When c-store operators talk cigarettes these days, they inevitably end up talking taxation and legislation. And as America struggles to find the proper balance between individual rights and societal responsibility, retailers everywhere are getting squeezed.
But as we emerge from the COVID-19 pandemic, there is reason for optimism as cigarettes over the past year have shown a remarkable ability for bouncing back. In terms of a year-over-year comparison, for the 52 weeks ending April 18, 2021, unit sales of cigarettes slipped 4.9%, in large part due to the pandemic and tax hikes. However, for the four weeks ending April 18, 2021, unit sales rebounded, increasing 1.7% over the same period in 2020, suggesting consumers are making more trips to the convenience store as they emerge from the COVID-19 pandemic, according to Chicago-based research firm IRI.
But where the numbers really start to stand out is across urban independent stores, where sales have been booming for the past 12 months.
National Retail Solutions (NRS), which tracks scan data at independent convenience and small-format outlets, found for calendar year 2021 through May 15 that cigarette volume is up 6% at urban independent markets. In 2020, tobacco enjoyed a stellar 10% increase in the NRS network, exceeding the performance of the convenience industry as a whole.
By the numbers, NRS reported that all tobacco categories enjoyed growth with smokeless, cigars and roll-your-own (RYO) showing the greatest year-on-year percent growth in dollar sales. The increases for each segment are:
- Cigarettes, 8%
- Cigars, 18%
- Smokeless, 22.5%
- Pipe, 11%
- RYO, 17%
- Vape, 2%
“In NRS Stores through May 15, year-to-date 2021 cigarette sales continue to show strong growth across the category, even over a strong 2020, in independent convenience, small-format and other tobacco licensed retailers,” said Brandon Thurber, director of scan data insights and media measurement for NRS. “Tobacco brands that recognize this and deploy a strategy against the opportunity will be sure to realize results.”
The Food and Drug Administration (FDA) is proposing a ban on menthol cigarettes. This follows the 2020 Massachusetts ban on menthol cigarettes.
“Bans don’t work. They particularly don’t work with traditional tobacco,” said Jonathan Shaer, executive director of the New England Convenience Store and Energy Marketers Association (NECSEMA). “In the 11 months since Massachusetts banned flavored tobacco, New Hampshire and Rhode Island have made up 85% of the cigarette sales Massachusetts relinquished. These products have either returned for personal consumption or illegal sales. So the state has given up over $120 million in excise tax revenue and has the same consumption. So by all accounts, it has failed miserably.”
Still, legislative threats will continue to plague the category, with menthol in particular remaining in the crosshairs of local and federal regulators.
“What we’re seeing now is a significant amount of pressure on menthol and flavor bans that are causing both the cigar and the cigarette outlook to be under pressure. However, with the warmer weather and the opening up of the economy, I am seeing cigarettes start to climb in the last few weeks or month, and that is helping,” said Frank White, the Massachusetts and Connecticut merchandising manager for Mt. Vernon, N.Y.-based Atlantis Management Group, which operates a network of more than 100 stores. “However, with the major manufacturers putting some effort into the marketing, we will see better returns coming down the pike, but that doesn’t mean they’re going to see growth in units. The reality is we are in a cycle of lost units but increasing retails. This is buoying the category but it won’t for long.”