NEW ORLEANS — Predicting the direction of the tobacco category for 2020 is a dicey endeavor, but a tobacco analyst speaking at CSP’s recent Convenience Retailing University (CRU) conference said to expect both new momentum in some areas and uncertainty in others.
On the positive side, the so-called “modern oral” category of nicotine pouches and other alternative delivery products show promise, said Nik Modi, analyst for RBC Capital Markets, New York. On the other hand, increasing concerns over state and local taxation, scrutiny over flavored products and rising prices could have a negative effect on retailers’ businesses.
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Here are several insights from Modi’s presentation at CRU in New Orleans …
Economy bodes well for tobacco
Despite concerns from CEOs, consumer confidence in the United States remains high. Retail numbers are solid and gas prices are going down, Modi said. And more specifically, the core tobacco consumer as a demographic is experiencing lower unemployment.
[Editor’s note: Modi spoke before news of how the coronavirus had a negative impact on the stock market.]
Pressure on cigarettes
Multiple pressures are keeping cigarette volumes on the decline, Modi said. Challenges include increasing excise taxes; the rise in the minimum tobacco buying age from 18 to 21 nationally; price increases from major tobacco manufacturers; the growing popularity of vaping and other nicotine delivery alternatives; and some chain retailers exiting or reducing their nicotine business.
Modi predicted that the major tobacco manufacturers would raise prices twice in 2020, based on his calculations and the companies’ publicized revenue goals. Others attending Modi’s educational session disagreed, with some retailers in the room saying the new increase happening sooner than normal and the fact that the majors had three price increases in 2019 are indications that they may initiate three or four price increases this year.
How the vape business will change
With increasing federal, state and local scrutiny, Modi predicted the vape business will change in several ways:
- The elimination of marketing, with regulation aligning e-cigarette rules with those for regular combustible cigarettes.
- Stricter rules for online sales, especially regarding age verification.
- Rising costs of growth for vaping manufacturers.
- More excise taxes hitting vape products.
- The possibility that U.S. Food and Drug Administration’s premarket tobacco application will force many suppliers out.
Modi said that if the PMTAs were to receive school grades, “You’ve got to have an ‘A’ paper to get a product to market. You cannot have a ‘B’ paper.”
Rise of ‘modern oral’ products
Describing nicotine pouches and other “modern oral” products as “the next big thing,” Modi said his own internal data shows that momentum building. Growth trends coming from the West Coast bode well for these products, since the West has been a harbinger for many popular products including energy drinks, craft beer and kombucha. The ability for suppliers to advertise these products is also a plus, Modi said.