Cigarette volume declines have accelerated since the first quarter of 2021, said Nik Modi, HPC, beverage and tobacco analyst at RBC Capital Markets.
“Obviously, pricing has been part of the reason, but there are other reasons going on here,” he said during a December 2022 webinar hosted by Swedish Match and CSP, where he spoke about how tobacco category trends are still shaped by the COVID-19 pandemic and how it affects convenience-store shoppers today.
While total domestic industry volume of cigarettes was down 2% year-over-year in the first quarter of 2021, declines were at 8% by the third quarter of 2022, Modi said, citing data from Altria company filings and RBC Capital Markets.
In the early parts of the pandemic, there was a “pantry spike” where cigarette cartons and multi-packs were purchased with stimulus money, “and now we’re seeing kind of the hangover of that” into the second half of 2022, he said.
Repeat rates, or the percentage of a company’s current customer base that has come back to shop again, have also fallen since the end of 2021 when it comes to cigarette and loose tobacco buyers, Modi said. But rates are now at about 71.5%, roughly in line with pre-COVID levels.
While most c-store tobacco shoppers are repeat customers, there is overall consumer leakage in the channel, Modi said. Repeat rates have been good for most of the consumer base, but there are more lapsed shoppers of tobacco products in c-stores than there are new shoppers, he said.
Value channels like grocery and dollar have been taking some of the tobacco sales share from c-stores, “So I think there is some channel trade-down here,” Modi said.
When it comes to who the new c-store tobacco consumers are, it’s the youngest or oldest buyers—so boomers, Gen Z and young millennials, he said.