US Cigarette Sales Drop As Smokers Shift To Vaping

Source from:  Financial Times 04/10/2019

The number of cigarette packs sold in the US dropped sharply in March, intensifying Wall Street concerns that smokers are stubbing out Big Tobacco’s core product at an accelerating pace as they shift to vaping.

Sales volumes fell 8.8 per cent from a year ago in the four weeks to March 23, according to Nielsen data cited by Morgan Stanley. While price increases partly offset the impact on revenues, the decline exceeded an 8 per cent rate fall reported in February and a 5.3 per cent decrease in 2018.

The figures are the latest sign of the pressures facing companies such as British American Tobacco and the Marlboro-maker Altria. The industry is investing heavily in ecigarettes and heated products, but still relies on revenues from regular cigarettes to support cash flow and dividend payouts.

That strategy could be challenged by the escalating scrutiny on ecigarettes. US health officials have made clear the devices could help wean smokers off tobacco, but are worried the products could be hooking a new generation on nicotine. Ecigarette companies have already been told to stop marketing flavoured vaping products in stores in the US.

On Wednesday the US Food and Drug Administration said it was also investigating whether there was a link between vaping and seizures, after 35 reported cases of seizures following ecigarette use between 2010 and early 2019.

The regulatory crackdown has done little to curb the popularity of ecigarettes. The Nielsen figures showed continued strong growth in sales of products from Juul Labs, the ecigarette company that was valued at $38bn in December when Altria took a 35 per cent stake.

Juul, which has argued that its ecigarettes are more effective than nicotine patches and other products in persuading smokers to switch from cigarettes, cited the data as evidence it was succeeding in its mission.

“These changes in the US tobacco market are a testament to the success of Juul products in switching adult smokers off combustible cigarettes,” said Kevin Burns, Juul chief executive.

Juul’s sales lept 154 per cent year-on-year, while its market share advanced from 6.2 per cent to 6.6 per cent over the course of the month.

The Nielsen figures follow a forecast from Altria this year that the long-term decline in cigarette volumes was gathering pace.

Billy Gifford, Altria’s chief financial officer, said at a conference that the volume decline had accelerated last year “outside of the 3-to-4 per cent historical range”.  The company now expected volumes to fall at an average annual rate of 4-5 per cent over the next five years “as adult smokers continue to explore alternative tobacco categories”.

Nielsen’s data track sales in only a minority of the US stores that sell cigarettes and have in the past shown larger declines than were subsequently reported by tobacco companies. Even so, analysts said they were a meaningful signal of a step-change in cigarette sales.

Research this year by Pamela Kaufman, a Morgan Stanley tobacco analyst, showed that the correlation between rising sales of Juul’s products and falling cigarette sales had become far clearer in recent months.

In a note to clients this week, Ms Kaufman said the Nielsen data showed Altria’s volumes in the most recent period had fallen 9.7 per cent against the same four weeks a year earlier.
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