Lower gas prices continue to help drive category strength.
Cigarette dollar sales accelerated driven by solid pricing and equally strong volume, according to a recent Nielsen report. Wells Fargo Securities LLC, noted that c-store cigarette dollar sales were up +5.9% (up from +3.5% last period and -3.2% last year) during the recent four-weeks ending Feb. 14, 2015, on +2.9% pricing and +2.9% equal units.
“We believe c-store unit sales have been aided by CVS no longer selling tobacco. Further, as mentioned in our ‘Tobacco Talk’ survey notes, lower gas prices continue to have a favorable impact on the category. We continue to expect strong manufacturer pricing in 2015, which should help offset broad volume declines and generate robust profitability growth,” said Bonnie Herzog, managing director, beverage, tobacco and convenience research for Wells Fargo.
E-Cigs
Meanwhile, e-cig c-store dollar sales growth continues to decelerate though remained positive for the sixth consecutive period (+2.3% in the recent period ending Feb. 14, 2015). This was driven by 27.9% unit growth, partially offset by -20% net pricing, however pricing was 0.9% sequentially better this period.
“Though e-cig y/y pricing has been negative for 15 consecutive periods now, we believe it’s at least partially due to difficulty in capturing SKUs given the rapidly evolving vapor category and proliferation of vapors/tanks/mods (VTM) and refills, which tend to have a lower retail price/refill. However, we remain encouraged that category dollar sales continue to grow, driven by Big Tobacco’s national e-cig rollouts and believe the trial and awareness generated by Vuse and MarkTen should help elevate the entire category and drive incremental trial,” said Herzog.
“Importantly, we note that VTMs are under-represented in Nielsen but are growing three-times faster than the vapor category based on our ‘Tobacco Talk’ surveys. While we remain bullish on vapor long-term, we acknowledge some near-term profitability headwinds as companies continue to invest in the category. Bottom line – we continue to believe vapor consumption could surpass combustible cigs in the next decade (by 2025), driving total profit pool growth & generating a 6.6% CAGR.”