TOBACCO
Mounting Uncertainty Around Tobacco Retailers are contending with macro environmental factors, such as gas prices and unemployment, while facing new and ongoing regulatory issues By Danielle Romano
IF THERE IS ONE COMMON thread within the macro environment that is impacting today’s nicotine consumer, it is uncertainty. Not only is there mounting pressure on the consumer as stimulus payments come to an end, but unemployment is also still relatively high despite labor shortages. And the onset of the Delta variant of COVID-19 is beginning to overshadow everything that consumers are trying to do in terms of getting back to their so-called “normal” lives.
all characterizing flavors — including menthol — in cigars within the next year.
Then, there are gas prices. As is typical during the summer, gas prices rise sharply. To some extent, this could be putting extra pressure on the nicotine category as a Goldman Sachs analysis found that gas prices historically are correlated with an impact on cigarette volume.
According to Goldman Sachs’ July 2021 Nicotine Nuggets survey, retailers said their view on the U.S. adult nicotine consumer is the same today as it was last year. Yet, the quarterly survey shows that over time, retailers’ outlook is skewing more negative. From the April 2021 Nicotine Nuggets survey to the July 2021 survey, retailers’ outlook on the nicotine consumer showed a greater decline — going from 17 percent to 28 percent having a negative outlook.
“We’ve seen when gas prices are low, cigarette prices trend more favorably, and the reverse is true as well. We are seeing cigarette volume tending to decelerate right now,” Goldman Sachs Managing Director Bonnie Herzog said during a recent webinar hosted by Convenience Store News entitled “Retailer Roundtable: What’s Next in C-store Tobacco.” Herzog, a senior consumer analyst at Goldman Sachs covering the beverage and tobacco sectors, pointed to the potential federal menthol ban as another area of concern for retailers. On April 29, the Food and Drug Administration (FDA) announced it is taking steps to ban menthol as a characterizing flavor in cigarettes, and ban
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However, Goldman Sachs estimates that a process like this is a multi-year endeavor given its complexity, and could take anywhere from five to seven years. “I’m not expecting any changes any time soon, but retailers should certainly be aware of which brands could win a litigation if in fact this ban goes into effect,” Herzog advised.
Retailers’ Outlook
What retailers say they are most concerned about is: • More regulation — potential FDA menthol ban and nicotine cap; • Broad-based excise tax increases — potential hikes at the state and federal levels; and • Uncertainty — delays in FDA premarket tobacco product application (PMTA) approvals raise concerns about the viability of the e-vapor market. “In some of the comments we’re hearing from retailers, they are also concerned about usage occasions, which are down as work-from-home
