Cigarette volume and dollar sales were soft for the first quarter of 2017.
Current cigarette sales indicate that the market may be heading back to historical trends where sales will be down 3-4%. Current trends show that many consumers are moving back to purchasing in patterns more characteristic of past years, where premiumization and volume sales were down.
According to a recent report from Wells Fargo Securities, retailers, such as Casey’s, have reported soft results for the first quarter of 2017, and these results are being attributed, in part, to the deceleration of cigarette sales. This deceleration of cigarette sales is consistent with the predictions of Altria Group’s chief financial officer William Gifford, who stated that industry volumes are beginning to move toward longterm deceleration of 34%.
“In our view, this deceleration should be expected given the tough comparisons from the unusually strong industry cigarette volumes over the past year (essentially flat). As such, we continue to estimate total cigarette industry volumes to decline around 2% in Fiscal Year 2016 and decelerate to 3% in Fiscal 2017. Bottom line, we remain bullish on the tobacco sector, despite volume headwinds which should be more than offset by strong industry pricing and continued cost savings,” said Bonnie Herzog, managing director of beverage, tobacco and convenience store research, Wells Fargo Securities LLC.
In addition to total market declines, some markets are seeing a decrease in the premiumization trend, according to Wells Fargo Securities. Casey’s General Store’s management has noted that the company has seen that customers seem to be migrating away from “trading up” to premium brands. The company has also noted that customers seem to be shifting back to pack purchased, away from cartons.
“This echoes retailer comments captured in our most recent ”Tobacco Talk” Survey which indicates a slightly more competitive environment especially between value (second tier’) and deep discount brands as relative price gaps widen. However, we believe price gaps between premium and deep discount brands are still quite narrow at 30% (versus mid-30% three years ago) which should continue to prevent substantial downtrading pressure,” Herzog concluded.
