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TOBACCO BUSINESS INTERNATIONAL
SEPTEMBER/OCTOBER 2015
Combustible Renaissance?
The overall combustible cigarette environment remains robust, according
to a recent survey by Wells Fargo.
R
etailers expect cigarette sales
to be slightly up, according
to Wells Fargo’s most recent
Tobacco Talk survey, which polled 30,000
retailers about sales trends. Among
other things, retailers suggested that the
growth could be attributed to consumers
disillusioned by e-cigarettes switching
back to combustibles.
Retailers also noted that the competitive
environment remains stable in the
aftermath of the mega-merger between
R.J.Reynolds(RJR)andLorillard,withmost
respondents describing the industry as in
a “holding pattern” since the restructuring
impact from the deal remains to be seen.
However, the retail industry does expect
change as the two companies integrate.
As one retailer noted, “I think we’ll see
some brand switching since Winston and
Kool will become visible again. Obviously
RJR and Altria will react to any aggressive
push on pricing from ITG, so the consumer
may be the winner. If the gap becomes
too narrow, discount brands will be under
pressure.”
Another noted, “Once the dust settles,
believe it will be difficult for ITG to gain
traction. Believe Altria and the new RJRT
will move on to many fronts for ITG
to keep up in many areas. ITG’s cigar
brands continue to lose ground. Believe
the losses in cigars will come more from
Swisher and SMNA than from JMC.”
In the smokeless category, retailers
reported that volume is continuing to
decelerate as more consumers are
“uptrading” to combustible cigarettes
or switching to other noncombustible
options. While consumers are continuing
to switch to vaping, that category’s
growth rate has slowed, and analysts
expect dampened growth to continue
unless technology improves.
The tables and charts to follow offer
more details on these industry trends.
Industry overview
CATEGORY MANAGER
60%
50%
40%
30%
20%
10%
0%
Retailers Assess Smokeless Tobacco Category Volume Growth
(Quarter/Quarter)
70%
80%
Increased
Decreased
Stayed the same
67%
54.3%
8%
22.9% 26% 22.9%
Q2
2015
Q1
2015
Wells Fargo asked retailers to comment
on how the Reynolds-Lorillard merger
and the current tax environment will
impact the industry. The following are a
sampling of responses.
“The
RAI/LO
merger
and
consolidation has given the Top 2
tremendous influence over pricing.”
“States have already taken tax hikes,
and [there are] probably more to come.
As taxes increase erratically, I believe
it reduces the manufacturers’ pricing
power.”
“They are getting to the tipping point
and any economic downturn will drive
consumers to the lower-tiered product,
whether that is OTP or e-cig/vape.”
“States like Indiana and Tennessee
have both made recent changes to their
minimum cigarette retail laws. Effective
July 1, Indiana moved the minimum
retail markup from 10 percent to 12
percent. Tennessee minimum retails
moved from 8 percent to 11 percent.
Tennessee minimum retails will take
additional increases to 13 percent and
15 percent on July 1 2016, and 2017,
respectively. This blunts the effect of the
Marlboro MLP.”
View
from the
Retail
Front Lines