Decreased growth rates in the smokeless tobacco category may indicate a shift back to combustible tobacco products.
The tobacco industry has recorded marked increases in cigarette dollar sales, which are being driven by both volume improvements and price increases. However, while cigarettes are performing well of late, other categories are recording dollar sales declines. A new report from Wells Fargo Securities has revealed what may be driving these trends, and some evidence suggests that these moderate declines are not necessarily bad news for the industry.
Cigarette Dollar Sales Increase
According to a new report from Wells Fargo Securities, Nielsen Data has revealed that increases in volume sales and solid +3.6% pricing increases has led to the increase in cigarette dollar sales in all channels during the recent four-week period ending June 18, 2016.
“Despite signs of cigarette volume improvements in the four-week period, we still expect total industry cigarette volume to be down closer to -2% in quarter two, albeit offset by solid mid-single digit pricing,” said Bonnie Herzog, managing director of beverage, tobacco and convenience store research, Wells Fargo Securities LLC.
Reynolds American Inc. Cigarette Dollar Sales Momentum Continues
Wells Fargo reported that the Nielsen Data has revealed that Reynolds American cigarette dollar sales strongly outpaced the industry’s +2.3% growth, driven by strong +4.2% pricing (versus category pricing of +3.6%). Reynolds American’s pricing was able to more than offset the company’s -0.5% volume declines, which were inconsequential in comparison to category declines of -1.3%.
Newport drove much of the company’s growth, with dollar sales up +5.7%. Newport’s share momentum continues with +40 basis points of share gains, consistent with the trajectory expected in Wells Fargo’s “Tobacco Talk” survey. In addition to Newport’s growth, Natural American Spirit volume was up an impressive +22.3% with steady pricing, and Camel dollar sales increased 0.3% on -3.8% unit volume. Importantly, pricing remained resilient at +4.3%.
Altria Group Cigarette Dollar Sales Increased – Marlboro Retail Share Shows Stability
Wells Fargo reported that the Nielsen Data revealed that Altria Group cigarette dollar sales continue to be driven primarily by pricing (+2.9%), partially offset by soft, but improving volumes. Marlboro dollar sales increased +1.6% on +2.9% pricing and -1.3% volume, marking a notable improvement. Additionally, Marlboro market share held steady on a sequential basis at 47%.
Imperial Brands PLC Dollar Sales Improve, But Remain Under Pressure
According to the report from Wells Fargo, despite Nielsen’s correction for the two missing SKUs, Imperial Brands PLC continues to post substantial volume declines (-4.9% for the recent four weeks).
“Volume pressure appears to be the greatest on Maverick (-4.3%), the number two brand, and Salem (-6.8%). That said, Imperial’s retail share looks stable at +7%, and importantly pricing has strengthened (+4.0% versus +2.2% for 12-weeks),” Herzog commented.
Smokeless Tobacco Dollar Sales Trends Reflect Healthy Category Shifts
In the recent four-week period, Nielsen Data has revealed that smokeless tobacco dollar sales grew +5.0%, which is a marked decline from a high of 8.0% in December, Wells Fargo reported. This decline reflects continued shifts back into combustible cigarettes by a generally stronger adult tobacco consumer. Altria’s Copenhagen brand outpaced Reynolds American’s Grizzly, as Copenhagen’s market share increased approximately 250 basis points year-over-year to 35.3%, while Grizzly decreased 43 basis points to 25%.
E-Cigarette Dollar Sales Jump
Wells Fargo reported that the Nielsen Data has revealed that all channel e-cigarette dollar sales showed solid gains in the recent period. Category dollar sales increased remarkable +12.9%, driven by solid volume and pricing gains by VUSE and distribution gains by Altria’s MarkTen XL.
“Overall, e-cigarette pricing continues to show year-over-year declines, reflecting the difficulty in capturing SKUs of the evolving vapor category and proliferation of vapors/tanks/mods (VTM) and refills which tend to have lower retail prices,” said Herzog.
Nielsen Data indicated that Reynolds American’s VUSE maintained its dollar share leadership in e-cigarettes at 35.7% versus 19.3% for Blu, its nearest competitor, according to Wells Fargo Securities. However, Altria’s MarkTen XL continues to impress gaining an incremental 30 basis points month-over-month in dollar share to 16.3% on strong distribution gains in two of its largest SKUs.
