Inflation is adding another challenge to c-stores’ cigarette category.
Cigarettes pulled in nearly $55 billion for convenience stores in 2022, per IRI, a Chicago-based market research firm. That total once again qualifies the segment as the undeniable top tobacco/nicotine category performer. But slipping unit sales, down 8.1% for the year, also show that the category continues to shrink. It’s a market condition familiar to category managers. Last year, though, record-breaking inflation threw a major curveball at them.
Per IRI data, cigarette price per unit jumped nearly 5% last year, and those increases pushed customers to alter buying habits. According to the Goldman Sachs “Nicotine Nuggets” Q4 survey, smokers are cutting back from cartons to single packs or switching to less expensive non-combustible options. More than 40% of c-store respondents replied that premium cigarette brands lost ground in the last few months of 2022.
“Our total cigarette sales were down a few percent in 2022, but our lower-end options of Pall Mall and Lucky Strike were up,” said Sean Bumgarner, vice president for Scrivener Oil Co., which runs 12 Signal Food Stores in Missouri.
Even with inflation falling for the past six consecutive months and job creation up — conditions that historically led to more premium purchases — worries of a recession linger. Therefore, Bumgarner hasn’t ruled out adjusting his backbar to make more room for less expensive options.
“Missouri is a large fourth-tier cigarette market. We do not currently carry fourth-tier, but (we) may consider it this year if we continue to get requests for them,” he explained.
A point of good news for the category came in December when the U.S. District Court for the Eastern District of Texas ruled the Food and Drug Administration’s (FDA) 2020 mandate for promotions, including those created by retailers, to prominently display a graphic cigarette health warning violates free speech protections and rescinded it. Cigarette manufacturers still must print warnings on packaging.
Of course, the big news for 2023 is what will be the future of menthol and nicotine in cigarettes.
“We are closely monitoring FDA activity knowing that a final rule on menthol cigarettes and flavored cigars is likely to come this year. In addition to its activity on menthol, the agency announced plans to publish a proposal substantially limiting the amount of nicotine in cigarettes as early as May 2023,” said Anna Ready Blom, director of government relations for the National Association of Convenience Stores (NACS). “This is very concerning for convenience store retailers, who are responsible sellers of tobacco products, because this type of regulatory action threatens to unlevel the playing field and market as we know it.”