The US: Tobacco Market

Share on facebook
Share on twitter
Share on email
Share on whatsapp
Share on linkedin

Tobacco Market Size: Feburary 2024

At the CAGNY conference, Altria stated that there were 52Mn nicotine (tobacco) users in the US in 2023 (i.e. 1Mn more than 2018) and repeated the recently revised estimate of 1% CAGR (in the 2018-23 period) in total nicotine consumption volume. Moreover, Altria estimated that there ~17Mn vapers in the US in 2023 with ~12Mn being exclusive and more than 9Mn being disposable vape users (- following a more than 60% growth in 2023).

According to Altria, despite appealing to a wide range of adult consumers, vapers are younger (skewed towards the 21-29 years old bracket), have higher income levels and live more in urban areas – when compared to smokers. In terms of volume, Altria estimated the e-vapor category growth of ~35% in 2023, driven by illicit flavored disposable products (now over 50% of the category). Additionally, Altria estimates pod-based volume decline of ~15% in 2023 (now 15%- 20% of category volumes).

There is a certain level of contradiction between the Altria’s and BAT’s estimates. At the FY23 Results release, BAT mentioned that there are now c.29Mn adult vapers in the US. The figure caught us with surprise and we reached out to the BAT IR. Here is the answer we received: “c.29Mn adult vapour consumers is based on Consumer Tracker – Kantar data. It is important to note that this includes consumers who poly-use with other nicotine categories. Based on the same Kantar data there are c.37Mn cigarette smokers in the US including poly-users”.

CDC estimated that there were 28.3Mn adults smokers and 35.6Mn combustible product users in the US in 20211. The estimates of Altria (37Mn combustible product users, including poly-users), BAT (37Mn cigarette smokers, including poly-users) and CDC are more-or-less aligned – if and only if BAT’s dataset also include the cigar and pipe users.

CDC’s 2021 estimate of 11.1Mn vapers is obviously out-of-date and doesn’t represent the recent category growth driven by the flavored disposable products. Nevertheless, the difference between the estimates of Altria (17Mn) and BAT (29Mn) is vast and requires reconciliation – even if the definition of min. frequency / amount of use required to qualify as a vaper (or smoker) could possibly vary from one dataset to another.

In any case, the trend is clear: it is a matter of time before there are more vapers in the US than cigarette smokers – thereby, vapes becoming the most used nicotine/tobacco product in the US by dethroning the cigarettes.

E-cigarette Category: January 2024

According to the latest Nielsen c-store report (four-week ending Dec 30), overall e-cigarette category sales is down by -9.9% year-on-year basis – representing an acceleration in the decline trend versus the previous months (-8%). The volume decline is driven by sales shifting to the untracked channels (lower-tier retailers not covered by Nielsen as well as online and specialty stores) that offer (unauthorized) flavored products and more affordable brands/alternatives. Thousands of new illegal e-cigarettes (mostly flavored disposables) have been launched in the US over the past six months despite a record number of products being denied & detained by the FDA. Recall: our “Illicit Trade – RRPs: The US” write-up.

In a market facing intensifying sales volume pressure, leading brands preserve their relative market positions with the distant leader, BAT’s VUSE, maintaining its ~42% (value) share. Category shares of JUUL and NJOY are also fairly stable at ~24% and 2.5%, respectively.

Cigarette Category: November 2023

In FY22, top-5 tobacco companies generated 43% of their total operating profit in the US. Every percentage point move in US market share make an outsized impact on the financial delivery of these companies – especially for Altria, BAT and Imperial Brands. Thereby, the developments in the US market matter the most.   

Most recently, Altria reported that adjusted cigarette market volume is down -8% in Q3 2023 with no slowdown in decline trend (also -8% in YTD2023). Persistent weakness in discretionary spending (despite the softening inflation) coupled with switching-out (to other nicotine categories) continue to put pressure on cigarette volumes. In addition, downtrading (to discount brands) is still pronounced – despite Altria claiming that the total discount segment share is flat since Q1 2023. However, the accuracy of retail scan/audit data, including Circana (used by Altria) and NielsenIQ (the most relied on), is contestable.     

Vector Group reports the estimated US cigarette market shares as: Altria (43%), BAT (30%), Imperial (10.5%) and Vector (5.5%). All others make 11% of the market. Vector’s SoM figures are in line with Imperial’s 10+% SoM claim (vs. ~8.5% in NielsenIQ) and in disarray with Altria’s ~47% SoM claim. There is clearly a major discrepancy in the retail scan/audit dataset used by different companies. One possible explanation could be the limited of coverage of retail intelligence services in the lower-tier stores. Vectors defines these stores as the retailers not participating in BAT Reynolds’ contractual trade program (- that requires such retail stores to price and sell an “EDLP: Every Day Low Price” brand to consumers, at equal to or less than the lowest price offered for any cigarette products sold in the store). Vector notes that 88% of deep discount volume is sold in non-EDLP stores.

In addition, major manufacturers’ pricing power seem to be weakening. In Q3 2023, Altria’s price/mix improvements failed to compensate for the volume decline – resulting in -3.7% smokeable revenue decline. Stronger (15-25¢ a pack) and more frequent (4 times a year) price hikes by the manufacturers are likely having a more-than-usual impact on the cigarette volumes (i.e. price elasticity worsening due to the income effect and existence of alternatives). Moreover, we assume that the record-high price gap (between premium and discount brands) are driving a significant increase in the market share of (deep) discount brands – whose share progression are not well-captured by the retail intelligence services.

Keeping in mind the limitations explained above (which favor the major companies), the most recent NielsenIQ data re-confirms no slowdown in cigarette volume decline. Altria and BAT Reynolds continue to be the main share donors in a fast-declining market. However, there is a visible deceleration in BAT’s SoM loss – thanks to the volume gain by the discount brand, Lucky Strike, and re-confirming BAT’s H1 2023 Earning disclosures. Imperial Brands (Sonoma) and Vector (Montego) continue to gain SoM – albeit at a significantly slower pace. The real winner is all other manufacturers – reporting a mid-/high-single digit volume increase (despite NielsenIQ’s under-estimation) in a market declining by -8% to -8.5%.    

In brief, the outlook for the US cigarette market remains cautious and there are no comforting news for the tobacco majors (- especially, for Altria).

E-cigarette Category: November 2023

According to the latest Nielsen c-store report (four-week ending Nov 4), BAT’s VUSE preserves its distant leadership in the US e-cigarette market with 42.1% category share (up +0.3pp versus a months ago)2. Category shares of JUUL and NJOY are stable at 24.4% and 2.5%, respectively. The overall category sales is down -8%, driven by more e-cigarette sales volume shifting to the untracked channels (lower-tier retailers not covered by Nielsen as well as online and specialty stores) that offer (unauthorized) flavored products and more affordable brands/alternatives. Recall: our “Illicit Trade – RRPs: The US” write-up.

BAT claims 46.7% share in the tracked channels. However, based on our proprietary market model, we estimate that unauthorized products & untracked channels make up half of the US e-cigarette market; thereby, BAT’s real share is in the mid-twenties by value and in the mid-teens by volume. An in-depth analysis of the current US RRP/Smoke-free Market and 2030 Market Projection is available in our research report.

E-cigarette Category: October 2023

According to the latest Nielsen c-store report (four-week ending Oct 7), BAT’s VUSE preserves its distant leadership in the US e-cigarette market with 41.8% category share3 (note: BAT claims 46.7% share in the tracked channels). JUUL’s share continues to slide and is now down to 24.4% (from 74.6% in May 2019). NJOY’s share is flat at 2.5% as Altria’s ownership has not yet resulted in a meaningful improvement in its market position. The overall category sales is down -8%, driven by more e-cigarette sales volume shifting to the untracked channels (online and specialty stores) that offer (prohibited) flavored products and more affordable brands/alternatives. In H1 2023, BAT reported +23% revenue growth and -6.5% volume decline for VUSE in the US (implying +31.5% pricing/mix improvement). BAT is (over-)compensating the volume pressure with pricing as the VUSE US profits are crucial for BAT to deliver the “RRP/NGP break-even in 2024” target.

FTC Tobacco Industry Report: October 2023

The number of cigarettes sold (by the largest cigarette companies) in the US decreased from 190.2Bn in 2021 to 173.5Bn in 20224. The number of cigarettes sold in the US was 628.2Bn in 1980 (-72% since) and 413.9Bn in 2000 (-58% since).

Menthol flavored cigarettes comprised 36% of the market among major manufacturers. The amount spent on cigarette advertising & promotion decreased from $8.06Bn in 2021 to $8.01Bn in 2022. Price discounts paid to cigarette retailers ($5.74Bn) and wholesalers ($1.14Bn) were the two largest expenditure categories in 2022. Combined spending on price discounts accounted for 85.9% of industry spending.

Smokeless tobacco sales decreased from 122Mn pounds in 2021 to 113.3Mn pounds in 20225. The revenue from those sales rose from $4.96Bn in 2021 to $4.98Bn in 2022. Menthol flavored smokeless tobacco products comprised more than half of all sales and fruit flavored smokeless tobacco products comprised 2.6% of pounds sold. Spending on advertising & promotion by the major manufacturers decreased from $575.5Mn in 2021 to $572.7Mn in 2022. The two largest spending categories in 2022 were price discounts paid to retailers, which were $360.5Mn and promotional allowances paid to wholesalers, which were $44.7Mn.

Smokeless tobacco manufacturers also reported selling $1.06Bn of nicotine lozenges, pucks and pouches in 2022, more than double the $452.8Mn sold in 2020.

References:

  1. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10168602 ↩︎
  2. Reynolds’ Vuse slightly expands US e-cigarette market lead (journalnow.com) ↩︎
  3. https://journalnow.com/news/local/business/vuse-remains-top-us-e-cigarette-but-synthetic-nicotine-chipping-away ↩︎
  4. https://www.ftc.gov/system/files/ftc_gov/pdf/2022-Cigarette-Report.pdf ↩︎
  5. https://www.ftc.gov/system/files/ftc_gov/pdf/2022-Smokeless-Tobacco-Report.pdf ↩︎

Call Request:
Reports

We will reach out to you within 24 hours to discuss your request. Please note that we only respond to requests with a valid business e-mail address
Disclaimer: The content in our Market Pulse section is/shall not be construed as investment advice. It is for informative purposes only and does not take into account the individual needs, investment objectives and specific financial circumstances. Any action taken upon the information in our Market Pulse section is strictly at the reader’s own risk. We assume no responsibility or liability for the actions taken. Moreover, we also assume no responsibility or liability for any errors or omissions in our content – which is provided on an “as is” basis with no guarantees of completeness, accuracy, usefulness or timeliness even if we only depend on the infromation sources that are believed to be accurate.

Consultation
Session Request

We will reach out to you within 24 hours to discuss your request. Please note that we only respond to requests with a valid business e-mail address