Up, Up and Away

E-cigs rebound as smokeless continues to soar.

Up, Up and Away

January 2022   minute read

By: Melissa Vonder Haar

The year 2020 posed a unique question for tobacco products: Could cigarettes—a huge category that historically declines—and OTP—a slightly less large category that historically gains—thrive at the same time?

NACS State of the Industry (SOI) Report data suggest they can. In 2020, cigarette sales (the top contributor to in-store sales at convenience stores at 27.79%) grew 3.6%, while OTP sales (the fourth-largest contributor to in-store sales) grew by 5.7%.

“2020 was a good year for OTP, like many of the more indulgent categories in convenience,” said Jayme Gough, NACS research manager. “People were home, so they could smoke or vape as much as they wanted to.”

Source: NACS State of the Industry Report of 2020 Data

Even as life returned to some form of normalcy, the three major OTP segments enjoyed double-digit growth: Nielsen data as of October 23, 2021, had total U.S. smokeless dollar sales up 12.5%, cigars up 12.3% and e-cigs up 21.6%.

While cigarettes remain a key convenience category due to the sheer volume of sales, OTP has continued to be a space retailers and manufacturers look to for the future of the overall nicotine category, thanks to a larger variety of products and continued innovation.

“Besides being one of the top five in-store sales contributors, OTP is definitely a category where there are a lot of opportunities for the future of tobacco and nicotine products,” Gough said. “There is a lot of innovation and myriad ways to consume nicotine and tobacco.”

Here’s how some of those more diverse nicotine offerings performed over the past year.

 Now that nicotine and tobacco have been effectively separated, it’s a whole new world for consumers.

SMOKELESS: NO SLOWDOWN

Smokeless has long been the largest segment in the OTP category, and 2020 was no exception: Smokeless accounted for 36.9% of OTP sales. The subcategory had a great year, with sales up 9.3% and gross profit dollars up 19.3%, which Gough described as huge.

“There was lot of uptick in smokeless last year,” she said. “Some of it was e-cigarettes: There was consumer confusion around legality and health effects, so it’s possible they reverted to their former nicotine consumption habits.”

Nielsen data indicate an even more impressive showing for 2021: As of October 2021, total U.S. smokeless dollar sales were up 12.0% and unit sales were up 1.3% (Nielsen does not track gross profit dollars).

“So far in 2021, smokeless is trending similar to the overall OTP category,” said Gough. “So, really good.”

Though moist smokeless remains a top seller in the smokeless segment, modern oral nicotine has been credited with a lot of smokeless’ gains in recent years.

In the past, NACS has not tracked modern oral nicotine as its own subcategory within OTP, and retailers could track them in either smokeless tobacco or “other” tobacco products. “NACS Category Definitions version 8.0 has designated ‘smokeless tobacco alternatives’ as a new subcategory to allow us to track these products moving forward,” Gough said.

What can be tracked is the continued rapid growth for the largest modern oral brands, even several years in. Per Nielsen, Swedish Match’s ZYN had sales of $689 million from October 2020 to October 2021, up 49.4% in dollar sales and 49.5% in unit sales. Altria’s on! had $81 million in sales, up 241.9% in dollar sales and 328.6% in unit sales. British American Tobacco’s Velo had $46 million in sales, up 43.4% in dollar sales and 92.7% in unit sales.

“The modern nicotine consumer understands that there are viable, less risky ways to enjoy nicotine without the harmful effects that tobacco presents,” said Joe Ackerman, vice president of marketing for Swedish Match. “Many of these products provide a convenient experience for consumers (smoke free, spit free, etc.), which affords consumers the luxury of enjoying the product anywhere, anytime.”

Ackerman said the best thing retailers can do to leverage the interest in modern oral is to create a highly visible modern oral section within their tobacco sets and educate consumers on the spit and tobacco-free products.

“For years, consumers have only been able to get nicotine via traditional tobacco products,” he said. “Now that nicotine and tobacco have been effectively separated, it’s a whole new world for consumers. The more that they learn about this transformation, the more growth the category will experience.”
 

For more information on NACS category definitions, visit www.convenience.org/categorydefinitions.Source: NACS State of the Industry Report of 2020 Data

E-CIGS ON THE REBOUND

If there was one dark spot in the 2020 OTP data, it was electronic cigarettes. SOI data had e-cig sales down 8.9%, gross profit dollars down 17.0% and—for the first time ever—the segment’s percentage of OTP sales shrank, going from 33.9% of category sales in 2019 to 29.5% in 2020.

A 2019 focus on a potential vaping-related lung disorder (which turned out to be due to illegal THC vaping devices, not nicotine-based ones), immense political pressure to deal with underage vaping usage and a slew of regulations that (among other things) banned most e-cig flavors and online sales all likely played a part in 2020’s declines.

“All of that compounded and hurt the subcategory’s sales for 2020,” Gough said.

The tide, it seems, has turned. Significantly.

Nielsen data through October 2021 showed total U.S. e-cig/vapor dollar sales increased 21.6% and unit sales rose 13.1% year over over.

“I think the big thing for 2021 is e-cigarette growth. That’s what’s pushing the overall OTP category,” said Gough. “Right now, smokeless looks pretty good, but e-cigarettes really are strong. It looks like they’re going to bring back a lot of those lost sales from 2020.”

Disposable e-cigarettes—which were the one product not subject to the federal flavor ban and therefore saw strong growth in 2020—continued to grow last year, with Nielsen showing dollar sales up 44.1% and units up 24.1% year over year as of October 2021. But Wells Fargo analyst Bonnie Herzog noted those trends are shifting: Disposable dollar sales were down 20.4% in October vs. September 2021.

 Just the Facts: OTP sales grew 5.7% in 2020, NACS State of the Industry data indicate. 

“Overall e-cig gains were broadly driven by the e-cig refill market, which is nearly 73% of the total category,” Herzog wrote in a research note. “While the refill market works to recover, the much smaller e-cig disposable market (24% of the category) has begun to contract as the FDA goes after non-compliant market participants.”

One potential reason for growth in the refill market is that the U.S. Food and Drug Administration (FDA) has finally started approving refillable e-cig and vaping products through the pre-market tobacco application (PMTA) process. While the agency has issued far more marketing denial orders (MDOs) than Marketing Granted Orders (MGOs)—and has yet to provide a list of which products for which it has issued MDOs—the fact that some products, including Reynold’s American Inc.’s VUSE Solo tobacco-flavored electronic cigarettes, have been officially approved could help ease consumers’ minds.

“FDA’s orders confirm that permitting the marketing of Vuse Solo products is appropriate for the protection of the public health, underscoring years of scientific study and research dedicated to ensuring that adult tobacco consumers age 21+ have access to innovative alternatives to traditional tobacco products,” said Reynolds spokeperson Kaelan Hollan, noting that the PMTA approval is not a statement on modified risk. “The Marketing Granted Orders represent an important moment for Reynolds; FDA evaluates vapor product PMTAs against a rigorous, science-driven standard that sets a high regulatory bar for these transformational products.”

Hollan added that Reynolds, like many other electronic cigarette manufacturers, hopes to see more MGOs issued by the FDA on PMTAs that were submitted later in the process, including Vuse Alto.

“If more products get approved, that will have a positive effect on e-cigarette sales,” Gough said.

Source: CSX; www.csxllc.com

CIGARS STAY SOLID

Cigars, albeit a smaller percentage of OTP sales, did very well in 2020. NACS SOI data showed sales and gross profit dollars were both up: 15.2% and 8.7%, respectively. The subcategory also grew its percentage of OTP sales, going from 17.9% of the category in 2019 to 19.7% in 2020.

“So far, monthly sales look similar to how they looked in 2020,” Gough said of 2021, noting that sales don’t “typically fluctuate all that much” for cigars. Nielsen data through October supported this consensus, with dollar sales up 12.3% year over year (units were essentially flat).

In 2020, one of the stories of the cigar subcategory was early pandemic-related supply disruptions for several large cigar brands. Those issues were fully resolved in 2021, which, according to Karen Saber, Swisher’s vice president of business analytics and strategic sales innovation, has further benefited the segment.

“The adult consumer is excited to once again engage with their preferred brands, and they are actively seeking them out as the assortment of large cigars has returned to normal levels,” she said.

 If more products get approved, that will have a positive effect on e-cigarette sales.

Saber called out three product trends to watch within cigars for 2021 and beyond: 

• Natural Leaf Cigars: Natural leaf cigars account for 40% of large cigar sales, growing 18.4% year over year to 3.7 billion units, according to Swisher’s MSAi Database for the 52 weeks ended October 9, 2021. It “continues to be a breakaway segment,” Saber said.

• Filter Tip Cigars: A smaller but growing product option, filter tip cigars account for 23% of large cigar sales and are up 3.1% year over year, MSA data indicate. “The segment offers a variety of choices and price points, be it plastic tipped, wood tipped or traditional filtered tip,” she said.

• Mini Large Cigars: Saber described minis as “the newest segment to emerge within large cigars” and having “a wide berth of opportunity.” The segment has grown 13.1% in the past year, per MSA data.

Though cigars have typically demonstrated solid growth for retailers, the sheer volume of product types and brands requires a close eye from convenience retailers and their supplier partners.

“A diverse product mix is critical for success,” said Saber. “However, assortments must be optimized for maximum turns and profitability. Overall, there needs to be an open and honest partnership between retailers and manufacturers.”

 

The Power of CSX Data

CSX, the engine behind category metrics and NACS State of the Industry data, provides current and customizable tools for financial and operational reporting and analysis in the convenience industry. Retailers can measure their company by any of the myriad metrics generated via our live database. Contact Chris Rapanick at (703) 518–4253 or [email protected] for a complimentary executive walkthough.

Melissa Vonder Haar

Melissa Vonder Haar

 Melissa Vonder Haar is the marketing director for iSEE Store Innovations. Follow her on Twitter at @iSeeMelissaV.

Share:
Print: