The Evolving World of Cigarettes

Expect more changes and higher prices in the cigarettes category.

December 21, 2022

By Pat Pape

Despite the slow decline in smoking U.S. smoking rates, cigarettes remain the largest in-store category for convenience retailers in terms of sales, contributing 26.18% of inside sales in 2021.

In 2005, 20.9% of U.S. consumers, or 21 of every 100 adults, were smokers. By 2020, that figure was 12.5%, or 13 of every 100 adults. While tobacco sales increased a modest 1.2% during the stressful months of the pandemic, “so far, 2022 monthly sales are trending lower than 2021,” said Jayme Gough, research manager at NACS.

Cigarettes accounted for 10.38% of in-store gross margin in 2021, ranking third in terms of gross margin contribution behind prepared food and packaged beverages, according to the NACS State of the Industry Report of 2021 Data. Margins decreased year over year 0.86 point from 14.40% in 2020 to 13.54% in 2021, while gross profit declined 4.8% year over year.

The tobacco category has long been a legal product, as well as a target for change. That situation will continue into 2023—the result of inflation, rising prices and possible legislation, both local, state and federal.

Rising Inflation

Prior to the COVID-19 pandemic, the U.S. inflation rate was slightly below 2%. Today, it hovers above 8%, four times greater than the Federal Reserve’s 2% target, reports the Bureau of Labor Statistics. That puts a big dent in overall consumer spending, but industry insiders say smokers are still smoking.

“I don’t think there is any less nicotine consumption based on what we’re seeing, but consumers have less to spend, and they’re willing to switch brands,” said Sharan Kalva, president of C-Store Master of Huntsville, Alabama. “People are getting more creative with their nicotine intake. They are using pouches and choosing more price-conscious options.”

Don Stuart, managing partner at Cadent Consulting Group, agrees. “As we’re seeing in food and consumables, people are looking for any way to trade down, which means going to off-brands, generic brands and private-label brands,” he said. “Smokers are going to look for ways to cut costs because they don’t have anywhere else to turn.”

In response, retailers are working to provide shoppers with value and options.

“Our subgeneric cigarettes are now double the units, as well as double the profit, of premium cigarettes,” said Regan Bartley, director of marketing and COO at Smoker Friendly, a smoke-shop chain. “Of course, we still have roll-your-own, but those sales don’t amount to much anymore. I think people are most definitely switching to electronic.”

Higher Prices? More Taxes?

Prices of tobacco products keep going up, thanks to tax increases and regular price hikes from manufacturers. For now, manufacturer price increases are expected to continue.

“With a declining cigarette market and stockholders to answer to, we anticipate that the majors will continue to take frequent price increases,” said Ernie Teague, vice president of sales and marketing at Cheyenne International, a North Carolina-based tobacco manufacturer.

The industry continues to push back on tobacco taxes, which have been part of U.S. history almost since the nation’s founding. In fact, the government attempted to tax products, such as snuff, as early as 1794, a proposal that proceeded introduction of the federal income tax by almost 120 years.

“The industry and all of its stakeholders were successful recently beating back a large federal excise tax threat that would have impacted nearly all forms of tobacco and nicotine products,” said Matt Domingo, senior director external relations at R.J. Reynolds Tobacco Company. “The language was pulled from the broader omnibus spending package in late 2021. As we look forward, much of the threat potential will depend on how the upcoming midterms go, specifically on the House side.”

But smokers and the industry can’t rest easy. There’s growing concern about legislation at the local and state levels, such as citywide bans that prohibit smoking in enclosed workplaces and the 2021 ban on all tobacco sales within the city of Beverly Hills.

Read more on cigarettes and how they are being impacted by regulation and other changes in this month’s Category Close-Up column in NACS Magazine.

Pat Pape worked in the convenience store industry for more than 20 years before becoming a full-time writer. Read more of her work at