Market share of low-priced cigarettes increased

British American Tobacco recently said it was seeing more U.S. smokers switching to lower-priced cigarettes in an update to investors on current trading conditions. Altria pointed to the same trend when it recently reported third-quarter results.

 

Tobacco sales have grown in previous recessions, but smokers have less income than the average consumer and are therefore sensitive to inflation.

 

Gasoline prices are now off their summer highs, helping the tobacco industry because prices at the gas station have a big impact on U.S. cigarette sales. Rising food and housing costs are forcing smokers to find new ways to save money. Cheaper tobacco brands increased their share of the U.S. cigarette market to 27.1% in the third quarter of 2022, up 1.8% from a year ago.

 

The trend favors smaller companies such as New York-listed Vector Group. In the third quarter of 2022, cigarette sales of the company's Montego discount brand (discount brand is the name in the United States, referring to low- and mid-range cigarettes) increased by 30% compared with the same period last year. Imperial Brands has a large portfolio of discount cigarette brands in the United States, and its market share is also increasing.

 

Vector's strengths make it difficult for big tobacco companies to fight back. Big Tobacco has to pay billions of dollars a year as part of the Great Tobacco Settlement of 1998, and about a third of Vector's tobacco sales are tax-free.