Inflation remains top of mind for consumers—and cigarettes have been the most affected, Bonnie Herzog, managing director and senior consumer analyst at Goldman Sachs, said.
According to the July Consumer Price Index, cigarette prices were up 8.5%, more than any other category like food away from home, beer at home and carbonated soft drinks, Herzog said at CSP’s Tobacco Plus Forum, which took place in September in Schaumburg, Illinois.
While the adult nicotine consumer is resilient, there is no question that they are under pressure, Herzog said. And therefore, retailers expect cigarette volumes to also remain under pressure, she said, citing Goldman Sachs Nicotine Nuggets survey of retailers and suppliers from July.
In the survey, 59% of retailers and wholesalers reported convenience-store trips for tobacco or nicotine products were somewhat lower sequentially. And nearly half of respondents also reported lower spending per trip in the first quarter versus the second quarter of 2024. This suggests a greater restraint from consumers on “nonessential spending,” Herzog said, although to many, nicotine is essential.
“It’s kind of informing that decision for the consumer of where they’re spending their dollars,” she said. “So that’s going to continue to I think weigh on this industry until we see signs that the consumer’s a little bit healthier.”
Herzog said retailers are seeing consumers trade down to cheaper cigarettes and is seeing more polyusage, or cigarette consumers also consuming other nicotine products.
C-store retailers generally don’t make many changes to their tobacco sets—but that may be changing, she said.
“Because of the consumer and the smoke-free alternatives or nicotine alternatives, there’s greater options for all of you to allocate more space to some of these types of products, and essentially away from cigarettes,” Herzog said.
Of course, cigarettes are still the bulk of the nicotine category for c-stores and an important driver of c-store gross profit, she said.
“But the more you can allocate space to some of these faster-growing, and I think, more profitable categories for you, [I] encourage you to do so,” Herzog said.
So what are retailers allocating more space to? Oral nicotine products and e-cigarettes, she said. As far as which companies are gaining share, Altria, Richmond, Virginia, is in general gaining more space than some of its peers, who seem to be losing space, Herzog said.
“The future will be more space allocated, in my opinion, to smoke-free because I think ultimately that’s where consumers are going to continue to gravitate,” she said.
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