Marlboro cigarette pack.
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Rising gas station prices are likely to hurt demand for cigarettes, as smokers have less money to spend on impulse purchases while refueling, according to a new Barclays report.
Russia’s invasion of Ukraine has boosted oil prices in recent days as the United States and other Western countries have imposed sanctions on Russia, although so far only Canada has banned crude oil exports from the country.
Earlier on Thursday, US oil, West Texas Intermediate oil futures, were trading at prices last seen during the financial crisis in September 2008, while Brent crude oil peaked in May 2012.
In addition to its huge energy exports, Russia is also the world’s largest exporter of fertilizers and cereals. Experts believe that the prices of a wide range of products may rise, but cigarette manufacturers such as Altria and British American Tobacco are likely to be among the companies that are seeing declining demand due to higher oil prices.
Barclays analyst Gaurav Jain estimates that a 1% increase in oil prices will lead to a 0.1% drop in US cigarette volume. Jain compares the current jump in oil prices with their sharp decline in 2014-2016. In 2015, the volume of cigarettes in the United States was approximately equal, after shrinking in 2014.
“The trend seems to suggest that as consumers save more money at the gas station and go to the attached store, they buy more cigarettes (impulse purchase item). Now that oil prices are rising, the opposite could happen,” he wrote. note to customers on thursday.
Cigarette smokers have already come to terms with higher prices as tobacco companies seek to protect their profit margins from inflation. Yet, while CEOs of packaged consumer goods companies say they have not seen consumers choose cheaper alternatives or skip a purchase altogether, categories that favor lower-income consumers, such as tobacco and beer and energy drinks are already seeing consumers trade down, RBC That’s what capital markets analyst Nick Modi said.
For fiscal 2022, Jain from Barclays predicts that the volume of cigarettes in the United States will fall by 5%, but prices will rise by 7%. Looking for cheaper alternatives, some consumers are likely to turn to other tobacco substitutes to satisfy their nicotine cravings, such as e-cigarettes or modern oral nicotine bags.