The tobacco industry has seen recent growth, and that growth is expected to continue.
A tobacco survey, recently conducted by the Wells Fargo Securities, LLC Equity Research Department, shows combustible cigarette volume is up.
The survey reached out to Wells Fargo’s industry trade contacts in order to identify trends in the cigarette, smokeless and other tobacco products categories, along with researching brand dynamics and the overall U.S. tobacco industry for1 the second quarter of 2015. The results of the survey represent more than 30,000 U.S. retail locations.
According to the Wells Fargo survey results, the overall combustible cigarette environment remains strong. This conclusion was reached based on the “Tobacco Talk” survey results which reported that a year-over-year comparison shows the cigarette industry volume to be up slightly (0.2%) in Q2. The conclusion is also supported by the continued strong manufacturer net price. Driven by lower promotional spending and a positive mix shift to premium brands, the manufacturer net price realization increased approximately 6% in Q2.
Moderation of the vapor category has also been beneficial to the combustible cigarette industry. With the growth of the vapor category comes several customers who have found such products less satisfying as they had hoped they would be, and many are switching back to traditional cigarettes.
The cigarette volume and pricing increases are expected to continue based on the survey’s results. The key indicator that the momentum will continue is the fact that the competitive market remains stable. Given the continued strong industry momentum, it is predicted that competition will remain strong, and the risk to reward ratio in the category is favorable looking forward.
“We remain very bullish on the U.S. tobacco sector given our view that the stars are aligned for the industry,” stated Bonnie Herzog, senior analyst, Wells Fargo.