Tobacco

COVID-19 Precautions May Hurt Tobacco Customers

Coronavirus prevention could lead to job losses among customers, slower foot traffic at stores
Photograph: Shutterstock

NEW YORK — Government-ordered precautions against the coronavirus have led to falling gasoline prices but lower store and forecourt traffic, which could lead to uncertainty around tobacco sales, according to a New York analyst.

In a recent newsletter, Vivien Azer, managing director and senior research analyst for investment firm and financial services company Cowen Inc., said lower gas prices in the past have given tobacco customers more money to spend, but in this case, hourly wage workers—many of whom make up the smoking demographic—could be most affected by possible job layoffs.

“Cigarette consumers, which skew lower-income, should benefit from lower gas prices, which should provide more discretionary income and in turn allow for incremental cigarette purchases,” Azer said. “The offset here is that in the current environment, lower-income consumers and hourly wage workers are the most at risk … for being out of work, which would clearly trump the benefit of lower gas prices and impact per capita consumption.”

Another potential outcome could be more downtrading within the category, she said, meaning that customers would pick lower-cost, discount or deep-discount cigarette brands.

In the meantime, supplies of combustibles from major tobacco manufacturers remains stable. “The cigarette supply chain remains uninterrupted for the time being,” she said. “Manufacturers are still producing at normal rates with products continuing to shuffle down to wholesalers.”

For cigarettes in particular, the retail channel should be more insulated, even in the event of a prolonged impact from COVID-19, because both the grocery and convenience and gas channels will remain open, Azer said.

In terms of e-cigarettes, she said vape remains a “wild card.” Many manufacturers have to comply with a May 12, 2020, deadline to submit premarket tobacco applications (PMTAs) to the U.S. Food and Drug Administration (FDA) to keep their products on the market. With employees working from home, manufacturers may have a problem delivering those PMTAs, she said. On the other hand, the FDA may encounter a problem processing the submissions because of that same issue. Whether the FDA will budge on the May deadline remains to be seen, she said.

Vape shops and tobacco outlets that don’t sell food may also shutter temporarily, Azer said, affecting the larger cross-channel performance of the tobacco category.

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