The COVID-19 pandemic—and consequent lockdowns this spring—impacted virtually every category within convenience. Perhaps none more so than cigarettes. Accounting for nearly 28% of U.S. in-store dollar sales, according to 2019 NACS State of the Industry data, cigarettes have long represented the channel’s greatest sales driver … and the greatest declines, with gross margin dollars shrinking 4.8% last year. It also represents a category where 70% of the sales happen within the convenience channel, and online sales in the U.S. are banned.

So perhaps it’s not surprising that the initial lockdowns benefited both the cigarette category and tobacco retailers.

“In January, before the pandemic hit, the nicotine/tobacco category was declining by 2-3%,” said Don Burke, senior vice president of Pittsburgh-based Management Science Associates (MSA). “Right now, we’re seeing minus 0.8% over the past 52 weeks. That’s a significant improvement.”

From March to August, sales of cigarette cartons were up by nearly 15 million units and singles by over 141 million, compared with the six months before the pandemic.

That boost was due in part to major stock-ups in March, as well as a continued desire to make fewer shopping trips, according to NACS Vice President of Research Lori Buss Stillman. As with beer and packaged beverages, people were consolidating trips by buying larger volumes and larger packages. “There’s been some pivot from buying one or two packs to a carton,” she said.

Lonnie McQuirter saw this happen firsthand at his stores. The director of operations at 36 Lyn Refuel Station, Minneapolis, reported that his weekly carton sales are higher than they’ve been in years. Perhaps more impressive, carton growth hasn’t come at the expense of single packs, representing actual growth.

Indeed, Nielsen data show that as of the 21 weeks ended August 8, 2020, carton sales were up $959 million, and single packs were up $1.2 billion from the 21 weeks leading up to the pandemic. Units also were up: cartons by nearly 15 million units and singles by more than 141 million, suggesting it’s not just stock-ups.

“You’d expect to see spikes for certain weeks, then it balances out the following weeks,” McQuirter said. “We haven’t seen that yet.”

MSA data—which track wholesale shipments to retail—show unit sales were down 2% in January and 3% in February, which Burke described as “typical.” Then March hit and units increased by 3% compared with the previous year. In April and May, units were down 7% and 1%, respectively, as retailers worked off the inventory from March.

June is where things got interesting.

“Cigarette unit sales were up 1%,” Burke said of June. “That was somewhat surprising as volumes were expected to return to a more typical slight decline. If it continues this way, cigarettes could have a very good year.”

The Factors: Not Just COVID-19

The continued growth has surprised even seasoned retailers. “It seems confusing at first,” McQuirter said. “Why are our sales up not only in single packs but also multipacks?”

As he reflected on the market since March, McQuirter pointed to multiple factors combining for a perfect storm: yes the quarantine era, but also working from home, the social unrest and protests that have taken out some of his competitors in Minneapolis, and even weather phenomena like Hurricane Laura. “To tease out one thing or another would be naïve,” he said.

Here are some of the most prominent reasons behind a growth in cigarette sales:

• An Essential Good: McQuirter likened early bulk purchases for cigarettes to the extreme stock-ups the nation saw of toilet paper and hand sanitizer back in March, noting that for more niche brands, he had customers who would buy out his entire supply in one trip. “They want to be prepared if there’s a supply shortage or if they can’t leave their homes,” he said. “It’s not a value play: Our cartons are the exact same price as what 10 packs of cigarettes cost.”
• Expanded Unemployment Insurance: While the cigarette shopper is often price sensitive, McQuirter said that lessened with the congressional expansion of unemployment insurance during the pandemic, putting an extra $600 a week in the pockets of people who’d lost their jobs. “Very few shoppers are actually looking at the price of items; they’re just going and buying them,” he said, adding that he hadn’t yet seen a negative impact from the expiration of those benefits in August.
• Increased Consumption: Perhaps the greatest reason behind unit growth is the simple fact that people can smoke more … and are. “Many consumers are in the work-from-home environment and are not faced with the typical smoking restrictions they’d face in the workplace,” Burke said. “Consumption is up because there are no restrictions on usage.” Stillman added, “In the midst of a pandemic, people are stressed. COVID gave us a bit of a delay on the declines we expected this year in tobacco.”

Moving Forward

Though the unemployment insurance expansion has expired, the other factors behind the growth in cigarette sales—while not permanent—are likely to linger through the end of 2020. Potentially longer. “We’re cautiously optimistic about having strong double-digit tobacco and cigarette sales this year,” McQuirter said.

Officially, MSA is projecting declines of 2-3%, which Burke said is in line with major tobacco manufacturer projections. “But it could be better should the pandemic continue, requiring continued work from home,” he added. “That could make a big difference in this market.”

Which means retailers will need to make some adjustments to better capitalize on the new normal in cigarette purchasing patterns. Instead of encouraging a hot coffee with a cigarette pack, make sure pandemic-needed items like hand sanitizer or cleaning supplies are readily available to boost the basket. Instead of banking on single packs, don’t slack on cartons.

“We’re going to have to figure it out as an industry,” said Stillman. “The consumer is willing to buy larger package sizes from us…if we have it available.”