4 Things to Know From Goldman Sachs’ Nicotine Nuggets Survey

NEW YORK — Tobacco consumption remains high in fourth-quarter 2021, although less robust than in the previous quarter.

But convenience-store retailers who responded to Goldman Sachs’ most recent Nicotine Nuggets survey said their outlook remains cautious.

Bonnie Herzog, managing director of the New York-based firm, wrote about the findings of the survey, which represented about 70,000 retail locations across the United States. Respondents included retailers and wholesalers.

Here are four things to know from the survey …

More than 60% of survey respondents said the health of the category is broadly the same or stronger today compared to last year as the COVID-19 pandemic environment, loyalty programs and innovation support sales across the tobacco and nicotine category, Herzog said.

That’s significantly lower than the more than 80% of survey respondents who felt good about the category in surveys from the last two quarters. COVID-19 lockdowns, flavor bans, a lack of government stimulus checks and tax increases are all factors of this decline in optimism.  

“While there are some signs of that tobacco sales rebounded over the holidays and continued into the new year, several respondents in our survey suggest tobacco/nicotine sales are not quite as robust as they had been at the onset of Covid-19,” Herzog said.

People are still at home due to the pandemic, though, making it much easier for them to smoke and consume at will, she said.

Retailers and wholesalers told Goldman Sachs they expect cigarette category volumes to continue to benefit from pandemic-related consumption but eventually return to historical declines.

Cigarette volumes were expected to be up about 1.6% for the end of 2020 and are expected to increase 1% for 2021, a slight deceleration from 2020 expectations, Herzog said.

Some respondents felt that even with COVID-19 vaccinations becoming more widespread, pandemic behavior could persist for some time. Others expect cigarette volumes to return to historical decline rates as vaccinations allow people to return to work.

More concerns include the increased frequency and overall magnitude of manufacturer list price increases in 2020 and the impact on volumes and downtrading if the trend continues through 2021.

Retailers and wholesalers said in the survey they expected e-cigarette volumes to be sharply accelerated in the fourth quarter of 2020 to up 8.6% year-over-year. One respondent said e-cigarettes was their strongest category in 2020, in both sales and volume.

Retailers expect e-cigarette volumes to increase by 5.9% in 2021 due to strengthening demand for flavored disposable e-cigarettes, Juul becoming more competitive and a wider range of pricing on e-cigarette devices, which should drive trial, Herzog said.

“That said, while most respondents expect e-cig momentum to continue, some noted that they have reduced shelf space on e-cigs to improve merchandising of oral nicotine products (ZYN, Rogue, On, etc.) which continue to demonstrate significant growth,” Herzog said.

What the U.S. Food and Drug Administration (FDA) decides on the premarket tobacco product applications (PMTAs) will also determine which flavored e-cigarette products stay on the market, if any. The addition of local flavored tobacco sales bans, like in the state of California, also remain to be seen.

About 74% of respondents said downtrading, or consumers switching brands to cheaper alternatives, picked up in the fourth quarter of 2020 compared to the third quarter.

The deep discount category gains momentum as high unemployment, job insecurity and lack of stimulus measures weighed on purchasing decisions, Herzog said. Respondents, however, were split in terms of magnitude with 27% saying trade down increased substantially versus 73% saying it increased only somewhat.

“Interestingly, several respondents report evidence of churn within the premium cig category to discounted premium (not all the way to the 4th tier), while others are seeing continued growth in premium cigs with little downtrading despite the strength/frequency of recent pricing actions,” Herzog said.

Experiences have been mixed, but respondents seem to agree that strong loyalty programs are helping premium brands, she said.