Weak Cigarette Sales in November

Published in Tobacco E-News

Altria, Reynolds numbers suffer while Lorillard bucks trend thanks to price increases

By  Melissa Vonder Haar, Tobacco Editor

NEW YORK --The latest Nielsen numbers highlighted a weak month for c-store cigarette dollar sales: total dollar sales fell by 1.3% during the four weeks ending Nov. 23, 2013--more than three times the decline from the previous four weeks (down 0.4%). Efforts to offset falling unit sales with pricing increases fell short, with an average 1.7% increase in price not quite making up for a 3% decrease in unit sales.

"As unit declines have again accelerated this period after remaining moderate over the past several periods, c-store channel pricing power has not been robust enough to consistently drive sales gains," wrote Wells Fargo analyst Bonnie Herzog in a research note.

The accelerated decrease in unit sales is somewhat expected with the arrival of cold weather and the seasonality of cigarette sales. Because of strong numbers in other parts of the year, Herzog predicted 2013 will still net a positive number overall.

"We expect net price realization for the manufacturers to accelerate to roughly 4% in 2013, which should lead to dollar sales growth," she said.

Still, for the time being, the weak month has had a negative effect on two of the three Big Tobacco companies. Cigarette sales for Altria Group, Richmond, Va., fell by 2% in November (with a 1.6% price increase and a 3.5% unit decline) while sales for Reynolds America Inc., Winston-Salem, N.C., fell by 1.5%, although Herzog noted it was a solid month for several of the company's brands (including Camel and Pall Mall), and a downright impressive month for Natural American Spirit, whose volume grew by 19.2%.

Lorillard Inc., Greensboro, N.C., was the only one of the Big Three to net positive cigarette sales during this four week period, thanks to a 2.1% price increase compared to a 1.1% unit decline (representing a 0.9% growth overall).

"We remain bullish on Lorillard," Herzog said. "We see many growth drivers for both its cigarette and e-cigarette portfolios and continued industry-leading fundamentals."