CHICAGO —For convenience-store retailers concerned over the recent controversies surrounding electronic cigarettes and vaping, history is on the side of these emerging products, an analyst said.
Speaking during a CSP-Swedish Match webinar on the tobacco category, Nik Modi, managing director of RBC Capital Markets, New York, said that while the short-term picture looked grim, history shows the long-term outlook as having more promise. Referring to U.S. Food and Drug Administration (FDA) and Centers for Disease Control and Prevention (CDC) officials raising concerns over the potential of vaping products to cause illness and three states banning certain e-cigarettes, Modi said the industry has seen controversy over popular products eventually subside.
As an example, he referred to Monster energy drinks. In 2012, the product came under intense public scrutiny over its possible ill effects. However, when data emerged saying that a can of Monster was the equivalent of a 12-ounce serving of Starbucks coffee, the negative publicity began to wane.
“Monster stock has tripled since the energy-drink safety controversy,” Modi said.
Looking at other categories during the Sept. 24 webinar, Modi said cigarette-volume decline rates of 5% to 6% that have been occurring in recent months will “normalize” back into the 4% range as consumers’ dual use of multiple products and trial of tobacco alternatives plays out.
Modi said other tobacco subsegments performed well, singling out the deep-discount segment. “Roll-your-own and make-your-own customers were going to premade [cigarettes],” Modi said. “They traded up from the nonmeasured categories.”
His largely upbeat outlook was reflective of the state of the economy, he said. By most indicators, the U.S. economy is stable and growing at a steady clip. Commenting on a macroeconomic level, Modi said gross domestic product (GDP) has been growing at a respectable rate of 3%. Consumer confidence is high, with unemployment low.
Wage inflation is up, but it was a welcome sign for retailers in that it meant more money in people’s pockets. Housing rates were “back on track,” he said, with falling mortgages helping affordability. Low interest rates also contributed to the largely healthy economic picture.
Retail sales did experience a dip in recent weeks, accompanied by a “pop” in gasoline prices, he said. But both migrated back to more moderate levels, Modi said.
Unfortunately, the news wasn’t all good. He cited the conflict between Iran and Saudi Arabia as setting a stage for instability. Drone strikes on Saudi oil facilities in September caused global concern. But Modi said repair work and support from the United States helped boost confidence in the situation.
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