There are many ways to assess the state of the cigarette category within the convenience store industry.
On one hand, there’s no denying the customer base continues to tighten. In late April, the Centers for Disease Control and Prevention (CDC) released its latest findings of smoking rates and concluded that only 11% of adults currently smoke combustible cigarettes. It’s the lowest recorded rate since 1965.
While demographics are pertinent, convenience store owners and operators prefer to gauge the category by monetary means, and cigarettes prove to remain a steadfast profit producer. Last year’s National Association of Convenience Stores (NACS) State of the Industry report showed cigarettes accounted for nearly 27% of all inside sales in 2021, and more than 10% of in-store gross margin.
More recently, Circana, a market research firm, confirmed that cigarettes contributed more than $54 billion to the U.S. convenience store channel for the 52 weeks ending April 23. Although that marks a decrease of 3.2% in dollar sales and 7.5% in unit sales, cigarettes still outperform all other tobacco/nicotine products.
Of course, another key category measurement is price per unit, which continues to climb. Circana reported a 4.6% increase in price for the 52-week period. Multiple price hikes concern category managers, especially as proclamations still warn of a potential recession.
“Customer wallets are a little tighter from the prior year, especially with the pandemic-enhanced EBT (electronic benefits transfer) benefits that went away in the earlier part in the year,” said Jon Manuyag, director of marketing for Plaid Pantry. The Beaverton, Ore.-based business operates more than 100 retail sites in the Pacific Northwest.
In its “Q1 Nicotine Nuggets” survey, Goldman Sachs analysts blamed increased costs for a decline in carton sales as well as boosted market share for lower-tiered brands.
“In our business, we have seen more customers shift to maximizing discounts by taking advantage of multi-pack and loyalty offers and stacking those discounts,” Manuyag said. “However, this also results in less visit frequency in stores due to customers stocking up.”
Indeed, comments to the quarterly questionnaire conveyed similar experiences. But the survey also suggested there are signs of more positive conditions for the category. More than half of respondents indicated spending per trip during the first few months of the year held steady or even improved. In fact, some businesses stated cigarette sales in February and March outperformed Q4 sales.
Regulation Watch
Regulations are another key indicator for the category. The industry is caught in a purgatory waiting for the Food and Drug Administration (FDA) to move on its proposed menthol ban and/or declaration to lower the maximum nicotine levels in all cigarettes.
“We remain concerned that a finalized menthol ban will push legal sales to the illicit market and create an unlevel playing field, undermining the efforts by our responsible members,” said Anna Ready Blom, NACS’ director of government relations. “If products are legal, we want to sell them responsibly on a level playing field, and that has always been how we viewed the tobacco category.”
According to the CDC, 51% of adults between the ages 18 and 25 smoke menthol and 39% of smokers over the age of 25 reach for the flavor. However, more state legislatures are seeking to remove menthol from the marketplace. In response, cigarette manufacturers have introduced products that replaced menthol with artificial, flavorless cooling chemicals that create a menthol simulation.
Brands like Camel Crisp and Newport Non-Menthol Box have been racking up sales under California’s flavored tobacco ban that includes menthol: 1.4 million and 800,000 packs, respectively, per Politico.
“I believe R.J. Reynolds is trying to position to make those SKUs available in the state of Oregon,” said Manuyag. “If they do, we will definitely consider adding those SKUs to the sets.”
However, on April 25, California Attorney General Robert Bonta issued several Notices of Determination (NODs) to R.J. Reynolds Tobacco Co. and ITG Brands, alleging that several of their non-menthol brands currently being sold in California are considered flavored and therefore violate the California prohibition on the sale of flavored tobacco products. The products in question include Kool Non-Menthol, Kool Blue Non-Menthol, Camel Crisp, Camel Crush Oasis Silver, Camel Crush Oasis Blue, Camel Crush Oasis Green, Newport Non-Menthol Green, Newport EXP Non-Menthol Mix and Newport EXP Non-Menthol Max.
California law established a rebuttable supposition that a tobacco product is “presumptively” flavored where its manufacturer “has made a statement or claim directed to consumers or to the public that the tobacco product has or produces a characterizing flavor, including, but not limited to, text, color, images or all, on the product’s labeling or packaging that are used to explicitly or implicitly communicate that the tobacco product has a characterizing flavor,” the NODs explained.
At press time, R.J. Reynolds has filed a lawsuit against California state officials, including the attorney general, seeking declaratory and injunctive relief, asking that the NODs be rescinded.
Looking ahead, no one expects smoking rates to do a 180-degree turnaround in the near future, so the category’s prolonged viability could rely on adjusting planograms to welcome non-traditional formulations.
VLN and VLN Menthol King by 22nd Century Group Inc., which boast 95% less nicotine than traditional cigarettes, earned the FDA’s modified risk status. Wild Brand recently introduced STEP non-tobacco cigarettes containing a flavor system that produces a traditional smoking experience. Additionally, a growing percentage of c-stores are filling backbars with herb or cannabis-derived cigarettes.
“This is definitely on the radar,” said Manuyag.