US Tobacco Industry: The Rise of the Vape

US Tobacco Industry: The Rise of the Vape

US cigarette volumes have been trending downwards at an increasingly rapid pace as a result of continued price increases by major tobacco companies and the continued adoption of e-vapor products. Although volume decline is not a new concept in the tobacco industry, large tobacco companies such as Altria have historically been able to offset volume declines by raising prices to ultimately achieve margin expansion. However, analysts are beginning to wonder if we are hitting a ceiling in terms of price increases where declining demand effectively renders price hikes unfeasible.

Another area of concern is the rise of products such as the JUUL, which have garnered widespread adoption, particularly from millennials. The E-vapor segment has experienced tremendous growth, cannibalizing market share from traditional tobacco products. The big tobacco companies have reacted by introducing their own e-vapor products at a lower price in an attempt to gain share, a move that will likely be dilutive to margins in the near term.

It remains to be seen if products like the JUUL will become a fad, or if they will emerge as the new preferred way to consume tobacco. Altria is also making bets towards shifting consumer behavior through their iQOS product, a “heat-not-burn” device that simulates the form of a traditional cigarette.

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