Cigarette Prices Increase to Offset Vaping Losses
Big tobacco is scrambling to try to minimize damages as electronic cigarettes continue to attract long-term smokers to a new tobacco-free way of life. According to Convenience Store News, experts predict tobacco sales to be down 5 percent for the third quarter. After looking at current sales data from more than 30,000 convenience stores in the United States, Wells Fargo Securities has seen a marked decline in tobacco purchases and a steady increase in the number of people purchasing electronic cigarettes.
Bonnie Herzog, managing director of tobacco research at Wells Fargo, said that vaping is continuously taking customers away from big tobacco and the deficits are becoming more noticeable with each passing quarter. “The broad vapor category continues to accelerate and our contacts believe 4.2 percent of combustible cigarette volume is being displaces into vapor – up from 3.4 percent in the first quarter of 2014,” she said.
Tobacco companies are now trying to compensate for the steady losses and Herzog said that in late November, convenience stores around the country would probably see a 6 or 7 cent increase in cigarette prices. Herzog maintains that tobacco isn’t shrinking to a total irrelevance yet. Even with all the sales they have loss so far, tobacco companies are still making big profits and Wells Fargo ranks Reynolds American as the top stock pick for investors interested in tobacco holdings.
New mergers are also expected to impact stock values and the most recent Tobacco Talk research revealed that 97 percent of convenience stores expect the Reynolds-American and Lorillard merger to be finalized soon. Wells Fargo also predicted that the FTC will approve the merger and it will be realized sometime early next year.
With so much uncertainty hanging in the air, one thing is certain. Electronic cigarettes are sending shock waves through the tobacco industry and everyone is feeling the effects. Despite nearly constant controversy about regulation and the health impact of vaping, smokers still consider e-cigs to be a better alternative and a growing number of consumers are trading out their old smokes for a tobacco-free ecig.
Do you think cigarette sales will continue to decline in the fourth quarter of 2014? How long will it take before ecigs completely overtake tobacco sales in the United States?