Convenience Store News

JAN 2017

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68 Convenience Store News | JANUARY 2017 | WWW.CSNEWS.COM Cigarettes + Cigars + Smokeless + E-Cigs + Other OTP TOBACCO were effective with shipments on or after Dec 6. "We expect other smokeless tobacco manufactur- ers — RAI, Swedish Match, etc. — to follow suit with similar list price changes," Herzog said. "On balance, we believe the list price changes reflect the industry's continued strong pricing power, which remains a criti- cal driver of revenue and earnings growth." In 2017, smokeless tobacco sales trends are expect- ed to continue to see a lift from brand exten- sions, "reflect- ing strong consumer acceptance of recent line extensions, but also limited 'uptrading' into com- bustible cigs," according to Herzog. The national expansion of Copenhagen Mint earlier this year is expected to continue to "resonate," as she put it. And Herzog expects Grizzly to gain ground with its Dark Mint style, which just launched in the third quarter. A recent report from the Gallup-Healthways Well- Being Index showed that the smoking rate among U.S. adults aged 18-29 has declined 12 percentage points to 22 percent over the past decade, a steeper decrease than any other age group. It reasoned that this could be related to young adults switching to non-cigarette tobacco alternatives, including smokeless tobacco, which is consumed by 5.4 percent of adults aged 18-29, higher than any other age group. Curiosity, appealing flavors, peer influences, high cigarette taxes, and smoking bans may be leading young adults now and in the years to come to use alternative tobacco products, market researcher Gallup and healthcare company Healthways concluded. THE OUTLOOK FOR E-CIGARETTES/VAPOR The most recent Nielsen numbers show that e-cig dol- lar sales are on the rise by more than 25 percent, led by Reynolds' VUSE and Altria's MarkTen XL. VUSE is reportedly maintaining its dollar share leadership at just over 35 percent, vs. roughly 17 percent for blu, its nearest competitor. MarkTen XL "continues to make inroads from distribution gains most likely driven by couponing," Herzog cited. "In a post-deeming regs environment, we expect competition to intensify," she said. "VUSE's ability THE OUTLOOK FOR CIGARETTES In the cigarettes category, solid pricing and increases are expected to offset expected cigarette volume decelera- tion in 2017. In November, several cigarette brands fol- lowed Altria Group Inc.'s lead after it hiked the prices of its Philip Morris USA portfolio by 8 cents per pack. Reynolds American Inc. (RAI), ITG Brands LLC and Liggett Vector Brands took wholesale list price increases of 8 cents per pack — an increase equal to approxi- mately 2 percent to 3 percent — on their key cigarette brands. ITG Brands took a 16-cent-per-pack increase on its other brands, according to Bonnie Herzog, manag- ing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC. These list price changes were effective starting Nov. 11. The pricing moves also follow the passage of Proposition 56 in California, which increased the state's cigarettes excise tax by $2 per pack. Known as the California Healthcare, Research and Prevention Tobacco Tax Act of 2016, the proposition will also place an equivalent tax increase on other tobacco products and electronic cigarettes containing nicotine. Three other states had proposed similar moves, but they were rejected on Election Day. "These price increases are positive, indicating the industry's pricing power and its ability to offset any volume declines associated with the coming tax increase in California" and with the overall decelerated cigarette volumes expected for fiscal 2017, Herzog stated. The coming months will see some convenience store operators get more aggressive with private label and control-label cigarette brands. Circle K, a division of Canada-based retailer Alimentation Couche-Tard Inc., is a proponent of both, recently focusing on the latter with its Traffic brand, which is now featured in the backbar of its convenience stores in 40 states. Circle K already carries its own private-label ciga- rettes, Crown, which parent company Couche-Tard launched across its retail brand in 2012. THE OUTLOOK FOR SMOKELESS Smokeless tobacco continues to lead the other tobacco products (OTP) category in the convenience channel with nearly a two-thirds share of dollar sales, accord- ing to recent industry data. As with cigarettes, list price changes are affecting the smokeless segment. Altria recently announced a 7-cent to 12-cent increase per can on most of its core smokeless tobacco brands, and a 77-cent-per-can list price decrease on certain Skoal tobacco blends. These list price changes

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