Convenience-store retailers remain cautious on consumer demand for tobacco products and the outlook for the nicotine category, according to Goldman Sachs’ third-quarter 2024 Nicotine Nuggets survey. This view was attributed to various factors, including inflation, increased downtrading and the illicit market.
Analyzed by New York-based Goldman Sachs managing director Bonnie Herzog, the survey represents around 40,000 c-store retail locations throughout the United States.
At the category level, 41% of retailers and wholesalers are more negative in their outlook for the total tobacco and nicotine category in the last few months compared to 42% in second quarter 2024.
When it comes to downtrading Herzog said the inflationary environment is pushing consumers to the fourth-tier cigarette category. “Consumers are making a more concerted effort to scan for deals before making their nicotine purchase,” the survey said.
Regarding continued price increases, retailers are concerned about the frequency and size of manufacturer list prices increases, Herzog said. According to one retailer, persistent price increases are encouraging more downtrading.
For the third quarter, Herzog said store traffic trends worsened with 70% of respondents saying traffic was lower compared to 59% in second quarter 2024.
Retailers and wholesalers also remain concerned about pricing impacts from manufacturers and the illicit market, which continues to impact store trips.
With consumers pressured overall by high prices, even as inflation has cooled, Herzog said one retailer expressed concern about an illicit market building the oral nicotine pouch market that would “erode retailer and category margins even further.”
The survey showed that respondents are frustrated with the Food and Drug Administration’s progress on enforcement of the illicit market.
While difficult to quantify the direct sales or volume impact, Herzog said 60% of retailers say illicit activity has grown worse in the past few months, compared to 56% Nicotine Nugget’s second quarter 2024 survey.
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