Below is a complimentary Demography Unplugged research note written by Hedgeye Demography analyst Neil Howe. Click here to learn more and subscribe.

Got A Light? Cigarettes Sales Halt Annual Decline  - 2 26 2021 11 18 44 AM

U.S. cigarette sales have been falling steadily for years—but in 2020, sales remained flat. Some people have turned to cigarettes to cope with the stress and anxiety of the pandemic, while others have switched back from e-cigarettes. (The Wall Street Journal)

NH: In 1970, over 40% of Americans smoked weekly. But by 2018, that share had fallen to 16%. US cigarette purchases have largely mirrored this decline in smoking.

Annual cigarette sales have fallen every year since 2005--and by an average of 3.5% annually over those fifteen years.

But in 2020, the decline in sales stopped.

What's going on here?

To explain it, let's point to two sets of drivers: those related to the pandemic and those related to the rejection of e-cigarettes.

Health professionals have long documented the link between stress and smoking. Nicotine can create an instant feeling of relief. 2020 was undoubtedly a tense year. And many former smokers have anecdotally reported returning to cigarettes to cope with the pandemic.

Meanwhile, Covid-19 has many people working from home or just "socializing" alone, apart from the stigma of coworkers and friends. Many people no longer need to go outside or excuse themselves to light up.

Now let’s turn to e-cigarettes. In the fall of 2019, there was a barrage of news reports linking vaping with sudden respiratory illnesses and deaths. It was later revealed that the threat was caused mainly by off-brand cartridges and vitamin E in marijuana products. But the damage was already done: Millions of people had abandoned vaping. 

At the same time, regulators made e-cigs less appealing by banning flavored cartridges. The net result? According to Altria (MO), the number of e-cigarette smokers 21+ fell from 11.8M in 2019 to 9.8M in 2020. (See “E-Cigs Go from Hero to Zero.”)

Of course, the people who stopped vaping still have nicotine addictions. Some have quit, and some have turned to alternate products like nicotine pouches, gums, and patches. But many have returned to the tried-and-true tobacco cigarette.

IMO, these drivers won’t buoy cigarette consumption beyond 2020. The most urgent stressors of the pandemic will soon ebb. And smokers concerned about vaping have already switched to other products. 

Also, from a customer acquisition standpoint, keep in mind that the big three U.S.-traded tobacco companies (MO, PMI, and BTI) now own large shares of the major e-cigarette companies. So to them, it may not matter if people change products: They remain consumers.

If we assume that these big three want to maintain total cigarette sales, their best strategy is just to back away from the high-income markets--where nearly all the long-term social and demographic trends are negative. Alternative nicotine delivery vehicles?

That avenue faces growing regulatory pressure. They would do better to focus on low-income economies with rising smoking prevalence and stronger population growth. (See “Does Big Tobacco Have a Long-Term Plan?”)

Got A Light? Cigarettes Sales Halt Annual Decline  - Feb26

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Neil Howe is a renowned authority on generations and social change in America. An acclaimed bestselling author and speaker, he is the nation's leading thinker on today's generations—who they are, what motivates them, and how they will shape America's future.

A historian, economist, and demographer, Howe is also a recognized authority on global aging, long-term fiscal policy, and migration. He is a senior associate to the Center for Strategic and International Studies (CSIS) in Washington, D.C., where he helps direct the CSIS Global Aging Initiative.

Howe has written over a dozen books on generations, demographic change, and fiscal policy, many of them with William Strauss. Howe and Strauss' first book, Generations is a history of America told as a sequence of generational biographies. Vice President Al Gore called it "the most stimulating book on American history that I have ever read" and sent a copy to every member of Congress. Newt Gingrich called it "an intellectual tour de force." Of their book, The Fourth Turning, The Boston Globe wrote, "If Howe and Strauss are right, they will take their place among the great American prophets."

Howe and Strauss originally coined the term "Millennial Generation" in 1991, and wrote the pioneering book on this generation, Millennials Rising. His work has been featured frequently in the media, including USA Today, CNN, the New York Times, and CBS' 60 Minutes.

Previously, with Peter G. Peterson, Howe co-authored On Borrowed Time, a pioneering call for budgetary reform and The Graying of the Great Powers with Richard Jackson.

Howe received his B.A. at U.C. Berkeley and later earned graduate degrees in economics and history from Yale University.