to the previous year, Burke said. Growth at all retail outlets for cartridges was 160.6% year over year, with c-stores representing 78% of cartridge distribution across all channels.

Although vaping products represent only 5% of the total nicotine business, they continue to be a fast-growing tobacco subcategory, Burke said, despite Juul pulling four flavored pods. Volume in cartridges, he said, saw a spike in orders prior to the announced withdrawal. A decline occurred after Juul stopped supplying the products, and then cartridges of tobacco and mint saw a significant uptick, which essentially replaced the lost volumes.

The only other products surpassing vaping cartridges in the past year, Burke said, were tobacco-free nicotine products, which can take many forms, including pouches, lozenges and even nicotine-infused toothpicks. These products saw a 237% increase in consumer units year over year, with 91% of that distribution going through convenience stores, he said.

Orally consumed nicotine products represented 0.1% of the total nicotine business, Burke said.

Unfortunately, the brighter news for vapor and oral nicotine contrasted the larger declines in cigarettes. Representing 80.5% of the total nicotine business, cigarettes declined 4.8% in c-stores for the year ending June 29, compared to the previous year, Burke said.

Recent price increases from the major tobacco manufacturers on premium cigarettes is resulting in a growing price gap between the product tiers, said Bonnie Herzog, managing director of consumer equity research for Wells Fargo Securities, New York. In addition to two price increases from the major tobacco companies already this year, many retailers predict a third by this fall, Herzog said.

At the same time, deep-discount or fourth-tier brands appear to be holding firm on pricing, creating a greater disparity from a value standpoint. Retailers responding to Herzog's second-quarter Tobacco Talk survey seemed to agree, with 69% of respondents saying the price gap between premium and fourth tier was widening, vs. 63% who agreed during the same quarter in 2018.

“There’s no question gaps between premium and the lowest price points has risen,” Herzog said. “It makes sense considering the recent price increases by the major manufacturers; the smaller, fourth-tier companies are not following to take share.”

Anna Bettencourt, senior category manager for VERC Enterprises, Duxbury, Mass., said local law enforcement keeps her chain on high alert. Speaking on a panel with two other retailers, she recalled an incident in which local law enforcement was not aligned with “grandfather” rules that allowed 18-year-olds born before a certain date to buy tobacco products, put in place when the community had voted to increase the tobacco buying age to 21. She said local officials ultimately agreed they were wrong, but if she and her employees had not been correct, “that would have been a problem.”