C-Store Cigarette Sales Soar in Late 2014

May help offset “New Year’s effect” declines in January

NEW YORK -- The year 2014 ended with a bang, at least in terms of convenience store cigarette volume: Nielsen data showed combustible cigarette dollar sales were up 4.4% in the four week period ending Dec. 20, 2014, compared to being up 2.2% in the previous month and down 2.6% last year. Perhaps more impressive? The boon wasn’t just due to a 3.4% increase in pricing but that unit sales were also up by one point (verses a 0.7% decline last month). C-Store Cigarette Set

“We believe c-store unit sales have likely been aided by CVS no longer selling tobacco,” Wells Fargo analyst Bonnie Herzog wrote in a research note. “Further, lower gas prices are likely having a favorable impact on the category.”

Lorillard Inc. led the pack in terms of unit growth, with a 3% unit sales growth contributing to the company’s 4.4% increase in overall cigarette dollar sales; Reynolds American Inc. had the highest overall cigarette dollar sales growth (4.9%), thanks to a 4.4% increase in pricing and 0.5% unit growth; Altria Group Inc.’s dollar sales rose 4.4%, with a 3.6% pricing increase and 0.8% volume increase.

The positive unit sales in late 2014 should help offset the expected deceleration of cigarette sales in the upcoming months, a time when smokers have historically attempted to quit smoking.

“The New Year’s effect is well established in the tobacco industry, as we have seen meaningful sequential declines in the month of January in each of the last four years,” wrote Vivien Azer, an analyst for the New York-based Cowen Group. “We expect the trend of weak January cigarette volumes to persist in 2015, perhaps exacerbated by the broader availability of e-cigs.”

Reynold’s Vuse is set to enter an additional 45,000 outlets in January, the fourth wave of the leading e-cig’s national expansion. Azer said the expansion, coupled with New Year’s resolutions, could net a positive month for e-vapor products.

“The e-cigarette category will likely receive a boost in sequential trends, which have deteriorated the previous three months,” she wrote. “The national launch of Vuse and MarkTen have proven helpful to e-cig trends, as the category returned to (year-over-year) growth and experienced spikes in sequential growth throughout various waves of the brands' launches.”

Though e-cigs may experience an initial boost at the expense of combustibles, both Azer and Herzog predict traditional cigarettes will make up the difference as the year goes on—as indicated by Nielsen’s data for the end of 2014.

“The sticky nature of the category generally results in a fairly swift reversal in these sequential trends,” said Azer. “The long-term volume trends for the category have remained within the 3-4% compound annual 20 year decline, despite reinvigorated motivation for smokers to quit their smoking habit each New Year.”

“We continue to expect strong manufacturer pricing in 2015,” Herzog said, “which should help offset volume declines and generate robust profitability growth.”

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