U.S. Nicotine Trends Offer Some Bright Spots

By: Renée M. Covino | November 29, 2022

New research presented in a recent NATO webinar finds the backbar is not all gloom and doom.

NATIONAL REPORT — There are category concerns, but U.S. tobacco and nicotine trends are showing several signs of health, according to Management Science Associates Inc. (MSA).

In the first of three tobacco-related webinars sponsored by National Association of Tobacco Outlets (NATO), Don Burke, MSA’s senior vice president, highlighted the current trends in the tobacco and nicotine markets by product segments and through an analysis by trade channels, including convenience stores, tobacco stores, grocery stores, dollars stores and more.

According to Burke, c-stores are clearly out in front when looking at nicotine distribution by trade class. While convenience/gas stores account for 60 percent of stores selling nicotine in the United States, they account for 71 percent of nicotine sales volume, according to the MSA research, which studied wholesale shipment to retail data through July 2, 2022.

Comparatively, while tobacco outlets account for only 4 percent of stores, they account for 8 percent of all tobacco sales in the U.S. and, though historically “dollar stores haven’t been too much of a concern for us,” Burke noted a shift is coming.

Currently, they account for 8 percent of stores and only 2 percent of tobacco volume. “But we’re going to keep an eye on that one,” he said.

Specifically, it is little filtered cigars, pipe tobacco, modern oral and roll-your-own (RYO) subcategory that are picking up in dollar stores. “We never saw them as being big competition in nicotine; this may be the first sign they’re doing something right and a bit of a concern,” Burke said.

Cause for Concern?

When studying the percent change in nicotine units across all backbar segments, the convenience/gas channel was down 8 percent in units for the 52 weeks ending the second quarter of 2022, compared with the 52 weeks ending the second quarter of 2021. The decline in units was 7.6 percent across all outlets.

However, Burke isn’t too concerned. “I wouldn’t take this as seriously as some analysts suggest,” he told the webinar audience, noting two reasons why.

  1. When looking at servings, which considers how consumers use nicotine SKUs (for example, a pack of cigarettes, with 20 in a pack, would count for 20 servings), the declines aren’t quite as bad. For c-stores, that percentage decline, comparing the same second-quarter periods of 2022 and 2021, was 7.2 percent vs the 8 percent decline in units.  
  2. The pandemic influence has inflated the current downturns, During the stressful times of the pandemic, consumption of tobacco was higher — and that is in the base now. “When you compare the current period to the base, it’s not looking as good,” he said, adding he believes that “once the pandemic gets out of the base period, the numbers are going to level off” and not be as sharp as what the industry is currently feeling.  

Still, MSA is predicting another 5 to 7 percent drop in nicotine consumption, measured in units, for 2022. Again, this will be influenced by the pandemic and a higher based period, Burke explained.

Segment Close Ups

Cigarettes account for about three-quarters of every tobacco item purchased in the U.S. — or 76 percent share of servings. However, that is a 2 percent decline since last year. “Cigarettes are, by far, the number one way consumers choose to use nicotine,” Burke said.

The only two subcategory showing growth in the MSA study are vapor, increasing 1.6 percent to 7.4 percent servings share, and modern oral, increasing 0.7 percent to 1.9 percent share of servings. “Retailers may not realize; vapor is really seeing a surge in consumption right now,” he added

Some other category trends Burke made note of include:

  • Modern oral nicotine is driving the growth in the overall oral category, but distribution builds are starting to level off, which is slowing the growth rate in the category.
  • Modern oral and vapor are both growing; the tobacco-free delivery of nicotine, in general, is growing considerably.
  • As the modern oral category grows, the number one category it cannibalizes is moist smokeless.
  • Large cigars, which for years have enjoyed “nice growth,” and been “a bright spot,” according to Burke, are starting to decline.
  • Within the vapor category, cartridges have historically seen the biggest growth in convenience, but more recently, it’s disposables because they’re allowed to be sold in flavor varieties.
  • The overall vapor category is projected to be flat to enjoying “a little bit” of growth for the year.
  • Within the cigarette category, the deep discount subsegment is up by 4 percent; Burke believes inflation and gas prices will continue to drive this trend. In tobacco outlets, the growth rate for fourth-tier cigarettes is even stronger, showing a growth rate of more than 5 percent.
  • Along with modern oral and vapor, pipe tobacco is seeing growth and Burke noted pipe tobacco has tax advantages vs. RYO tobacco.
  • Within the moist smokeless segment, deep discount brands are also growing. 

Source: Convenience Store News

2022 Midyear Report Card–A Mixed Bag

The current challenges facing the c-store industry — from inflation to supply chain issues to high gas prices — are impacting key product categories in varied ways.

After weathering a difficult 2020 as consumers stayed home during the worst of the COVID-19 pandemic, convenience store sales began to rebound in the first half of 2021 and by the time the calendar was ready to turn the page to a new year, almost all of the industry’s key product categories were on the upswing. According to the exclusive Convenience Store News 2022 Midyear Report Card, the story for this year so far is a bit different, with some categories still seeing positive momentum, but others feeling the negative effects of inflation, supply chain issues, continued staffing challenges, and high gas prices.

The State of Cigarettes

During the first six months of 2022, both cigarette dollar sales and unit volume were down vs. a year ago. Sales were down 3.9%, while units were down more than double that (8.6%).

In 2021, total convenience store industry sales of cigarettes were flat, rising just 0.3%, while unit volume in the category declined by 6%, the largest drop in five years.

The State of OTP

In 2021, other tobacco products (OTP) had a better year overall than cigarettes. The first half of 2022 presented a similar scene for this category, with total industry OTP sales up 4.4% vs. a year ago, while units were down 1.8% for the same period.

The smokeless tobacco and pipes segments were the first-half standouts in the OTP category, posting both sales and unit volume increases. The e-cigarettes and papers segments also posted sales increases, but saw unit volume declines.

The State of Packaged Beverages

The packaged beverages category had a good year across the board in 2021, following mixed results the previous year. The first six months of 2022, however, brought a unit volume decline of 1.3%. Dollar sales were still on the rise, albeit at a slower pace of 6.5% growth.

Energy drinks and enhanced water were the category standouts for the first half of this year, being the only segments to post both sales and unit volume increases. Sports drinks had the biggest percentage increase in sales, but saw a slight 0.1% decline in units.

The State of Beer

Sales of beer and malt beverages contracted in 2021 following strong pandemic-related growth the previous year. The contraction seems to be continuing, but leveling off somewhat, based on the numbers for the first half of this year.

Segment-wise, imported beer, super premium beer and flavored malt beverages are faring well in the beer category, posting first-half growth in both dollar sales and unit volume.

The State of Candy

2021 marked a high point for the candy category’s total c-store industry sales and unit growth over the last five years. The first six months of 2022 brought sustained sales growth of 10.8% vs. a year ago. However, unit volume returned to negative territory, dropping 0.1%.

All segments of the candy category posted increases in dollar sales for the January-June 2022 period. Three segments also posted unit volume increases: candy rolls/mints/drops, gum, and bagged or repackaged peg candy. The rest of the segments saw a drop in units.

The State of Salty Snacks

Similar to candy, the salty snacks category also posted its highest c-store industry sales and unit growth in five years in 2021. The category is performing even better so far in 2022. First-half sales jumped 14.1% vs. a year ago, with unit volume rising 3.4%.

With the exception of two subcategories, all other segments of the salty snacks category posted first-half growth in both dollar sales and unit volume. The nuts/seeds and mixed salty snacks segments grew in dollar sales, but posted unit declines.

The State of Grocery

Edible grocery dollars and units in the convenience channel grew in 2021, but that growth slowed compared to the height of the pandemic in 2020. The first six months of 2022, however, brought a resurgence to this category, perhaps fueled by consumers seeking to make fewer shopping trips to offset record-breaking gas prices.

C-store industry sales of nonedible grocery items were also strong during the first six months of this year, with sales increasing 7.8% vs. a year ago, and unit volume increasing 5.2%.

The State of General Merchandise

Looking at the first six months of 2022, general merchandise is off to a shaky start in the c-store industry this year, with both dollar sales and unit volume declining. First-half unit volume was down 6.7% vs. a year ago, and sales were down 4.3%.

Only one segment of the category saw growth across both sales and units during the first half of this year: hardware/ tools/housewares. Most other segments were down in both metrics.

The State of Health & Beauty Care

Last year, the health and beauty care (HBC) category experienced its largest c-store industry sales growth in five years. The first half of 2022 brought continued HBC sales growth. Unit volume, however, retreated back into negative territory.

Segment-wise, the first-half standouts in the HBC category were vitamins/supplements, cosmetics, and other internal over-the-counter medications. These segments produced growth in both dollar sales and unit volume during the first six months of this year.

The exclusive Convenience Store News 2022 Midyear Report Card, compiled in partnership with NielsenIQ, looks at dollar sales and unit volume metrics for January through June 2022 to evaluate which product categories are gaining vs. losing amidst today’s challenges.

Larger Basket Sizes Drive In-Store Sales Despite Lower Trip Count

The average weekly sales per store for all nonfuel products in Q1 was on par with the same period in 2021 when gas prices were much lower.

STATE COLLEGE, Pa. — A new report found that convenience store sales were buoyed by nonfuel trips.

Despite record-high gas prices, inside sales at convenience stores have remained stable, according to VideoMining’s C-Store Shopper Insights (CSI) Tracker. The average weekly sales per store for all nonfuel products in the first quarter of 2022 was $53,704, which is on par with the same period in 2021 when gas prices were much lower. 

However, c-store traffic is still below pre-pandemic levels. In-store traffic for the first quarter of this year was down 17 percent relative to the first quarter of 2019, while the total store sales was up 2 percent for the same period.

Nonfuel Trips Drive Sales 

When it comes to consumers shopping for just essentials, convenience stores have benefited from not being too dependent on fuel customers for in-store sales.

The CSI Tracker found that a majority of the in-store sales in the channel came from customers who were not on a fuel trip. Nonfuel customers accounted for 72 percent of all in-store sales in 2021. This number varied based on the store location, but was as high as 80 percent for some well-run stores with wide foodservice options.

The company also noted that the pain at the pump will likely not help improve pump-to-store conversions. In the fourth quarter of 2021, the conversion rate for fuel customers was only 26 percent with 74 out of 100 fuel customers driving away without making any in-store purchases.

Shifting Trip Missions

C-store visits are highly mission-driven, with each trip usually serving a primary need. In order to help retail operators understand consumers’ primary c-store trips and how it has evolved over the years, VideoMining’s CSI Tracker program utilizes nine trip missions:

  • Refreshment
  • Snacking
  • Tobacco
  • Caffeine Boost
  • Meal Building 
  • Alcohol
  • Lottery
  • Grocery Shopping
  • Non-Food

VideoMining’s CSI Tracker program grouped all c-store trips based on the trip missions to analyze how the share of each trip mission has changed over time, especially over the long term. 

Using the trip mission framework, CSI Tracker compares the recent period, Q1 2022, with a corresponding pre-COVID times such as Q1 2019, to identify some key behavioral shifts beyond the pandemic.

Growth is Fueled by Alcohol Trips

According to the insights, the alcoholic beverage category is a highlight for retailers. The Alcohol trip mission had a solid gain of 15 percent in its share of store trips, with other trip missions like Refreshment, Meal Building and Snacking all posting strong gains in the comparison across three years (first quarter of 2022 vs. first quarter of 2019). 

Tobacco was among the trip missions that declined.

Some of these shifts in trip missions are based on emerging long-term trends — beyond the impact of pandemic — affected by consumer demands, store transformations, and new product innovations. For example, some of the alcohol trip growth can be attributed to sustained demand for Beyond Beer or Ready-to-Drink alcoholic beverages, which have become popular with younger consumers, including women, according to VideoMining.

Attracting More Convenience Trips

The combined effect of shifts in trip missions was an overall increase in the number of units purchased on each trip — increasing 8 percent from Q1 2019 to Q1 2022. As a result, the 23.4-percent increase in basket size across the same period was not based purely on inflation, VideoMining said.

According to the company, travel appetite and gas prices will have some impact on the channel, and convenience retailers can continue to do well if they attract diverse trip missions with targeted innovations and marketing rather than just focusing on the pump-to-store conversions.

Pennsylvania-based VideoMining helps retailers and consumer packaged goods manufacturers optimize retail performance and shopper experience by decoding in-store behavior using anonymous sensing and artificial intelligence.

Source: Convenience Store News