Cigarettes Struggle, MON Shines in 1st-Quarter 2023

Convenience-store trips for tobacco or nicotine products were lower in first-quarter 2023 compared to fourth-quarter 2022, according to 64% of retailers and wholesalers surveyed by Goldman Sachs.

The New York-based company shared results of its quarterly Nicotine Nuggets survey, which represents about 65,000 retail locations across the United States, according to Goldman Sachs Managing Director Bonnie Herzog.

Other highlights from the start of the year: Cigarette volumes are declining at a faster rate than in the previous quarter, smokeless nicotine offers are strong and e-cigarettes volumes are decelerating.

Retailers and wholesalers said that cigarette volumes were down 5.7% year-over-year in first-quarter 2023, compared to being down 4.8% in fourth-quarter 2022. Respondents primarily attributed the volume declines to price increases in cigarettes and a shift to more affordable non-combustible products, like e-cigarettes and nicotine pouches.

While overall dollar sales are holding their own, respondents noted that volumes are soft, with downtrading to cheaper brands fueling fourth-tier cigarette momentum, Herzog said.

Smokeless/oral nicotine category volumes increased 6% year-over-year in first-quarter 2023, although growth was slightly below the 8% seen in fourth-quarter 2022, according to survey respondents.

This reflects robust growth in modern oral nicotine (MON) brands like Altria’s On and Zyn, from Swedish Match, which Philip Morris International bought in November.

Respondents said overall they expect the category to grow 6% in 2023. Zyn grew 22% in the first quarter, the survey said, while On grew 25%. Velo, R.J. Reynolds Vapor Co.’s MON product, was down 4% in the first quarter, reflecting the brand’s continued struggle to gain traction and limited innovation, Herzog said.

E-cigarette volume growth was pressured in the first quarter of the year, down 4.3%, and retailers and wholesalers who took the survey expect volumes to decline 2.9% in 2023; however, respondents expect the segment to recover and are looking to new e-cigarette brands to lead the way, as some are showing very strong growth in local markets, Herzog said.

Vuse Alto, R.J. Reynolds Vapor Co.’s large capacity pod-based system, remains a bright spot of growth, she said.

Retailers expect e-cigarette category volume will be driven to a greater extent by the disposable category, unless the Food and Drug Administration (FDA) picks up its enforcement activity, Herzog said.

One respondent did point out, though, that recent volume headwinds in vapor is misleading as consumers moved from two-pack pods to four-pack bods, which results in a volume decline but the overall pod base percentage is up compared to last year.