By Mary Szarmach, NATO President
The National Association of Tobacco Outlets (NATO) Show held in Las Vegas this past April was an ideal place for retailers to learn about market trends on all tobacco product categories. I had the opportunity to personally attend many educational seminars and I came away with a better understanding of key market and product trends in the retail industry.
Experts including Bonnie Herzog, an analyst with Wells Fargo Securities, Don Burke of Management Science Associates, Jeffrey Rossi of Swisher International and Brad Rodu, DDS, a professor of medicine at the University of Louisville, presented at NATO.
According to Herzog, combustible cigarette volume is stronger than expected. The latest data shows that combustible cigarette sales volume declined only 3.2% in fiscal year 2014, while growth in smokeless tobacco volume showed a 1% increase in the first quarter of 2015.
Total retail cigarette dollar sales volume was approximately $80 billion and driven by current pricing strategies. In the vapor market, Herzog reported that the total vapor market for 2015 could reach $3.5 billion with e-cigarettes accounting for $1.5 billion and e-liquid vapor and tank type e-cigarette sales another $2 billion.
In his presentation, Burke focused on very specific market data for all tobacco products. Volume changes for all retailers combined over the 26-week period just prior to the NATO Show versus the same period a year ago indicated e-cigarettes and e-vapor increasing 84%, large cigars rising 8%, snus increasing 5%, moist snuff evidencing a small increase of 2%, with premium cigarettes declining 1%, discount cigarettes losing 3% of volume, and little cigars dropping 11%.
In the vapor segment, e-liquids experienced a greater than 100% increase during the same period.
When looking at sales by flavor in disposable e-cigarettes, tobacco flavor accounted for 56% of volume, menthol 35%, cherry 5%, vanilla 2%, and mint 1%. For e-liquid volumes, tobacco flavor was at 17% of the market, menthol 17%, vanilla, strawberry and watermelon were each at 7%, cherry and blueberry flavors were at 4% each, grape had a 2% share and all other flavors added up to 32%.
Jeffrey Rossi of Swisher International presented market trends and statistics for both tobacco stores and convenience stores. Total category volume for large mass-market or domestic cigars is up 3.6% during the past 52 weeks. Key drivers in the large mass-market cigar category include flavors, foil pouches, value-priced and pre-priced products, along with growth in premium mass-market cigars.
For tobacco stores, there has been a 2.9% increase in the large cigar category volume over a 10-week period as compared to the same period a year ago. In these specialty stores, one of the main growth categories has been large cigars sold in a foil pouch. Similarly, convenience stores have seen an 21% increase in sales of large cigars in pouches.
Finally, Rodu, a senior fellow of the Heartland Institute, gave a compelling presentation on the true consequences of electronic cigarette and snus use. Rodu first explained that the anti-smoking campaign has essentially failed for two reasons. First, the campaign’s only message has been that smokers should outright quit using nicotine and tobacco or death will result. Second, the campaign’s main tactics to quit have included questionable behavioral therapy and an ineffective use of nicotine replacement products.
Sweden has the highest rate of smokeless tobacco use and also the lowest smoking rate in Europe. Conversely, Sweden has the lowest rate of lung cancer and smoking-related health issues of the European countries.
FDA ON NOTICE
Rodu seriously questioned the recent advisory decision by the U.S. Food and Drug Administration (FDA)’s Tobacco Product Scientific Advisory Committee recommending that the FDA not approve an application by Swedish Match to classify snus as a modified risk, or lower risk, tobacco product. The FDA’s Center for Tobacco Products will make a final determination on the Swedish Match application in the near future.
Research studies have demonstrated the ability of e-cigarettes to effectively deliver nicotine. Smokers almost exclusively use electronic cigarettes, with little use by former smokers or those that have never smoked. The research cited by Rodu shows that the use of e-cigarettes has resulted in smoking cessation by smokers or a reduction in the use of combustible tobacco products.
Overall, the trends for the retail tobacco industry remain positive as the mix of products continues to evolve and consumer demand for innovation, flavors and new products continues to remain strong.