Cigars Face Proposed Federal Flavor Ban

Cigarette Sales Show Strong Rebound Rebound

Despite taxation and regulation, convenience store retailers remain optimistic about this lucrative category, though a potential ban on menthol products is looming.

John Lofstock • Editor-in-Chief

When c-store operators talk cigarettes

these days, they inevitably end up talking taxation and legislation. And as America struggles to fi nd the proper balance between individual rights and societal responsibility, retailers everywhere are getting squeezed.

But as we emerge from the COVID-19 pandemic, there is reason for optimism as cigarettes over the past year have shown a remarkable ability for bouncing back. In terms of a year-over-year comparison, for the 52 weeks ending April 18, 2021, unit sales of cigarettes slipped 4.9%, in large part due to the pandemic and tax hikes. However, for the four weeks ending April 18, 2021, unit sales rebounded, increasing 1.7% over the same period in 2020, suggesting consumers are making more trips to the convenience store as they emerge from the COVID-19 pandemic, according to Chicagobased research fi rm IRI.

But where the numbers really start to stand out is across urban independent stores, where sales have been booming for the past 12 months.

Sales of Cigarettes Remain Solid

For most convenience store categories, flat year-over-year sales figures would not be good news, but for cigarettes it signals a reprieve from several years of declining sales due to restrictive legislation and onerous tax hikes. For the 52 weeks ending April 18, 2021, unit sales of cigarettes dipped 4.9%, in large part due to the pandemic and tobacco tax hikes that impacted more than a dozen states. However, for the four weeks ending April 18, 2021, unit sales rebounded nicely, increasing 1.7% over the same period in 2020, according to IRI, suggesting consumers are making more trips to the convenience store as they emerge from the COVID-19 pandemic. The unit increase comes despite an average increase per pack of 27 cents.

Cigarette Sales One-Year Comparison Dollar Sales Unit Sales Price Per Unit

Current 1-Year % Change Current 1-Year % Change Current 1-Year Change $56.52 B 1.5% 7.20 B -4.9% $7.85 $0.49

Source: IRI Market Advantage - TSV, Total U.S. Convenience data for the 52 weeks ending April 18, 2021

Cigarette Sales Comparison for the Previous Four Weeks Dollar Sales Unit Sales Price Per Unit

Current 1-Year % Change Current 1-Year % Change Current 1-Year Change $4.40 B 5.5% 541.64 M 1.7% $8.12 $0.29

Source: IRI Market Advantage - TSV, Total U.S. Convenience data for the four weeks ending April 18, 2021

National Retail Solutions (NRS), which tracks scan data at independent convenience and small-format outlets, found for calendar year 2021 through May 15 that cigarette volume is up 6% at urban independent markets. In 2020, tobacco enjoyed a stellar 10% increase in the NRS network, exceeding the performance of the convenience industry as a whole.

By the numbers, NRS reported that all tobacco categories enjoyed growth with smokeless, cigars and roll-your-own (RYO) showing the greatest year-on-year percent growth in dollar sales. The increases for each segment are: • Cigarettes, 8% • Cigars, 18% • Smokeless, 22.5% • Pipe, 11% • RYO, 17% • Vape, 2%

“In NRS Stores through May 15, year-to-date 2021 cigarette sales continue to show strong growth across the category, even over a strong 2020, in independent convenience, smallformat and other tobacco licensed retailers,” said Brandon Thurber, director of scan data insights and media measurement for NRS. “Tobacco brands that recognize this and deploy a strategy against the opportunity will be sure to realize results.”

MENTHOL MADNESS

The Food and Drug Administration (FDA) is proposing a ban on menthol cigarettes. This follows the 2020 Massachusetts ban on menthol cigarettes.

“Bans don’t work. They particularly don’t work with traditional tobacco,” said Jonathan Shaer, executive director of the New England Convenience Store and Energy Marketers Association (NECSEMA). “In the 11 months since Massachusetts banned flavored tobacco, New Hampshire and Rhode Island have made up 85% of the cigarette sales Massachusetts relinquished. These products have either returned for personal consumption or illegal sales. So the state has given up over $120 million in excise tax revenue and has the same consumption. So by all accounts, it has failed miserably.”

Still, legislative threats will continue to plague the category, with menthol in particular remaining in the crosshairs of local and federal regulators. “What we’re seeing now is a significant amount of pressure on menthol and flavor bans that are causing both the cigar and the cigarette outlook to be under pressure. However, with the warmer weather and the opening up of the economy, I am seeing cigarettes start to climb in the last few weeks or month, and that is helping,” said Frank White, the Massachusetts and Connecticut merchandising manager for Mt. Vernon, N.Y.-based Atlantis Management Group, which operates a network of more than 100 stores. “However, with the major manufacturers putting some effort into the marketing, we will see better returns coming down the pike, but that doesn’t mean they’re going to see growth in units. The reality is we are in a cycle of lost units but increasing retails. This is buoying the category but it won’t for long.” CSD

Face Proposed Federal Flavor Ban

With news that the FDA plans to ban fl avored cigars, c-store retailers take stock of the category.

Howard Riell • Contributing Editor

The late-April announcement by the Food and Drug Administration

(FDA) that it plans to effectively ban all fl avors of mass-produced cigars (as well as menthol cigarettes) within the next year sent a loud warning signal to c-store operators, for whom fl avored cigars are a popular item.

The proposed ban is intended to “help signifi cantly reduce youth initiation, increase the chances of smoking cessation among current smokers and address health disparities experienced by communities of color, low-income populations, and LGBTQ+ individuals, all of whom are far more likely to use these tobacco products,” said Acting FDA Commissioner Janet Woodcock, M.D. The ban is expected to pose harsh consequences for convenience stores.

The convenience store channel saw sales of cigars top $3.9 billion, an impressive 11.5% increase for the 52 weeks ending April 18, 2021, according to total convenience store data from research fi rm IRI. The individually wrapped, single-serve cigar share has grown tremendously, led by brands like Swisher Sweets, Backwoods,