Consumers are squeezing the most out of their money on purchases, including tobacco products. Photo credit: Liz West, Creative Commons.
According to the most recent Nicotine Nuggets survey, downtrading to less expensive tobacco products began to increase in the fourth quarter of 2022.
According to Bonnie Herzog, managing director at Goldman Sachs, the health of the tobacco consumer appears weaker as lower usage and downtrading continue to be driven by widespread inflationary pressures, fewer discretionary income, and tightened regulations.
Herzog went on to say Goldman Sachs is cautious on the US tobacco and nicotine industry in the near term given feedback received from its retailer and wholesaler contacts in its fourth quarter 2022 Nicotine Nuggets survey.
The contacts surveyed represented about 104,000 convenience store locations, or roughly 70% of the channel.
The survey found consumers are still under pressure from general inflation and frequent manufacturer price increases, which is why the volume of cigarettes sold declined more quickly in the fourth quarter. These pressures are leading to decreased cigarette purchase frequency, downtrading to less expensive non-combustible options, a switch to single packs rather than cartons or multipacks, as well as fewer store visits and lower tobacco/nicotine product spending per store visit.
Despite falling gas prices, fourth-tier and discount brands are gaining market share, according to about 55% of survey respondents, indicating that downtrading pressure was still high. Furthermore, according to 64% of respondents, manufacturing pricing power is weaker now than it was a year ago. Herzog said that several respondents emphasized how price hikes are beginning to significantly affect cigarette volumes and trigger increased downtrading.
Other key points from the survey are:
- Modern oral nicotine products, led by ZYN and on!, continue to dominate the smokeless nicotine market, which is also supported by increased advertising effort.
- Electronic cigarette sales decreased, mostly due to Juul's weakness following the confusion caused by the US Food and Drug Administration's (FDA) marketing denial orders in June. This decline was largely offset by Vuse Alto's success, which continues to unseat Juul from the market share lead.
- For the majority of nicotine categories, the promotional environment remained largely stable; however, premium cigarette advertising levels were lower and oral nicotine pouch promotion levels were higher sequentially.