By Erin Del Conte | June 15, 2023

As tobacco-free nicotine pouch sales climb, retailers point to health perceptions, return to office and inflation as trends driving the increase.

Smokeless tobacco sales at c-stores continue to rise, lifted by sales of tobacco-free nicotine pouches as sales of moist smokeless tobacco dip. As they look ahead, retailers are watching flavor regulations as well as inflationary pressures that are pushing customers to trade down both within the smokeless segment and the tobacco category as a whole.

Dollar sales for the smokeless tobacco category totaled $9.09 billion for the 52 weeks ending April 23, 2023, up 5.7%, per Total U.S. Convenience data from Circana. Unit sales for the category rolled in flat (up 1%). Chewing tobacco/snuff dollar sales dipped 1.1% for the period, with unit sales down 7.7%. Spitless tobacco saw dollar sales rise 37.4%, with unit sales up a whopping 30.4%.

Retailers are seeing these trends play out at store level. “Moist smokeless units continue to slowly decline while the nicotine pouches just keep growing. Customers are continuing to gravitate towards the nicotine pouch segment at higher rates,” confirmed Jesse Dix, category manager for Dandy Mini Mart, which operates more than 65 stores in Pennsylvania and New York.

“The tobacco-free nicotine pouches have really exploded over the last 18 months,” agreed Mike Jones, category manager for S&S Petroleum Inc., which operates more than 80 locations in Washington, Idaho and California, under the primary banner Royal Mart.

Jones attributed the trend toward tobacco-free nicotine to people returning to the office. Because smoking and vape are prohibited in most workplaces, customers are turning to tobacco-free nicotine pouches to discretely use nicotine, he suggested.

“Consumers want to be able to enjoy their products and — depending on their situation and local regulations — are moving to items that afford them that,” Jones said.

Health-conscious behavior may also be behind the trend toward pouches as some customers remove tobacco from their routine, noted Lenny Smith, vice president and general manager for Crosby’s, which operates 87 stores in western New York and northern Pennsylvania. “From my understanding, they feel it’s a healthier option by not having the tobacco in there,” Smith said.

The rise in inflation has also been impacting customer behavior across categories, including tobacco, as shoppers have less expendable income, Smith pointed out.

“When you’re looking at the tobacco-free nicotine pouches, they’re also less expensive than tobacco/snuff,” Smith said. “We do have some people probably trading to still be able to get the nicotine, but not at the same cost as the tobacco (product).”

Prices of chewing tobacco/snuff increased 7.2% to $7.05 per unit during the 52 weeks ending April 23, 2023, while spitless increased 5.4% to $5.04 per unit, according to Circana.

Jones noted that while inflation is having an impact, he sees it positively impacting the smokeless segment.

“As cigarette prices continue to rise, consumers are looking to a more affordable option,” he said.

And that’s driving some cigarette customers to the smokeless category.

“When consumers can achieve the same function and flavor all while saving money, it is a great option,” Jones further elaborated.

Regulations & Pricing

At S&S Petroleum’s stores, customers are looking for flavor options from the smokeless category. Jones noted that core flavors like wintergreen and mint are leading the way, but customers are likely to try different flavors.

“ZYN from Swedish Match has really dominated the space, and with its products and flavor profiles has owned the tobacco-free nicotine pouch category,” Jones said.

ZYN is also leading the category for Dandy Mini Mart.

“(ZYN) accounts for over 50% of our total nicotine pouch sales,” Dix said. “A new emerging brand that is starting to see positive growth for us is Black Buffalo. We have seen double-digit growth on the value-priced lines of moist smokeless such as Longhorn, Kayak and Stokers.”

While smokeless is still flying under the regulatory radar in most states, retailers are watching the effects of flavor regulation in California, while monitoring flavor ban proposals in 11 other states.

In December 2022, California’s Proposition 31 went into effect, banning flavored tobacco products, including menthol, in the state. Premium cigars and hookahs are exempt.

“It has caused some serious pain points,” Jones said. “I can see other states that we operate in soon following suit. Clearly this will be a challenge as we look to alternatives to move to. I have already had conversations and am working with products that are both nicotine and tobacco free, but have the same flavor profiles and mouthfeel, and mimic the functionality of the traditional product to introduce as an option for consumers. Time will tell, however, if this will actually resonate.”

Still, Jones expects the category to continue growing as retail price pressure and overall public sentiment pushes some customers to trade down to smokeless from traditional cigarettes.

“That said, regulations, like in California, regarding flavors could change the dynamic, and then we will see how the consumer and the manufacturer choose to respond,” Jones said.

Meanwhile, New York State recently rejected proposed legislation that had aimed to ban flavored tobacco, including menthol, wintergreen and mint.

“Anytime that there is a restriction of people being able to buy stuff in the state of New York, consumers will potentially go to other states to buy the product,” said Crosby’s Smith. “You have the Native American reservations where they would be able to go (to buy the product), depending on where they’re located. So, they’ll still find a way to buy. We’ll just lose from the state standpoint of being able to sell it in our stores.”

While this flavor ban attempt failed, there is still another standalone tobacco flavor ban bill under consideration in New York, per Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO).

Additionally, New York is set to raise the tax on cigarettes from $4.35 to $5.35 a pack as part of the state’s budget plan. Smith noted the tax increase could push some cigarette smokers to trade down to the smokeless segment as they choose to seek out a lower-cost alternative for nicotine.

Nonetheless, Smith expects the smokeless segment to trend down this year, as well as the entire tobacco category overall.

“I say that because even with people trading — if they’re going from cigarettes into smokeless — you’re not going to make up the difference,” Smith said. “I think New York has a very strong message against tobacco, and I think we have less people coming into the market that are tobacco users for that reason.”

With cost increases, taxes and manufacturer and vendor price increases, Smith noted the price of smokeless tobacco keeps rising, and some customers could be priced out of the nicotine categories due to the increases.

“People can only absorb so many price increases before they begin to look for other options,” Dandy’s Dix agreed.

As prices rise, Dix sees traditional moist smokeless customers, who have long been loyal to the category, starting to trade down.

Looking ahead, Dix expects the trends to continue.

“We (predict) moist smokeless will continue to decline based on costs, as well as the continued boom of the nicotine pouch segment,” Dix said.

Source: C-Store Decisions