NEW YORK -- Based on results from Wells Fargo’s second quarter “Tobacco Talk” retailer and wholesaler survey, tobacco analyst Bonnie Herzog suggested “the overall tobacco environment remains healthy.” Responses—representing approximately 30,000 U.S. convenience stores—suggested key winners in Newport, Marlboro, Natural American Spirit and Copenhagen in smokeless. Key losers included ITG Brands and Skoal, with Pall Mall on what Herzog described as “the negative watch list.”
“We remain bullish on the U.S. tobacco sector and believe the risk/reward is favorable ahead of both Reynold’s and Altria’s Q2 results based on consistently positive feedback on their top brands from our retailer contacts,” Herzog wrote in a research note.
Here's what retailers had to say about the Big Three, electronic cigarettes and regulations in 2016 ...
Reynolds is the biggest winner in shelf-space allocations; ITG loses ground.
- “There was no gain or loss by Reynolds or Marlboro in shelf space. The manager optional space remained the same. There is just more pressure for space in the manager optional space.”
- “Reynolds drew a line in the sand requiring a minimum 6 square feet to have a contract. Did not like this as their share does not reflect that space. It remains to be seen if Newport can change that.”
Retailer sentiment regarding ITG’s recently announced layoffs ranges from mildly optimistic to very negative.
- “Since this is in manufacturing, it should have little impact on retail; however, should start to improve profitability and could positively impact promotional offers.”
- “The trends at ITG are bad and will get worse. ITG needs to right size their organization now, and again early next year to reflect what will be an ongoing march to oblivion.”
Retailers anticipate negative impact from stricter minimum-age laws
- “If the legislation occurs in the future, we expect a 15% minimum decrease in units.”
- “Very minor effect in Massachusetts where almost half of the state has gone to 21. But as the total state goes, we expect more effect as customers will go to border states to purchase tobacco products and other convenience-store items.”
- “Without legislation on attempt to purchase as a minor or minor in possession, kids will continue to seek the noncompliant retailer and steal cigarettes from mom's purse. It harms legitimate retailers.”
Overarching sentiment on the e-cig category remains largely negative, with the exception of major players.
- “Way down. It was a fad and has run its course.”
- “Stuck with a lot of dead inventory—very leery of continuing to carry product.”
- “Fair—we are seeing consolidation. We are doing well with Vuse, Mark Ten XL, Logic and Blu.”
- “Currently it is on the upswing with the new products from Logic, MarkTen, etc.”
FDA’s final deeming e-cig regs have stoked strong caution among retailers.
- “Unsure. We are taking cautious approach to the category.”
- “Will give the business to the major tobacco companies and knock out everyone else. (Just as planned).”
- “It may be the best thing for us. Might drop a lot of underperforming SKUs and may close some of the vape shops.”
Fifty-six percent of retailers are optimistic about reduced-risk products (vs. 43% in Q1).
- “Nothing earthshaking but potential is there.”
- “My understanding of iQOS is that it may be years [before] it hits the U.S. I do believe it may be the wave of the future. VUSE is by far the technology leader in e-cigs and currently has the Midas touch.”
- “We remain optimistic. Manufacturers will need to find new ways to educate ... about new offerings. This is such a critical part of the business during rollout. It is difficult for retailers to provide the education considering our speed of service.”