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Traditional cigarette sales slump as discount brands gain customers during pandemic
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Traditional cigarette sales slump as discount brands gain customers during pandemic

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Traditional cigarette sales continued to slump, with more consumers opting for lower-priced options rather than top brands during the COVID-19 pandemic, according to the latest Nielsen convenience store report out Wednesday.

Overall sales volume for traditional cigarettes was down 2.2% for the four-week period that ended Sept. 5.

By comparison, the sales volume was down 0.8% in a four-week period in May.

"Given ongoing uncertainties around federal government stimulus, we are interested to see what the potential impact may be on the nicotine category," Goldman Sachs analyst Bonnie Herzog said.

"Downtrading remains the biggest potential risk, in our view, as those (price) pressures could increase."

Meanwhile, sales of electronic cigarettes — down 15.1% for the four-week period — have continued to slump seven months after the Food and Drug Administration implemented its latest round of heightened regulations on the products.

Goldman Sachs analyst Bonnie Herzog said R.J. Reynolds Tobacco Co. plans to raise the list price for most traditional cigarette brands by 13 cents a pack, effective Sept. 28.

The list price is what wholesalers pay manufacturers for their products. The increase typically is passed on to customers at retail.

Traditional cigarette manufacturers have raised prices two to three times a year in recent years, most recently on June 21.

Herzog said it is "the first time in recent history" that Reynolds announced first. Typically, Philip Morris USA announces a price hike and Reynolds and ITG Brands LLC respond.

Nielsen reported Altria’s volumes were down 2.1% for the latest report, while Reynolds was down 3.1% and ITG down 2.5%.

Philip Morris’ market share was at 52.8%, with top-selling Marlboro at 46.4%.

Reynolds was at 34.2%, with No. 2 Newport at 14.1%, No. 3 Camel at 6.1%, No. 4 Pall Mall at 6.1% and No. 5 Natural American Spirit at 3.8%.

ITG was listed at 7.2%. ITG has said its market share is closer to 10%. Its top brand, Winston, was at 1.9%.

Some anti-smoking industry analysts said they believe Philip Morris USA was stirred to conduct a quicker-than-normal price increase with electronic cigarettes facing heightened societal and regulatory scrutiny.

However, some anti-tobacco advocates consider each per-pack hike as an increasing disincentive for buying traditional cigarettes, particularly among low- to moderate-income individuals.

"To date, there is no sign that the public-health catastrophe of the resulting higher levels of cigarette smoking is leading to any rethinking of the strategies of those attacking vaping," said David Sweanor, an adjunct law professor at the University of Ottawa and the author of several e-cigarette studies.

"Much of the basis for the attacks on vaping has been ascribed to concerns about the unintended consequence of youth usage.

"But those efforts have in turn evidently led to the foreseeable consequence of higher levels of adult smoking," Sweanor said.

Herzog said Marlboro recently extended its test markets for its HeatSticks heated traditional cigarettes into the Charlotte area, along with Atlanta and Richmond.

Overall e-cigarette sales-volume growth has declined steadily since Nielsen’s Aug. 10, 2019, report, when it was up 60.2% year over year.

The latest FDA restrictions on the sector debuted Feb. 6. The FDA raised the legal smoking age from 18 to 21 on Dec. 20.

Those restrictions foremost required manufacturers of cartridge-based e-cigarettes, such as Juul Labs Inc., R.J. Reynolds Vapor Co., NJoy and Fontem Ventures, to stop making, distributing and selling “unauthorized flavorings” by Feb. 6, or risk enforcement actions.

The menthol and tobacco flavors still allowed for cartridge e-cigarette flavorings are the same as those that are legal in traditional cigarettes.

Electronic-cigarette manufacturers had to submit by Sept. 9 their premarket tobacco applications in order to stay in the marketplace for at least another 12 months.

Juul’s four-week dollar sales have dropped from a 50.2% increase in the Aug. 10, 2019, report to a 26.7% decline for the latest report. By comparison, Reynolds’ Vuse was up 66.5% in the latest report and NJoy down 41.1%.

Juul has a 58.2% market share, up from 57.8% in the previous report.

Vuse is at 24.3%, up from 23.6%, while NJoy was unchanged at 5.1%, and Fontem Ventures’ blu eCigs was unchanged at 2.7%.

Herzog said that NJoy “refutes Nielsen’s data and methodology.”

336-727-7376

@rcraverWSJ

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