While flavor bans and supply disruptions caused logistical headaches for retailers in the tobacco category, demand for cigars, vape and modified risk tobacco products (MRTP) chugged along in 2020, lifted by pandemic stay-at-home orders and cross-product consumers.
Tobacco as a category steamed along at a healthy 4.2% rise in dollar sales for the 52 weeks ending Dec. 26, 2020, according to global measurement and data analytics company Nielsen. While the pandemic may have depressed the economy as a whole, stay-at-home orders and more people working from home meant smokers could light up with fewer restrictions.
And many of those smokers were opting to light cigars. Cigar dollar sales were up 9.2% for the 52 weeks ending Dec. 26, 2020, according to Nielsen data, closing out the year up 7.4% for Q4 2020. But the cigar category has also faced challenges.
“The main issue with cigars is supply,” said Beth Reina, director of marketing for Loop Neighborhood markets with more than 30 locations throughout Southern California, the Bay Area and Sacramento. “If they can get that in check, then I think we will see an uptick this year.”
COVID-19 restrictions have placed many cigar products on allocation or suspension of manufacture altogether, making it harder for retailers to stock what customers prefer.
“Many manufacturers are limited to operating at 50% capacity to comply with government COVID-19 policies and regulations,” explained Jeremy Weiner, category director of cigars and premium products with Smoker Friendly, which operates 157 stores across Colorado, Wyoming, Montana, Nebraska and Florida.
The result is a priority to fill orders for established products in greatest demand. Michelle Signorelli, category manager at Atlanta-based Race Trac with 560 convenience store locations in Alabama, Georgia, Florida, Louisiana, Mississippi, Texas and Tennessee, noted it’s that very supply disruption that puts new products on the back burner.
“A lot of that innovation in a lot of different capacities either is going to be stunted a bit, available later in the year or just not available period, depending on the manufacturer,” Signorelli explained. “Which is disappointing. But they’re focusing on keeping their top SKUs in stock.”
While that production declined, demand rose, she added. That left manufacturers confronting supply depletion much more quickly. Labor-intensive products like natural-leaf and hand-rolled cigars, especially, bore the brunt of those pandemic slowdowns.
REGULATORY UNCERTAINTY CONTINUES
Supply disruption aside, retailers remain challenged by inconsistent state and local regulations that present logistical and competitive challenges, especially near jurisdictional borders.
“My concern for the domestic cigar category is flavor bans that are starting to take place at county and city level,” said Weiner. “This puts retail locations at a competitive disadvantage if consumers can drive 15 minutes to find the (banned) products that they want.”
Despite the petition drive to place California’s flavor ban (SB 793) on a popular ballot — for the time being, delaying its enactment — local bans continue to stymie retailers that operate in that state.
“We got a reprieve from SB 793, but being in California, there are so many local regulations,” noted Loop’s Reina. “About 36% of our stores are under some sort of ban — flavor ban, menthol ban and even outright no vape products — both tobacco and menthol.”
Still, the demand for flavored cigars drives manufacturers to produce even more flavor options. Weiner ran off a list of new products he’s seeing.
“Swedish Match has Game Leaf Black Cherry. White Owl Duos Coconut and Rum two-pack contains one rum and one coconut cigarillo in each pack. There’s White Owl Swirl that has a chocolate-vanilla flavor,” he said. “ITG has New Dutch (by Dutch Masters) Leaf Cigarillos available in Ripe Berry, Pure Tobacco and Real Sweet. Backwoods will have a limited-time offer of Wild Rum. Swisher will have some limited-time offers of flavors that were released in prior years.”
E-CIGS IN THE DRIVER’S SEAT
E-cigarettes continue to drive the tobacco alternatives segment, according to Nielsen data, though at a significantly reduced pace than they did in 2019. E-cigarette dollar sales saw a 4.1% rise for the 52 weeks ending Dec. 26, 2020. But that was nowhere near the 69% increase in dollar sales for the previous 52 weeks ending Dec. 28, 2019.
Signorelli is optimistic about vape manufacturers and the future of the growing product segment. She’s hopeful that some of the stronger products will clear the Food and Drug Administration’s (FDA) Pre-Market Tobacco Application (PMTA) process.
“2021 will be interesting, depending on what shakes out with the PMTA,” she said. “I know a lot of the top manufactures are getting some good feelings from the FDA as far as when they’ll hear back about their submissions.”
Still, other options may pick up steam, as well.
“I believe that other forms of nicotine delivery will continue to gain traction,” said Reina. “We brought in ZYN (nicotine pouches) years ago, and it continues to grow year over year.”
When it comes to smokeless options, whether due to workplace restrictions or social motivations, some consumers are choosing more than one product to get their nicotine. RaceTrac’s Signorelli advised that retailers will see more of that ‘poly’ consumer — choosing smokeless tobacco along with nicotine pouches. That’s boosted nicotine pouch sales.