High gas prices, increased legislation and inflationary pressure will continue to have a negative impact on cigarette sales, but despite these external factors, cigarettes continue to hold strong and remain a key driver of in-store sales.
Cigarette dollar sales dropped 5.8% to $4.2 billion for the four weeks ending April 17, 2022, according to total U.S. convenience data from IRI. Unit sales fell 9.6% to 497 million. For the 52 weeks ending April 17, 2022, cigarette dollar sales fell 2% to $56.4 billion. Unit sales fell 7.5% to 6.79 billion. External forces remain a big driver in the drop in sales.
“Cigarette sales are under pressure since gas prices exceeded $3.50 per gallon earlier this year. As consumer fuel prices rise, discretionary income tends to be reallocated toward necessities,” said Greg Ehrlich, president of Fremont, Ohio-based Beck Suppliers, which operates 30 FriendShip stores.
The dip in sales comes just one year after a solid year for cigarettes. In 2021, for the first time in two decades, cigarette sales increased during the COVID-19 pandemic. The Federal Trade Commission (FTC), in its annual Cigarette Report, said that manufacturers sold 203.7 billion cigarettes in 2020, up from 202.9 billion in 2019 — an increase of 0.4%.
The FTC compiled the report from data submitted by four major tobacco companies — Altria Group, the maker of Marlboros; ITG Holdings USA, which makes Winston and Kools; Reynolds American, with brands such as Camels and Pall Malls; and Vector Group Ltd., maker of Pyramid brand cigarettes.
While traditional c-stores saw a sales dip, there is reason for optimism in this crucial category. Independent stores and urban markets saw dollar sale gains during the first quarter of 2022, according to National Retail Solutions (NRS), which tracks sales data across urban markets.
“Across the NRS Network of 10,622 independent stores selling cigarettes, we are seeing category dollar sales increase by 2.14% in the first four months (January to April) 2022 versus 2021 in same-stores scanning,” said Suzy Silliman, senior vice president of data strategy at NRS, which tracks sales at independent stores across the U.S. “Still, packs scanned are down 2.3% and baskets containing a cigarette item are down by 3.76%.”
It should be noted that overall transactions across the NRS network are up 7.4% for that same period. “Our data shows the average price per pack steadily increasing from $8.68 in January 2021 to $9.23, or 6.3% in April 2022, which reflects a combination of higher prices and changes in product mix,” Silliman said. “The average price of premium cigarettes has increased by 8% during that time in our stores.”
On May 4, 2022, the Food and Drug Administration (FDA) published two new proposed tobacco product standard regulations. A tobacco product standard regulation is a power granted to the FDA under the Family Smoking Prevention and Tobacco Control Act to reduce or eliminate an ingredient in a tobacco product or a constituent in tobacco smoke.
One of the proposed tobacco product standards would provide that a cigarette or any of its components cannot contain menthol as either an ingredient or a smoke constituent. The second proposed tobacco product standard would prohibit an artificial or natural characterizing flavor (other than tobacco flavor) in cigars, cigar components and parts.
Specifically, the flavors that would be banned include, but are not limited to, an herb or spice, strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, coffee, menthol and mint. It is important to note that the proposed regulation would apply to premium cigars, which means that premium cigars could only have a characterizing flavor of tobacco, according to Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO).
“The FDA is proposing that these regulations, when and if finalized, become effective one year after the date of the publication of the final rule,” Briant said. “It is very important for retailers, their employees and even their customers to submit comments to the FDA to oppose this legislation. The time is now to let your voice be heard by the FDA and the means to do that is through the public comment process.”
NATO and the National Association of Convenience Stores (NACS) oppose menthol bans. Menthol makes up 37% of the c-store cigarette category, which accounts for approximately 28% of all in-store sales, per the 2020 NACS State of the Industry report. A hit to menthol certainly would further dampen sales and reduce store visits.