In case anyone forgot, the main business for Altria, RJ Reynolds, and Lorillard isn’t their e-cig brands, it’s traditional tobacco cigarettes. They enjoyed the new that the fourth quarter of 2014 closed with an increase in cigarette sales. Big Tobacco knows how to make money, e-cigs or not.
So while we are all watching what will happen with their MarkTen, Vuse, and Blu e cig electronic cigarette brands, respectively, these mammoth companies are more interested in tobacco cigarette sales.
Big Tobacco And E-Cigarettes
On that point, let’s not forget that Big Tobacco didn’t exactly embrace the electronic cigarette.
No, they only got in when they realized they had to because their customers were starting to go elsewhere.
Yet the end of 2014 had a bounty of riches for these consistent profit earners, with a surge in cigarette sales that surely put smiles on the faces of the CEOs from Altria, RJ Reynolds, and Lorillard.
It isn’t as if these guys aren’t watching their e-cig brands and looking for growth, but when their primary business rises 4.4% on average in a month, it must be reassuring. This is because, make no bones about it, Big Tobacco is only interested in e-cig brands because of the fear that they will lose all of their customers who are migrating to vaping.
There is no altruism going on here, no regard for their customers and their individual futures. It is still about dollars and cents, even with MarkTen, Vuse and Blu e cig making their own push. Whoever brings in the profits, now and in the future, will be kings of their domains.
Big Tobacco Vs E-Cigs: What The Numbers Really Tell
Now we should put these rising tobacco cigarette sales in some perspective. Yes, sales were up. RY Reynolds was up 4.9% for the previous four weeks ending on December 20th, while Altria and Lorillard were both up 4.4% for that period.
Yet there is some more to it behind the numbers that will make you wonder if they can really stave off the growth of electronic cigarette brands.
Those percentages were all dollar figure rises, not volume. This means that while sales dollars were up, not that many more tobacco cigarettes were sold.
For volume, Lorillard was up 3%, while Altria and RJ Reynolds were up only 0.8% and 0.5%, respectively. The sales rise was partly due to their price increases of 3.6% and 4.4% for the latter two.
That’s a nice trick by Big Tobacco, huh? Just raise prices and score additional sales dollars. This spike in convenience stores sales was also influenced by the absence of tobacco cigarettes being sold in CVS stores noted Wells Fargo analyst Bonnie Herzog.
She also made sure to point out that “Further, lower gas prices are likely having a favorable impact on the category.” Well that does make some sense to us, because a sudden jump in tobacco cigarette sales just as electronic cigarette brands make headway was somewhat puzzling.
This could also have been a last hurrah, at least for 2014, for tobacco cigarettes. The signs point to this not being a trend so much as an aberration that won’t last.
2015 E-Cig Trends
The beginning of 2015 brings new trends and typically there is what analyst Vivien Azer calls the New Year’s effect that brings sales down as folks dive in to their new year’s resolutions.
Azer goes on to explain that we should “expect the trend of weak January cigarette volumes to persist in 2015, perhaps exacerbated by the broader availability of e-cigs.” There she makes an excellent point, and one that we think is very valid and viable. As the consumer finds more e-cig options out there, we have to think that there will be another dip in cigarette sales.
That should be the case in 2015, with Vuse pushing into more stores, MarkTen furthering their national rollout, and Blu e cig building upon their existing base. The thing is, it isn’t only the Big Tobacco brands that will be in the faces of customers. Electronic cigarette brands are bound to make great leaps in visibility and this will mean other companies will stand to gain too.
Some will enter retail shops, while others will just see a rise in interest online, as consumers move on from the shoddy options they found at the gas station to some of the better e-cig brands on the market. All on all this means that while tobacco cigarette try to fight off the expansion of electronic cigarettes, they are in for a growing battle in 2015, one that they may finally lose.