Cigarette dollar sales remain solid, driven by strong pricing and positive volume, Wells Fargo Securities reported, citing recent Nielsen data.
C-store cigarette dollar sales were up 3.8% (down from +4.4% last period and -1.5% last year) during the recent four weeks on +3.0% pricing and +0.7% equal units.
“We believe c-store unit sales have been aided by CVS’s no longer selling tobacco. Further, as mentioned in our ‘Tobacco Talk’ survey notes, lower gas prices are having a favorable effect on the category. We continue to expect strong manufacturer pricing in 2015, which should help offset volume declines and generate robust profitability growth,” said Bonnie Herzog, managing director, beverage, tobacco and convenience store research for Wells Fargo.
Meanwhile, e-cigarette c-store dollar sales growth continues to decelerate, although it remained positive for the fifth consecutive period (up 3.7% in the recent period ended Jan. 17, 2015, driven by 26% unit growth, partially offset by -18% net pricing though pricing was 4% sequentially higher this period, Wells Fargo noted.
Though e-cigarette year-over-year pricing has been negative for 14 consecutive periods now, Wells Fargo believes it’s at least partially due to difficulty in capturing SKUs given the rapidly evolving vapor category and proliferation of vapors/tanks/mods (VTM) and refills, which tend to have a lower retail price/ refill.
“However, we remain encouraged that category dollar sales continue to grow, driven by Big Tobacco’s national e-cig rollouts and believe the trial and awareness generated by Vuse and MarkTen should help elevate the entire category and drive incremental trial. Importantly, we note that VTMs are under-represented in Nielsen, but are growing three times faster than the vapor category based on our ‘Tobacco Talk’ surveys. While we remain bullish on vapor long term, we acknowledge some near-term profitability headwinds as companies continue to invest in the category,” said Herzog. “Bottom line—we continue to believe vapor consumption could surpass combustible cigs in the next decade (by 2025), driving total profit pool growth and generating a 6.6% CAGR.”