Tobacco sales slip below $10B benchmark

October 19, 2011

Fewer U.S. smokers smoke less each day, as more places go smoke-free and PSAs and package labels message the health risk.

Like puffs of smoke that vanish in the air, the number of adult smokers in the United States is diminishing – though at a slower rate than in previous periods. Some 45.3 million American adults continue to smoke. That’s 19.3% in 2010, a dip from 20.9% in 2005, reported the Centers for Disease Control and Prevention.  

Most are everyday smokers (78.2% or 35.4 million), yet they smoke fewer cigarettes each day. The percentage of adult daily smokers who smoke 30 or more cigarettes per day fell from 12.7% in 2005 to 8.3% in 2010; the percentage of adult daily smokers who smoke nine or fewer cigarettes per day rose from 16.4% in 2005 to 21.8% in 2010.

The figures don’t surprise, since several high-profile trends are affecting demand.  First, graphic public service ads and package labels have heightened awareness of the health risks of smoking, not only to smokers but also to people around them.  Second, successive tax hikes and manufacturer price increases have made this habit less affordable in the current economy. Third, there are more restrictions on where people can smoke: just this past week, the University of Oregon announced plans to become a completely smoke-free campus as of Fall of 2012.

What does this mean for retailers? Dollar sales of tobacco products declined 3.7% to $9.78 billion in U.S. food, drug and mass merchandiser stores (including Walmart) during the 52 weeks ended August 6, 2011, according to Nielsen data tracking prepackaged, UPC-coded products only. This followed a 6.2% dollar sales increase in the year-earlier period. These figures don’t include convenience stores, which are major outlets for tobacco products.

There is no evidence that smokers are trialing private label smokes in order to save money; PL sales continue to account for well under 1% of category sales, the Nielsen data show. As always, this is a branded business.

This year’s slip below the vaunted $10 billion dollar sales benchmark underscores the concern retailers likely feel over the erosion of a category on this scale. Not only are dollar sales, margins and customer trips at stake, presumably so are display allowances, which have long padded retailer bottom lines as brands wage fierce market-share battles.

The latest wrinkle – not entirely new – is how retailers might keep these dollars flowing when they know if they sell cigarettes openly, they might taint their market positions as health and wellness leaders. Drug chains catch heat for this. Sales from behind the service desk are more the norm now – partly to control under-age buying, partly to thwart organized shoplifters, and partly because of image.

Who still smokes today? According to the CDC:
•    21.5% of adult men and 17.3% of adult women
•    31.4% of the American Indian/Alaska Native population, 25.9% of multiple race (non-Hispanic), 21.0% of White (non-Hispanic), 20.6% of Black (non-Hispanic), 12.5% of Hispanic and 9.2% of Asian (non-Hispanic)

The brands they prefer are Marlboro (39.9% market share), Newport (9.9%), Camel (6.4%), Pall Mall Box (5.7%), Winston (2.8%) and Doral (2.6%), the CDC said, citing 2009 data.