Are Consumers Smoking Less?

CHICAGO — Inflation pressures, social stigmas and back-to-office initiatives are changing how consumers buy and consume tobacco and nicotine products.

For Steve Grantz, general manager and CFO at Cox’s Smokers Outlet and Spirit Shoppe, the focus of the business has changed since he joined the family company in 1999.

“We’ve put our focus more toward the liquor side of it,” Grantz said. “Tobacco has been a declining category.”

From a wide overview, Grantz is right. U.S. consumers are smoking less over the past decade, according to the Centers for Disease Control and Prevention (CDC). In 2020 data, the federal agency’s most recently available research, 30.8 million people, or about 12.5% of U.S. adults, currently smoked cigarettes. In 2005, 20.9% of U.S. adults smoked, the agency said.

That’s not to say all tobacco sales are down, though, especially in convenience stores. Sales of spitless tobacco—including products like Zyn, On, Velo and Rogue—were up 30.4% in dollars and 34.4% in units in c-stores for the calendar year ending on May 15, according to Chicago-based market research firm IRI.

CSP talked to and looked at reports from tobacco suppliers and industry experts to find out more about what’s driving tobacco consumers in 2022.

Grantz, whose chain operates 26 stores in and around Louisville, Ky., said despite tobacco sales declining for the past 10 years, it’s still a big part of the business. Electronic-cigarette products are doing well, as are modern oral nicotine (MON) pouches and premium cigars, he said. Consumers are also starting to shift to fourth-tier cigarettes more as pack prices and inflation rise.

While Grantz doesn’t keep track of sales demographics, he attributes the growth of alternative products like vapor and pouches to younger adult consumers and society frowning on smoking.

“I think people have taken to [MON] as an alternative [to cigarettes], maybe to the point where some do both, but I guess some people liked [MON] enough that they switched,” he said.

These changes at Cox’s Smokers Outlet reflect what Don Burke, senior vice president at Management Science Associates (MSA), Pittsburgh, is seeing in the data his company collects on tobacco product shipments made to retail. A few years ago, the MON segment was growing mainly due to distribution builds—or stores stocking up as they started to carry the product, he said. However most recently, Burke said, he’s seeing continued growth in stores that have carried MON products for a longer period. 

That shows there is greater consumer acceptance of that product type as consumers continue to buy it, Burke said.

“One of the reasons why we think they’re continuing to buy it is there’s still a strong flavor selection in the modern oral category that has been discontinued in the vapor category,” he said. “So we find some vapor people going over to modern oral because they can get nicotine with the flavor element that they like so much.”

Another thing benefiting the growth of the segment is that it’s more convenient than a typical moist smokeless tobacco (MST) product where users need to spit. With the return to offices after the COVID-19 pandemic for many employees, convenience is more important than ever.

MSA’s retailer data show vapor-product shipments are growing this year for the same reasons.

“As we end the pandemic and many companies are suspending work from home and having many of their people return to the office, it’s more difficult to use a combustible or moist type product and again vapor is benefiting from that,” Burke said.

On the flip side, back-to-work policies are part of what’s hurting cigarettes, he said. Cigarette shipments to stores are down, Burke said, though it looks worse than it really is. The decline, he said, is due to tough growth comparisons during the pandemic when more people were smoking combustibles at home. Inflation and cigarette price increase are also hitting the category hard.

“It really is becoming more difficult for consumers to purchase a cigarette,” he said.

One area of cigarettes that is growing is deep discount, something Grantz is noticing in his stores, too.

“Many consumers who were purchasing a higher-priced product are moving to the deep discount category, … so it isn’t as if all cigarettes are declining. The typically lowest-priced cigarette category in a store is continuing to grow,” Burke said.

It can also be hard to compare vapor and MON sales to cigarettes due to promotions in the segments. Promotional activity on vapor and MON has a significant influence on product sales and how many are purchased at one time, he said.

“So that has had far greater impact—manufacturer promotions in the modern oral and vapor category—than there seems to be in cigarettes because most consumers … now when they go to purchase an e-cigarette are looking for a very low-priced or lowest-price option,” Burke said.

Marlboro maker and Juul investor Altria Group also noted some trends that are shaping what nicotine products consumers buy in its first quarter 2022 earnings report.

The COVID-19 pandemic continues to contribute to volatility in the domestic and global economies, including disruptions in the supply and distribution chain and changes in consumer behavior, the Richmond, Va.-based company said in its earnings report.

“[Adult tobacco consumers (ATCs)] continue to face challenges from higher inflation, higher gas prices, the COVID-19 pandemic and the end of government stimulus, which could negatively impact [adult tobacco consumers’] disposable income and future purchasing behaviors,” Altria said.

However, increased inflation was partially offset by improved employment metrics, increased wage growth and higher federal income tax refunds for some consumers.

“We continue to monitor the effect of these dynamics on ATCs and their purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products,” Altria said.