SMOKE GETS IN
Regulations, a merger and product launches
are just a few of the factors affecting the
tobacco and electronic cigarettes categories.
BY NORA CALEY
AT FIRST GLANCE, it might seem that the tobacco and electronic cigarettes categories are perform- ing well. Sales are up and manufacturers are announcing new products. Also, new rules that
the U.S. Food and Drug Administration (FDA) announced
last year are not yet fully implemented, giving companies
time to prepare for important changes.
Still, industry experts say the smoking and vaping businesses are facing some challenges. According to IRI, a
Chicago-based research firm, for the 52 weeks ending June
11, 2017, sales of cigarettes in U.S. supermarkets, drugstores,
mass market retailers, military commissaries and select club
and dollar retail chains totaled more than $15.08 billion, up 4. 54
percent compared to the same period the previous year. Volume was
flat, increasing only 0.4 percent. The average price per unit was $11.05,
up 48 cents.
Meanwhile sales of electronic smoking devices totaled more than
$129.8 million, up 3 percent. The average cost of an e-cigarette product
was $9.12, down 27 cents. Volume sales totaled more than 14.2 million,
up 6 percent. That rate of growth is much lower than during the early
years of e-cigarettes, when sales were doubling each year.
Industry experts say there are several reasons for cigarette sales being
flat, and for e-cigarettes sales growth slowing down.
In May, Nik Modi, tobacco analyst for RBC Capital Markets
equity research, participated in a webinar in which he presented
an update of the tobacco category. Modi pointed
out several reasons for the slowdown in cigarette
sales, including higher gas prices in first quarter 2017, above average precipitation on the
West Coast, a delay in IRS tax refunds and
Modi predicted that cigarette volume
will revert to the “normalized decline rate”
of - 3 percent to - 5 percent. One event that
Modi said will likely not create much big
picture change is an upcoming acquisition.
In January, Winston-Salem, N.C.-based
Reynolds American Inc. (RAI) announced
it was entering an Agreement and Plan of
Merger with British American Tobacco (BAT)
to become a wholly-owned subsidiary of BAT.
RAI planned to hold a meeting on July 19 for
shareholders to vote on the plan. The London-based BAT already has an ownership stake in
As for e-cigarettes, Modi said, performance
will remain lackluster and regulations will remain burdesome. Last
year, the FDA announced the final regulations deeming e-cigarettes,
vape pens, e-cigars and other Electronic Nicotine Delivery Systems
(ENDS) to be products subject to the Federal Food, Drug and Cosmetic
Act (the FD&C Act). The rule went into effect in August 2016, but certain provisions are being implemented over time. For example, there
are several upcoming deadlines for manufacturers to submit ingredient listings, health documents and premarket applications for new
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