Convenience-store retailers have a cautious view on the outlook for the tobacco category, according to Goldman Sachs’ second-quarter 2025 Nicotine Nuggets survey. This was mainly due to inflation, economic uncertainty and tighter regulations, which are driving lower usage of cigarettes and further downtrading.
The survey, analyzed by New York-based Goldman Sachs Managing Director Bonnie Herzog, represents about 46,000 c-store locations across the United States.
Cigarette volume declines increased “sequentially” in second quarter and nearly three-fourths of those surveyed revealed that deep discount cigarettes gained share, Herzog said.
Downtrading persists
Retailers surveyed also indicated they are allocating a “bit” more space to deep discount, Herzog said.
When it comes to downtrading, fourth tier is benefiting, she said.
“We attribute this to continued pressure on certain consumers and higher prices in certain segments of cigarettes, driving demand to fourth tier products,” she said.
When it comes to manufacturer pricing power, it is weakening relative to a year ago, according to 61% of survey respondents.
“Some retailers believe manufacturers are nearing a ceiling on cigarette price increases they believe can be passed through to consumers as continued pricing has effectively pushed several consumers out of cigarettes especially as the relative price gap widens,” Herzog said.
As cigarettes continue to face pressure, one retailer noted that state tax increases, including Indiana are likely to drive volume lower, Herzog said. On July 1, Indiana’s cigarette tax increased from 99.5 cents to $2.99.
Illicit market
Turning to vapor products, Herzog said that while difficult to quantify given limited data, several respondents noted that customers have moved to illicit vapes.
If illicit e-cigarettes were completely removed from the markets, 35% of retailers indicated they believe consumers would pivot to legal vapor products, while another 30% expect consumers to shift to nicotine pouches.
Retailers and wholesalers remain optimistic about smokeless nicotine offerings, particularly the oral nicotine pouch category.
The oral nicotine pouch category is seeing higher promotions as manufacturers rush to gain share as the category continues to experience high growth, Herzog said.
As retailers shift space away from cigarettes to nicotine pouch brands, oral nicotine pouches appear to still be the greatest beneficiary.
"Retailers overwhelmingly remain positive on the category, as they expect to give more shelf space to pouches given strong underlying volume trends,” she said.
Modern oral nicotine pouch Zyn from Philip Morris International, Stamford, Connecticut, and On! from Helix Innovations LLC, an Altria company, Richmond, Virginia, were amongst the top brands listed, Herzog said.
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