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CONVENIENCE STORE RETAILERS REPORT CONTINUED DOWNTRADING ON THE BACKBAR

The latest "Nicotine Survey" from Goldman Sachs finds wide price gaps are
driving tobacco consumers to cheaper alternatives.
Melissa Kress
10/28/2024

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NEW YORK — Ongoing economic pressures continue to weigh on consumers, affecting
all areas of the convenience store and the backbar is no exception. 

According to the Goldman Sachs third quarter "Nicotine Survey," the tobacco
consumer is downtrading to cheaper alternatives such as fourth tier/deep
discount cigarettes and modern oral tobacco products or moving to the
illicit/gray market for disposable vapor products. 

The survey gathers feedback from retailer and wholesaler contacts representing
approximately 40,000 retail locations across the United States, or about 27% of
all tobacco outlets. 

[Read more: Value-Seeking Tobacco Consumers Impact Cigarette Sales]

However, the survey points to a positive risk-reward for The Altria Group Inc.
According to Bonnie Herzog, managing director at Goldman Sachs, the survey
indicated:

 * Marlboro broadly maintained share with solid contributions from Marlboro
   Special Select;
 * on! is benefiting from promotional activity and ZYN out-of-stocks; and 
 * NJOY is performing well. 


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"Given these tailwinds, and our expectation that Altria's net price realization
in the third quarter was strong (we estimate +10.2%, up from 9.5% prior), we
believe this should be more than enough to offset accelerated cigarette volume
declines," Herzog said, adjusting the estimate declines at -8.7%, down from
-7.9%.

Other takeaways from the latest "Nicotine Nuggets" survey include:

 1. Cigarette industry volumes remain pressured with declines mostly steady in
    Q3 and reflecting a slight improvement in expectations to -5.8% for Q3 (vs.
    -6.2% in Q2).
 2. Manufacturer pricing power appears weaker relative to a year ago, according
    to a majority of survey respondents (61%), which is somewhat worse than the
    first quarter survey at 54%.
 3. Downtrading trends continued in Q3 as wide price gaps continue to spur
    downtrading to cheaper alternatives including fourth tier/deep discount
    cigarette brands, nicotine pouches and vapor.
 4. Promotional activity strengthened across e-cigarettes and oral nicotine
    pouches as manufacturers invest to drive volume and market share.
 5. Illicit market activity in e-cigarettes continues to be a big concern and is
    getting worse as the U.S. Food and Drug Administration measures enforcement
    struggles to contain the problem.




RELATED TOPICS

 * Tobacco
 * Consumer Insights
 * Market Research



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