From a high-level view, the story of the cigarette category has not changed much from year to year: The top premium brands still dominate, smoking rates (and therefore volumes) continue to decline and regulations at every level of government continue to challenge the category.

Yet at 31.01% of in-store sales in 2018, according to NACS State of the Industry data, even small changes to the cigarette category can pack quite a punch.

While a 3.2% decline in cigarette category sales last year may not seem like a big shift, NACS analyst Jayme Gough said that decline amounted to more than $21,000 on a per-store basis. “That’s pretty significant,” she said.

The same challenges that caused that 3.2% decline in 2018 are still present; however, much of the regulatory attention this year has shifted to a different segment of the tobacco category: e-cigarettes.

“It’s going to be interesting to see how the rest of the year turns out, especially with all of the e-cigarette news coming out,” said Gough. “It’s looking like cigarette sales are going to be either flat or down this year.”

Here’s a look at what we do know about the cigarette category thus far in 2019.

Sales Fall at a Faster Rate … Maybe

If a 3.2% decline in 2018 hit retailers hard, Nielsen’s first-half numbers for this year didn’t do much to lift spirits: C-store cigarette dollar sales were down 4.4%, and unit sales were down 7.7% year-over-year as of July 2019.

Matt Domingo, senior director of external relations for Reynolds American Inc., said the company has seen “a little bit of an acceleration” of volume declines, particularly in the first half of 2019 (he noted that volumes have stabilized as the year has progressed). “We didn’t go into this year being too surprised that the cigarette volume deceleration would be what it is given the propensity of the vapor category coming into the year.”

Domingo’s sentiments were echoed by Altria Group Inc. spokesperson George Parman, who added that the company estimates a 5.5% decline in cigarette volumes during the first three quarters of 2019.

Others cited increased regulatory activity for a (hopefully) brief dip in sales, as was the case for Lonnie McQuirter’s 36Lyn Refuel Station in Minneapolis. McQuirter, the director of operations, said his cigarette sales “took a hit” when Minnesota banned menthol and raised the minimum purchase age to 21—both in October 2018—but have since stabilized.

“While it had a pretty big impact, the lost sales have been bad but not as bad as we feared,” he added.

We are seeing that cigarettes that are priced as deep discount are still strong.

Nielsen is far from the final word on convenience sales, even according to Nielsen. On July 30, the company had to re-issue its first-half convenience numbers with updated data after realizing it “overstated declines” because it didn’t properly account for the high number of independent retailers in the channel. The updated data showed a 3.1% decline in cigarette sales (previously 4.4%) and a 3.7% decline in units (previously 7.7%).

It’s part of the reason many retailers—and NACS—look at other data sources for a more complete picture of category trends. NACS, for example, also relies on CSX data, which look much more promising.

“This year is looking similar, if not slightly down, compared with 2018 in terms of sales,” Gough said, noting that CSX tracks sales and gross profit dollars, while Nielsen tracks sales and unit growth. “It’s hard to say what the year is going to look like when it’s done.”

Usage Shifts

While it’s not yet clear if 2019 sales will indeed mirror 2018, one trend that definitely appears to be continuing is a shift in usage patterns.

The NACS CSX database breaks the cigarette category into five subcategories: premium, branded/discount, subgeneric/private label, fourth tier and import. CSX data show that the fourth tier and import segments are the only subcategories seeing sales growth in 2019 … just as they did last year.

“We are seeing that cigarettes that are priced as deep discount are still strong,” said Renee Duszynski, vice president of sales for cigarette manufacturer JTI USA. “Our data show that deep-discount brands have had double-digit growth year-over-year for the past three years.”

A 3.2% decline in cigarette category sales may not seem like a big shift, but the decline amounted to more than $21,000 per store.

While growth is always exciting within a category on the decline, it’s important to note the scale: In 2018, NACS State of the Industry data showed fourth-tier cigarettes at 3.8% of the total category and imports at 2.5%. Premium cigarettes accounted for 77.5%. “Yes, there is growth, but these segments are still so minimal compared to what premium cigarettes bring in in terms of sales and gross profits,” said Gough.

Perhaps impacting the cigarette category in a bigger way is the movement toward dual, or in some cases even poly, tobacco usage. “We see this as becoming a very regular thing among today’s consumer: They’re not as loyal to one form of tobacco consumption as much as they used to be,” said Domingo.

“We continue to believe that increased adult smoker movement to e-vapor and high levels of exclusive e-vapor category usage were the primary drivers of the accelerated decline rate over the past year,” agreed Parman. “Adult tobacco consumer movement across tobacco spaces remained highly dynamic.”

Spotlight on T21

Beyond sales declines and usage shifts, another constant trend in the cigarette category has been increased regulations. A key difference in 2019 is that one of those regulatory trends moved from the state and local level to the national stage when Senate Majority Leader Mitch McConnell introduced a bipartisan bill to raise the tobacco purchase age to 21. If the Kentucky senator seems an odd proponent of tobacco regulations, consider this: The Tobacco 21 proposal (T21) also has the support of major tobacco manufacturers, including Altria Group Inc. and Reynolds.

“Current trends in underage e-vapor use must be addressed,” Parman said of Altria’s support for T21. “Taking this important step will address the main way underage youth gain access to tobacco products today—from friends who are of legal age.”

Domingo added that a national tobacco purchase age of 21 would make compliance easier for Reynolds American’s trade partners. “We’d rather it be federal than state or local, because that presents more challenges for our trade partners in terms of execution and compliance if they have stores in multiple jurisdictions,” he said.

Not every manufacturer agrees. JTI believes the data do not support raising the minimum age, instead advocating for mandatory ID systems to prevent youth access. “We have seen evidence that simply raising the minimum purchase age to 21 doesn’t work,” said Duszynski, pointing to more than 400 citations issued to retailers selling to minors in New Jersey since the state raised the purchase age in November 2017. “Tobacco 21 has broken its promise to eradicate youth access.”

Increased adult smoker movement to e-vapor and high levels of exclusive e-vapor category usage were the primary drivers of the accelerated decline rate.

NACS is neutral on a federal 21 purchase age for tobacco, as are many of its retail members. “The buzz behind this is much more than the actual substance,” said McQuirter, who operates in a T21 city. “It makes for good politics and paints us to be the bad guy, but the science and statistics—both government and industry-provided—have for years proved otherwise.”

It’s no surprise that as the industry looks to what’s in store for 2020 and beyond, when it comes to cigarettes, it’s much of the same: Sales will continue to decline (especially as consumers explore new nicotine delivery systems), and regulations will rise.

But that doesn’t mean it’s all bad news.

“Convenience retailers are resilient,” said McQuirter. “We’ve survived the oil crisis, shifted business models multiple times, and many have expanded during periods of macro-economic downturns. I think we are one of the best-positioned industries within retail to weather any storm that’s coming toward us.”