Inflationary pressures, lower discretionary income and tightening regulation in the tobacco category is weakening consumer demand for tobacco products, according to Goldman Sachs' latest Nicotine Nuggets survey.
About 58% of survey respondents said the health, or consumption strength, of the adult tobacco consumer is incrementally weaker in the fourth quarter than the last few months, and many are seeing overall tobacco/nicotine units trending negative. The decline in cigarette volumes is only partially offset by growth in the modern oral nicotine (MON) segment, the survey found.
The fourth-quarter 2022 survey is based on feedback from the New York-based company’s retailer and wholesaler contacts and represents about 104,000 convenience-store retail locations across the United States. Goldman Sachs Managing Director Bonnie Herzog provided analysis of the survey in a recent report.
About 64% of those surveyed said c-store trips for tobacco/nicotine products were somewhat-to-much lower in fourth quarter 2022 versus the previous quarter. On top of that, consumers spent less on tobacco products, according to 61% of respondents.
Retailers and wholesalers attributed these trends to:
- Increasing prices for cigarettes, driving consumers to shop at other locations for better pricing.
- Inflation and overall economic conditions, including elevated fuel prices.
- Increasing competitive pressure from c-stores for tobacco outlets.
- A change in pricing strategies, especially when it comes to oral tobacco products.
However, about 20% of respondents said that c-store trips and expenditures for the tobacco category were up—mostly due to manufacturer price increases that are helping keep revenue and average transaction value up, continued growth in e-cigarettes and nicotine pouches, and regional differences, where certain stores are taking increased share from competitors and driving higher customer transactions.
Consumers are feeling pressure on their wallets despite some easing in gas prices over the past couple of months, Herzog said. National average gas prices were at about $3.47 in the fourth quarter compared to grater than $4 on average over the second and third quarters of 2022.
Some survey respondents are seeing this negatively affect cigarette volumes (25%) and downtrading within cigarettes (54%). Retailers and manufacturers said it has now become essential to participate in the fourth-tier cigarette category as consumers are looking for lower retail value products.
About 45% of survey respondents said consumers were downtrading away from the cigarette category to more affordable non-combustible options, like nicotine pouches. Shifts to nicotine pouches, and e-cigarettes, are also due to their acceptability in more venues and more value per serving, the survey found.
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