Smokeless

Are Cigarettes Back to Normal?

The Food and Drug Admin-

istration (FDA) appears intent on moving ahead with revoking market authorization for menthol cigarettes. Next month, the agency is expected to release a proposed rule on the tobacco product standard to eliminate menthol cigarettes from convenience stores and other tobacco retailers.

“(The National Association of Convenience Stores) is on record opposing menthol bans, as we believe illicit vendors will quickly source and begin selling foreign and counterfeit menthol cigarettes,” said Lyle Beckwith, NACS senior vice president of government relations, in a recent public statement.

What’s more, menthol makes up 37% of the c-store cigarette category, which fires up approximately 28% of all in-store sales, per the 2020 NACS State of the Industry report. A hit to menthol certainly would further dampen sales.

According to IRI convenience store data, cigarettes finished out 2021 with a 52-week gain in dollar sales of less than 1% in a year-to-year comparison for the week ending Dec. 26. More recent data from Nielsen indicated the segment is slowing even more. Dollar sales in all channels, including c-stores, posted losses for both the two- and four-week periods ending Jan. 29, -6.3% and -5.7%, respectively.

UPDATING THE BACK BAR

Dips in cigarette sales prompted Scrivener Oil Co. leaders to reconfigure back bars at its 12 Signal Food Stores in southwest Missouri.

“At some locations, cigarette spacing decreased in order to make room for more smokeless and other tobacco products (OTPs),” said Sean Bumgarner, Scrivener vice president. “We replaced all of our cigarette, smokeless and OTP shelving with new shelving from Harbor Industries during 2021. Not only does it look nicer than our old shelving, it is more flexible in the layout of our products.”

Of course, planograms will change again if the federal menthol restriction takes effect, but that’s sure to be at least a year out. Federal regulations must follow a specific path that typically takes several months; however, states have more agility, and they continue to contemplate menthol prohibitions.

“States that introduced flavor ban legislation (including a ban on menthol cigarettes) in 2021 and carried the legislation over to the 2022 state legislative sessions since the bills did not receive action (or were not passed in 2021) include: Hawaii, Maine, Minnesota, Vermont and Washington,” noted Thomas Briant, executive director and legal counsel for the National Association of Tobacco Outlets (NATO).

On a more positive note, in late December, the FDA approved a modified-risk classification for 22nd Century’s VLN King and VLN Menthol King, which contain 95% less nicotine than traditional cigarette formulations. This is the first modified-risk approval for combustible cigarettes.

Cigarette Dollar Sales Remain Flat

Cigarette dollar sales were flat (up 0.8%), while unit sales dipped 5.2% for the 52 weeks ending Dec. 26, 2021.

Dollar Sales Unit Sales

Product

Current 1-Year % Change

Cigarettes

$57.3 B 0.8%

Current 7.00 B

1-Year % Change

-5.2%

Price per Unit

Current $8.18

1-Year Change $0.48

RYO Has Niche Appeal

For generations, the roll-

your-own (RYO) tobacco segment’s major competitor for consumers’ cash was massproduced cigarettes, cigars and moist chew or snus.

In recent years, competition in the tobacco sector has increased, as the category today also includes vape and modern oral nicotine items.

There’s also increased competition from the cannabis market. Some 18 states have legalized recreational cannabis use by adults, and voters in another 18 have approved medical marijuana use. As the number of cigarette smokers declines, the number of marijuana smokers is going up. Global analytics and advice firm Gallup reported nearly half of surveyed adults have tried cannabis, and 12% smoke it, up from 7% in 2013.

Sales of RYO, which had already begun to slack, appear to feel the hit.

RYO experienced losses of 15% in dollar sales and more than 22% in unit sales for U.S. convenience stores for the 52 weeks ending Dec. 26, 2021, according to IRI. This is a big dip compared with the 2019-2020 evaluation, which showed a one-year change of +0.5% in dollar sales and -8.2% in unit sales, per IRI.

Pipe tobacco sales have struggled as well. IRI registered even greater falls in both dollar and unit sales: -24.2% and -27.2%, respectively. The two-year difference is equally stark. There was a falloff of 8.3% in dollar sales between 2019 and 2020, and -15% in unit sales.

These product subcategories face so much competition, some convenience store operators give them very little shelf space or pull RYO and pipe tobacco from shelves altogether.

RYO OUTLOOK

Despite declines, RYO tobacco still brought in $43.6 million in sales in c-stores for the period, and pipe tobacco brought in $74.5 million, per IRI. These products continue to enjoy a niche following of loyal customers and can be an opportunity for c-stores that position themselves as a destination for RYO. The Cigarette Store is seeing just that.

“The RYO category continues a positive upward trend versus same store (sales) a year ago, 3.5% growth driven by Value Pipe,” said Tim Greene, category director, general merchandise and tobacco, for Boulder, Colo.based The Cigarette Store, operating more than 180 locations including Gasamat convenience stores, Smoker Friendly and Tobacco Depot retail outlets and lounges in eight states. “We are excited with the growth of Value Pipe, as it remains a vital segment of the category.”

But even with the encouraging numbers, Greene understands RYO and pipe tobacco cater to a very select customer niche. “We are concerned with the continuous decline of cigarette RYO and will look at strategies to reverse the trend with these brands,” he noted.

And as with all other product families within the tobacco category, RYO and pipe tobacco suffer the effects of increasing regulation and tax bumps.

“As always,” Greene said, “we monitor the legislative climate at a local, state and federal level and the effects tax increases will have on all tobacco segments, including the RYO category.”

Roll-Your-Own Tobacco Sales Decline

Roll-your-own tobacco dollar sales dropped 15%, with unit sales down 22.5% for the 52 weeks ending Dec. 26, 2021.

Dollar Sales Dollar Share of Category Unit Sales Price per Unit

Product

Current 1-Year % Change Current 1-Year Change Current 1-Year % Change Current 1-Year Change

All other tobacco products $118 M -21.0% Pipe tobacco

$74.5 M -24.2%

RYO tobacco

$43.6 M -15.0% 100.0 63.1 36.9 0.00 -2.64 2.64 12.7 M -25.5% $9.31 $0.53 7.92 M -27.2% $9.41 $0.38 4.77 M -22.5% $9.14 $0.81