Nearly 90% of the respondents to a Wells Fargo Securities LLC survey of tobacco retailer and wholesale trade contacts, representing more than 10,000 U.S. convenience stores, say the recent major tobacco price increases have generated incremental per-pack revenue which, given the mid-June timing, should provide a small pricing benefit in the second quarter with a full realization of improved pricing in the third quarter.
The “Q2 2012 Tobacco Retailer Survey” showed 92% of retailers passed the entire increase on to consumers, although the amount passed through seems to be largely dictated by manufacturer pricing contracts. Half indicated they were able to build additional inventory in advance of the price increases, likely driving better than expected reported volume in the second quarter, said Bonnie Herzog, Wells Fargo’s New York City-based managing director for beverage, tobacco and consumer research.
The survey also said that second-quarter cigarette industry volume growth will likely be above historical trends, driven primarily by two factors–inventory levels at the end of the first quarter had been de-loaded; and “we estimate about half of the trade was able to build inventory positions in advance of the June price increases,” said Herzog. “However, we do note that the [year-to-year] volume comparison for Q2 2012 is tough since inventories during Q2 2011 had been loaded. Bottom line, we expect reported industry volume to be down 3% in Q2.”
The survey also said that smokeless tobacco, driven by the Grizzly brand, is “still on fire.” Around 89% of Wells Fargo’s contacts noted category growth during the second quarter driven by continued promotional activity. (CSP Daily News: www.cspnet.com)