Natural Leaf Sparking OTP Growth
By Angel Abcede on Feb. 21, 2017CHICAGO -- Natural-leaf cigars are lighting a fire in the category and OTP (other tobacco products) in general, continuing to make up a bulk in volume and dollar sales, according to a CSP webinar panelist.
Presenting an update of the cigar category in a recent CSP-Swedish Match webinar, Joe Teller, director of category management for Swedish Match, Richmond, Va., said natural-leaf cigars were the fastest-growing segment within OTP and a “huge growth driver” for the overall subcategory.
Citing Nielsen numbers, Teller said natural-leaf cigar sticks and dollar sales rose 28% vs. last year over a 24-week period ending in mid-January. Unflavored cigars saw an equally impressive 24.9% increase. Pipe tobacco rose 8.7%, flavored cigars increased 3.7% and sweet cigars rose 1.1%.
Cigars accounted for more than half of the OTP unit volume at 54.3% in that same 24-week period, but accounted for 79% of OTP unit-volume growth.
Meanwhile, Nik Modi, managing director for RBC Capital Markets, New York, provided an update on cigarettes and other tobacco subcategories, predicting a near-term stability in pricing and volumes. Here are a few key points ...
A stable economy
Modi said the incoming Republican administration and legislature bodes well for job creation and income for core tobacco consumers. With Republican control on the federal level and within many state and local governing bodies, increases in excise taxes and regulation will likely be less of a concern for 2017.
Normalization of cigarette-volume declines
Where the fall in gasoline prices and other economic factors led to flat-to-positive growth in cigarette volumes over the past two years, Modi predicted a “normalization” of volumes, reverting to declines of 3% to 4%. Recent monthly numbers already reflect that trend.
Big Tobacco mergers causing little ripple
As the major tobacco manufacturers move through their current merger and acquisition phases, retailers will likely see little change at the store level. The British American Tobacco, London, buyout of based Reynolds American Inc., Winston-Salem, N.C., earlier this year was more of a move by BAT to get into the lucrative U.S. market, although Modi expected Pall Mall would receive more attention going forward as the global rights to Reynold’s Camel brand belong to a competitor. To that end, Richmond, Va.-based Altria Group’s acquisition of New York-based Nat Sherman will likely signal more energy around the premium cigarette and cigar segments.
E-cigs will continue to struggle
Unfortunately, statistics are showing a struggling electronic-cigarette market, at least with regard to c-store retailers, Modi said. That picture will likely continue as retailers struggle to identify the right products to put on shelves and manufacturers face onerous U.S. Food and Drug Administration regulation.
Still, despite looming difficulties, the overall economic picture will most likely mean profitability for retailers, especially those reworking strategies to address current trends with both traditional cigarettes and OTP, Modi and Teller said.