Although 2021 may not have felt “normal” as COVID-19 continued to wreak havoc, key market indicators suggest the tobacco category settled back into more predictive patterns for convenience stores.
C-store retailers are looking to tobacco’s Q4 performance and the regulatory landscape for clues on what to expect for tobacco in 2022.
Whereas 2020 cigarette sales climbed for the first time in years — which analysts attributed to people having more flexibility of where and when to smoke during the workday — by summer 2021, the slowdown had begun. By December, the sector was back to reporting drops in volume and dollar sales in all retail channels.
According to Nielsen data, reported by Goldman Sachs, total equivalized volume for cigarettes fell 8.6% for the two weeks ending Dec. 4, 2021. Looking back at four and 12 weeks, volume falloff was even greater, with -8.9% and -9.1%, respectively.
While research indicates cigar sales ticked up for c-stores in 2021, the growth was nominal toward the later part of the year. The sector only gained 0.1% in dollar sales for the two-week measurement, a mere 0.4% at four weeks, and no change for 12 weeks.
Industry watchers suggest cigarette and cigar sales declines reflect a transition back to work and less flexibility for use. With the COVID-19 omicron variant making headlines, uncertainty remains around whether remote work flexibility might again trend upward in 2022.
Sales of smokeless tobacco also quieted in Q4. For the two weeks ending Dec. 4, figures show dollar sales inched upward 2%; however, performance for the four and 12 weeks landed at 1.9% and 1.2%, respectively. Like cigarettes, manufacturers raised prices during Q4, which helped compensate for losses of unit sales.
Nearly two years after the vape segment had the bottom pulled out when flavor bans began hitting, sales seem to be returning. Thanks in part to the Food and Drug Administration (FDA) granting approval for future sales of Vuse and two of its tobacco-flavored replacement pods, the brand’s volume in all channels jumped 46.8%, 48% and 52% for each of the time periods.
Modern Oral Nicotine
As has been the case for more than a year, the modern oral nicotine sector finished 2021 as the other tobacco products’ segment star.
More specifically, nicotine pouches keep gaining market share and dollars. While ZYN posted double-digit increases in volume, both On! and Velo shot ahead with triple-digit gains for each period.
“We believe oral nicotine is taking most of its share from traditional smokeless tobacco, but is also benefiting from increased poly-usage across nicotine categories,” stated Bonnie Herzog, managing director at Goldman Sachs.
Legislation: Then & Now
In comparison with previous years, 2021 was relatively subdued in terms of local and state regulatory actions. Colorado voters approved a tobacco tax hike that takes effect this month, and the St. Paul City Council in Minnesota set a minimum price of $10 per pack for cigarettes and smokeless tobacco, effective last October.
“Retailers in St. Paul will suffer again while other retailers in surrounding communities will benefit,” said Lance Klatt, executive director for the Minnesota Service Station & Convenience Store Association.
A new year, however, also means new state legislative sessions.
“For 2022, retailers will continue to be concerned about legislation at the state levels that would prohibit the sale of flavored tobacco products and raise taxes on cigarettes and tobacco products,” said Thomas Briant, executive director for the National Association of Tobacco Outlets (NATO).
Of course, the industry is still waiting for the FDA’s decisions on the remaining premarket tobacco applications (PMTAs).
“We are excited for the PMTA regulation and federal tax proposals to conclude so we can make more concrete plans within the overall nicotine category,” said Ben Brooks, category manager for Worcester, Mass.-based Nouria Energy, operating 146 convenience stores across five states. “With many users switching between multiple nicotine delivery devices, often driven by price and flavors, it is important to know what will be available to sell and at what price in order to allocate space appropriately.”
By mid-December, the c-store industry received at least one answer when negotiations on the Biden administration’s Build Back Better bill in the U.S. Senate deleted provisions to double the federal excise tax on tobacco products and issue the first federal tax on vape. Although the White House has said it will continue pushing for the spending package’s passage, many hope that portion stays off the table.
“NATO continues to oppose legislation in Congress that seeks to impose new taxes on electronic cigarette, nicotine vapor and alternative oral nicotine products,” promised Briant.