Global HRM
tiptoe1
42494Cigarette-TobaccoProductsWholesalingintheUSIndustryReport.pdf
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 1
IBISWorld Industry Report 42494 Cigarette & Tobacco Products Wholesaling in the US October 2019 Griffin Holcomb
Kicking the habit: Rising excise taxes and declining smoking rates will likely singe wholesalers
2 About this Industry 2 Industry Definition
2 Main Activities
2 Similar Industries
3 Additional Resources
4 Industry at a Glance
5 Industry Performance 5 Executive Summary
5 Key External Drivers
7 Current Performance
9 Industry Outlook
12 Industry Life Cycle
14 Products and Markets 14 Supply Chain
14 Products and Services
16 Demand Determinants
17 Major Markets
18 International Trade
19 Business Locations
21 Competitive Landscape 21 Market Share Concentration
21 Key Success Factors
22 Cost Structure Benchmarks
24 Basis of Competition
26 Barriers to Entry
26 Industry Globalization
27 Major Companies 27 McLane Company Inc.
28 Altria Group Inc.
29 British American Tobacco PLC
30 Core-Mark Holding Company Inc.
32 Eby-Brown
32 AMCON Distributing Company
32 H.T. Hackney Company
33 PYXUS International, Inc.
34 Operating Conditions 34 Capital Intensity
35 Technology and Systems
35 Revenue Volatility
37 Regulation and Policy
38 Industry Assistance
39 Key Statistics 39 Industry Data
39 Annual Change
39 Key Ratios
40 Industry Financial Ratios
41 Jargon & Glossary
www.ibisworld.com | 1-800-330-3772 | [email protected]
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 2
Companies in this industry acquire packaged cigarettes and other tobacco products from manufacturers and sell the goods to retailers such as convenience stores, supermarkets, specialized tobacco
stores, street vendors or internet tobacco retailers. In addition, they may also sell to other wholesalers. The sales and distribution offices of tobacco product manufacturers are included in this industry.
The primary activities of this industry are
Distributing cigarettes
Distributing cigars
Distributing loose and pipe tobacco
Distributing smokeless tobacco products such as snuff or snus
Distributing modern tobacco products such as e-cigarettes or vaporizers
Distributing accessories such as lighters, hookahs (water pipes) or ashtrays
11191 Tobacco Growing in the US Establishments in this industry produce tobacco for cigarette and tobacco products.
31222 Cigarette & Tobacco Manufacturing in the US Establishments in this industry manufacture cigarettes, cigars, smokeless tobacco and reconstituted tobacco products.
44511 Supermarkets & Grocery Stores in the US Establishments in this industry retail food, beverage and tobacco products to consumers.
44512 Convenience Stores in the US Establishments in this industry retail basic food, beverage and tobacco products at accessible locations and times.
44531 Beer, Wine & Liquor Stores in the US Operators in this industry include retail stores specifically licensed to sell alcoholic beverages for off-premises consumption.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are
Cigars
Menthol cigarettes
Nontobacco products
Regular cigarettes
Other tobacco products
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 3
About this Industry
Additional Resources For additional information on this industry www.ttb.gov Alcohol and Tobacco Tax and Trade Bureau
www.cdc.gov/tobacco Centers for Disease Control and Prevention – Smoking & Tobacco Use
www.ownitvoiceit.com Own It Voice It
www.ftc.gov US Federal Trade Commission
IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 4
$
4.0
2.0
2.5
3.0
3.5
2511 13 15 17 19 21 23Year
Excise tax on tobacco products
SOURCE: WWW.IBISWORLD.COM
% c
ha ng
e
12
-8
-4
0
4
8
2511 13 15 17 19 21 23Year
Revenue Employment
Revenue vs. employment growth
Products and services segmentation (2019)
46.3% Regular cigarettes
26.1% Menthol cigarettes
17.4% Nontobacco products
5.4% Other tobacco products
4.8% Cigars
Key Statistics Snapshot
Industry at a Glance Cigarette & Tobacco Products Wholesaling in 2019
Industry Structure Life Cycle Stage Decline Revenue Volatility Medium
Capital Intensity Low
Industry Assistance Low
Concentration Level Medium
Regulation Level Heavy
Technology Change Medium
Barriers to Entry Medium
Industry Globalization Low
Competition Level High
Revenue
$131.0bn Profit
$1.3bn Wages
$2.8bn Businesses
3,321
Annual Growth 19–24
-1.0% Annual Growth 14–19
0.3%
Key External Drivers Excise tax on tobacco products Percentage of smokers Regulation for the Cigarette and Tobacco Production industry Consumer spending
Market Share McLane Company Inc. 20.3%
Altria Group Inc. 18.5%
British American Tobacco PLC 8.7%
Core-Mark Holding Company Inc. 8.4%
p. 27
p. 5
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 39
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 5
Key External Drivers Excise tax on tobacco products Tobacco manufacturers are required to pay federal excise taxes under chapter 52 of the Internal Revenue Code. The US Alcohol and Tobacco Tax and Trade Bureau is responsible for the collection of tobacco excise taxes. Excise taxes are passed down from manufacturer to wholesaler in the form of higher purchase prices (i.e. the cost of goods sold).
Additionally, individual states also levy their own taxes on tobacco products, which further drives up per-unit prices and reduces demand for industry products. The excise tax on tobacco products is expected to increase in 2019.
Percentage of smokers Per capita consumption of tobacco products is falling due to increased
Executive Summary The Cigarette and Tobacco Products Wholesaling industry has experienced increasing sales over the five years to 2019, despite contending with growing regulatory, economic and operational challenges. During the current period, the industry has experienced a spark in the introduction of e-cigarettes into the market as major players raced to grab market share. For example, in 2018, Altria Group Inc. purchased a 35.0% stake in Juul Labs Inc. worth an estimated $12.8 billion. Additionally, PYXUS International Inc. purchased 51.0% of Humble Juice Co., an e-liquid
company. Nevertheless, over the past five years, cigarettes and other tobacco products have experienced intense regulatory scrutiny from both the government and public.
Federal excise taxes on cigarettes were raised to historic highs immediately prior to the current five-year period, while rising levels of tobacco smuggling across state lines continued to undermine the efforts of regulators and bypass the supply chain of tobacco wholesalers. Meanwhile, cigarette consumption levels have continued to decline steadily,
further reducing demand for the industry’s largest product segment. Nonetheless, falling demand for cigarettes during the current period has been more than offset by sustained demand for noncigarette tobacco products such as snuff, cigarillos, e-cigarettes and premium cigars. Due in part to revitalizing demand for smokeless tobacco products and higher per-unit prices on cigarettes, industry revenue has increased at a modest annualized rate of 0.3% to $131.0 billion over the five years to 2019. However, industry revenue is expected to decline 0.6% in 2019 alone as rising selling prices are offset by declining volume sales of cigarettes. Furthermore, the average industry profit margin, measured as earnings before interest and taxes, is expected to comprise just 1.0% of industry revenue in 2019, down from 1.5% in 2014.
An increasingly stringent regulatory environment and rising social stigma against smoking and public tobacco use are projected to further reduce consumption of all tobacco products, which would ultimately hurt industry revenue. Industry revenue is forecast to decline at an annualized rate of 1.0% to $124.8 billion over the five years to 2024. As revenue declines, total industry participation growth is projected to slow as well. Over the next five years, the number of industry operators is forecast to decline at an annualized rate of 0.4% to 3,247 companies.
Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Cigarettes and other tobacco products have experienced intense regulatory scrutiny from both the government and the public
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 6
Industry Performance
Key External Drivers continued
awareness of the adverse effects of smoking. Additionally, hikes in federal or state excise tax rates on cigarettes and other tobacco products have played a role in decreasing the number of smokers. In general, a decrease in the percentage of smokers leads to a lower sales volume of cigarettes, which may reduce industry revenue if per-unit prices are kept constant. The percentage of smokers is expected to continue decreasing in 2019, posing a potential threat to the industry.
Regulation for the Cigarette and Tobacco Production industry Industry policy, with respect to the distribution of these products, affects issues such as product packaging, restrictions on advertising and remittance of state level excise taxes, which are levied on distributors rather than tobacco manufacturers. In general, increased regulation at the manufacturing level increases compliance costs for manufacturers, which are almost always
passed down to distributors in the form of higher purchase prices. In turn, higher purchase prices reduce profit margins for wholesalers, thereby hurting industry performance. Regulation for the Cigarette and Tobacco Production industry is expected to increase substantially in 2019 due to the effects of the US Food and Drug Administration’s New Tobacco Rule.
Consumer spending Consumer spending on goods, including cigarettes and other tobacco products, typically expands as disposable income levels rise and the economic outlook improves. Higher consumer spending encourages smokers to purchase cigarettes more frequently and trade up to premium brands, boosting industry revenue. Higher consumer spending also tends to increase foot traffic at convenience stores, a major market for this industry. Consumer spending is anticipated to increase in 2019, representing a potential opportunity for the industry.
%
20
12
14
16
18
2511 13 15 17 19 21 23Year
Percentage of smokers
SOURCE: WWW.IBISWORLD.COM
$
4.0
2.0
2.5
3.0
3.5
2511 13 15 17 19 21 23Year
Excise tax on tobacco products
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 7
Industry Performance
Current Performance
The Cigarette and Tobacco Products Wholesaling industry distributes cigarettes, cigars, e-cigarettes, smokeless tobacco products and smoking accessories from manufacturers to retailers. Despite grappling with various regulatory, economic and structural challenges, the industry has performed surprisingly well over the five years to 2019, with revenue having increased an annualized 0.3% to $131.0 billion. However, this growth includes an expected 0.6% decline in 2019 alone as falling volume sales will likely continue to weigh down on industry operators.
The number of establishments and enterprises have grown significantly over the five years to 2019, due in part to the introduction of e-cigarettes and other nonconventional markets. However, this growth is mostly attributable to a significant influx of nonemployer distributors. Nonemployers generally purchase tobacco products from larger national or regional wholesalers and resell to local tobacco shops, independent convenience stores and small street vendors. The industry includes a considerable number of self-employed operators, which represent an estimated 56.2% of all establishments in 2019, but only generate 0.2% of total industry sales. Many of these smaller distributors have entered the industry to serve the growing electronic vapor products market. However, in 2018,
the US Food and Drug Administration (FDA) declared a youth vaping epidemic and demanded action from e-cigarette manufacturers to halt sales of flavored electronic cigarettes if major companies could not prove they are doing enough to keep age restricted products out of the hands of teenagers. Overall, the number of establishments has increased at an annualized rate of 4.9% to 4,206 locations over the five years to 2019. Consequently, the number of enterprises has also increased an annualized 1.3% to 3,321 companies over the past five years. In addition, industry employment has expanded at an annualized rate of 2.1% to 56,243 workers during the same period.
% c
ha ng
e
6
-6
-4
-2
0
2
4
2511 13 15 17 19 21 23Year
Industry revenue
SOURCE: WWW.IBISWORLD.COM
Tobacco regulation, excise taxes and demand for industry products
Over the past 50 years, tobacco manufacturers and wholesalers alike have experienced increased regulatory scrutiny and social stigma. Over the past 10 years alone, state-level excise taxes on tobacco products were raised more than 100 times by almost every state, according to data from Campaign for Tobacco-Free Kids. In addition, the Family Smoking Prevention and Tobacco Control Act was enacted in 2009, which placed more-stringent marketing restrictions on tobacco products, banned the sale of flavored cigarettes and
prohibited the use of terms such as light or mild on tobacco packaging. This law was followed by the unprecedented April 2009 federal excise tax hike, which raised the federal tax on cigarettes from $0.39 to $1.01 per pack. In 2012, Congress passed the Prevent All Cigarette Trafficking act, which increased the burden on tobacco distributors and retailers to prevent interstate smuggling and illicit online sales of tobacco products. Although most of these regulations were drafted prior to the current period, they have had a major
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 8
Industry Performance
influence on industry operators over the past five years.
Recently, the FDA extended its regulatory control overall all tobacco products, but primarily focused on the e-cigarette segment during the current period. Prior to 2016, regulation in the electronic cigarette market varied across the United States. The FDA previously classified electronic cigarettes as drug delivery devices rather than a tobacco product. The classification was challenged in court and overruled in 2010 by Federal District Court Judge Richard J. Leon, explaining that, “the devices should be regulated as tobacco products rather than drug or medical products.” In April 2014, the FDA proposed new regulations for tobacco products, including e-cigarettes. These new regulations require the disclosure of ingredients used in e-cigarette liquids, proof of safety of those ingredients and regulation of the devices used to vaporize and deliver the liquid. Additionally, in 2014, attorney generals from over two dozen states pushed the FDA to enact restrictions on entry level e-cigarette flavors, such as candy and beverage flavors. It was not until May 2018 that the FDA began to crack down on e-liquid and e-cigarette brands with packaging that resembled candy, juice boxes and other products intended to appeal to children.
Due to higher federal and tax rates on cigarettes, per capita cigarette consumption has declined steadily over the past two decades, causing sales volumes to fall and reducing demand for the industry’s largest,
most profitable product segment. Similarly, widening disparities in tax rates between states caused tobacco smuggling to rise at alarming rates, further undermining the efforts of regulators and tobacco wholesalers alike. Cigarette carton sales have been on the decline for over a decade. According to data from the US Federal Trade Commission Cigarette Report, total carton sales fell an annualized 3.5% between 2011 and 2016 (latest data available). Additionally, cigarette shipments declined at an annualized rate of 1.1% between 2014 and 2016, according to retail sales data from Management Science Associates Inc.
In response to the increased regulation of cigarettes and declining consumption levels, industry operators focused on marketing and distributing noncigarette tobacco products such as snus, chewing tobacco, cigars and cigarillos, pipe tobacco and e-cigarettes. Consequently, demand for these alternative products has increased over the five years to 2019, somewhat offsetting the decline in cigarette sales. For example, annual retail sales of smokeless products, including e-cigarettes, grew at a rapid annualized rate of 7.2% between 2013 and 2017 (latest data available) according to major player Altria Group Inc. (Altria). Moreover, noncigarette tobacco products are generally sold at a higher margin than cigarettes, which further encouraged industry operators to purchase and distribute a greater share of these products relative to cigarettes to offset a declining profit margin.
Tobacco regulation, excise taxes and demand for industry products continued
Industry structure The Cigarette and Tobacco Products Wholesaling industry is dominated by a combination of national players and regional operators. Altria and British American Tobacco PLC (British American Tobacco), the second- and third-largest operators in this industry, both produce and distribute cigarette and tobacco products. Meanwhile, the four largest independent tobacco distributors,
McLane Company Inc., Core-Mark Holding Company Inc. (Core-Mark),
Operators are expected to derive a greater share of revenue from noncigarette tobacco products
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 9
Industry Performance
Industry structure continued
Eby-Brown and H.T. Hackney Company, account for only 45.0% of merchant wholesaler revenue in 2019. Over the past five years, market share concentration has increased significantly due to heightened merger and acquisition activity. For example, California-based wholesaler Core-Mark acquired JT Davenport & Sons Inc. in 2012, increasing the company’s presence in the Southeast region of the United States. Core-Mark completed several other acquisitions over the following years, ultimately causing the company’s industry-relevant revenue to rise an annualized 10.3% over the five years to 2019. More recently, Reynolds American Inc. (RAI) completed its acquisition of major tobacco company Lorillard Inc., which further boosted the company’s share of the industry. However, in mid-2017, RAI itself was acquired by British American Tobacco, one of the leading global manufacturers of tobacco products.
Similar to most other nondurable goods wholesalers, this industry has
traditionally been characterized by high trade volumes and razor-thin operating margins. As a result, wholesale distributors of tobacco products are pressured to mark up their prices as little as possible to ensure adequate sales volumes, especially as tobacco product prices have increased through higher federal and state excise tax rates. Consequently, the average industry profit margin, measured as earnings before interest and taxes, has fallen from 1.5% of revenue in 2014 to an estimated 1.0% in 2019. As profit from cigarette sales continues to decline, industry operators are expected to derive a greater share of revenue from noncigarette tobacco products such as e-cigarettes or smokeless tobacco. These products are relatively more profitable because they are currently subject to lower excise tax rates and continue to experience less regulatory scrutiny than cigarettes.
Industry Outlook
The Cigarette and Tobacco Products Wholesaling industry will likely continue to contend with major challenges over the five years to 2024, including gradual drops in smoking rates, rising excise taxes and illicit trade across state lines. However, unlike the five-year period to 2019, industry revenue is not anticipated
to expand over the next five years. Demand for all product segments will likely begin to slow down in response to broader regulatory pressure from the US Food and Drug Administration (FDA), Federal Trade Commission, Alcohol and Tobacco Tax and Trade Bureau and other public and private institutions.
Competition and threats
Operators have experienced a threat from both retailers and manufacturers in recent years. Several major tobacco product manufacturers have their own wholesale distribution operations, while larger operators with an established national presence, such as McLane Company Inc. and Core-Mark Holding Company Inc., continue to consolidate their distribution networks. These trends have made smaller
merchant wholesalers, particularly those operating at the regional level, increasingly obsolete. As a result, industry revenue is forecast to contract at an
Operators have experienced a threat from both retailers and manufacturers
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 10
Industry Performance
Competition and threats continued
annualized rate of 1.0% to $124.8 billion over the five years to 2024, as continued price markups across all tobacco categories will likely be offset by significant declines in volume sales of cigarettes.
Over the next five years, the trajectory of establishment and enterprise growth will likely reverse course from the previous period. The number of establishments is forecast to decrease at
an annualized rate of 0.6% to 4,086 locations during the outlook period, while industry employment is projected to decline an annualized 0.5% to 54,869 workers. Industry participation is expected to decrease because newly enacted FDA regulations on electronic nicotine delivery products will likely make operating conditions less favorable for smaller merchant wholesalers that have experienced good fortune in the past.
Smoking rates on the way down
Despite major efforts to curb smoking and regulate the tobacco industry over the past few decades, smoking remains the leading cause of preventable disease in the United States according to the Office of the Surgeon General. Furthermore, the Centers for Disease Control and Prevention’s Youth Risk Behavior Survey found that, although the percentage of youth who smoke cigarettes fell to 15.7% in 2014, the share of young Americans who still experiment with other tobacco products, especially e-cigarettes and smokeless tobacco, has remained relatively high. Accordingly, anti- smoking organizations will likely increasingly focus on reducing smoking rates among younger people, especially adults under the age of 21, because they are much less likely to experiment with tobacco later in life. Negative attitudes toward smoking are a major factor that will likely affect this industry over the next five years and continued antismoking campaigns are likely to lower tobacco consumption among adults between the ages of 18 and 26.
Overall, cigarette smoking rates are forecast to continue to decline over the
coming years. In particular, IBISWorld expects the percentage of smokers to drop from 15.2% in 2019 to a projected 13.3% in 2024. Additionally, federal, state and provincial excise taxes on tobacco products are expected to continue increasing, which is projected to further raise the price of tobacco products and drive down demand. Tobacco wholesalers, which already experience a very low profit margin, are likely to endure an even lower operating margin in the future as they focus on sustaining high sales volume despite rising prices. Over the past two years, manufacturers such as Altria Group Inc. have reduced wholesale promotional allowances and initiated significant price markups on tobacco products to sustain profit. These actions will likely continue over the coming years and ultimately take a toll on the average profit margin for this industry.
Cigarette smoking rates are forecast to continue to decline over the coming years
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 11
Industry Performance
Regulatory environment
While regulations that restrict the use of e-cigarettes were recently implemented at the federal level by the FDA, implementing new regulations will likely remain a top priority for state and local authorities over the five years to 2024. New warning label requirements and increasing pressure to raise the minimum smoking age from 18 to 21 in many states will likely be enacted over the next five years. However, these proposed new regulations are more likely to affect the manufacturers of tobacco products rather than the distributors. Nonetheless, a more stringent regulatory environment increases compliance costs for manufacturers. These costs are then
passed off to distributors in the form of higher product prices, which increases purchase costs for industry operators and lowers profitability. Similarly, rising excise taxes will likely have an increasingly adverse effect on industry participants over the next five years by lowering overall consumption of tobacco, leading to reduced volume sales and profitability.
Rising excise taxes will likely have an increasingly adverse effect on industry participants
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 12
Industry Performance Industry value added is expected to decline over the 10 years to 2024
Per capita and total consumption of cigarettes has declined in all but two years since 1994
Cigarette manufacturers are reducing promotional allowances for wholesalers
Tobacco-related regulation at the manufacturing, wholesaling and retailing levels is expected to rise significantly over the coming years
Life Cycle Stage
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 13
Industry Performance
Industry Life Cycle The Cigarette and Tobacco Products Wholesaling industry is in the decline phase of its life cycle. Over the 10 years to 2024, industry value added (IVA), which measures an industry’s contribution to the economy, is projected to decline at an annualized rate of 1.2%. In comparison, US GDP is forecast to grow an annualized 2.0% during the same period. While there was some positive movement in IVA during the first half of the five-year period to 2019, it is expected to shrink steadily over the five years to 2024. This is due primarily to the increasing health consciousness of American consumers and rising excise taxes on tobacco, both of which have dampened demand for industry products. Over the past decade, tobacco companies have largely been able to apply price markups that effectively offset volume declines in tobacco consumption. This trend has started to reverse during the past two years and is
likely to move unfavorably in tobacco’s direction during the latter half of the 10-year period.
Per capita consumption of all tobacco products has continued to decline over the five years to 2019. Although demand for noncigarette tobacco products, such as smokeless tobacco or e-cigarettes, has somewhat offset declines in cigarette consumption, this trend is very unlikely to generate further industry expansion during the second five-year period. The industry is also undergoing a period of consolidation and concentration as operators streamline their distribution facilities and lay off employees to salvage razor-thin profit margins. Consequently, the number of establishments, individual enterprises and employment are all expected to decline during the latter half of the 10-year period in response to falling profit margins, declining sales volume and higher purchase costs.
This industry is in Decline
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 14
Products and Services Despite falling consumption figures, cigarettes remain the largest product category distributed by the Cigarette and Tobacco Products Wholesaling industry, accounting for an estimated 72.4% of total revenue in 2019. This segment consists of non-menthol cigarettes and menthol cigarettes, which account for 46.3% and 26.1% of industry revenue, respectively, in 2019. Volumes of cigarettes consumed domestically had fallen every year between 1994 and 2007, but picked up again in 2008 and 2009 due to the effects and stresses of the recession such as high unemployment. However, according to data from the Federal Trade Commission, domestic
consumption of cigarettes declined from 274.4 billion units in 2011 to 240.5 billion units in 2016 (latest available data). Furthermore, according to retail sales data from Management Science Associates Inc., cigarette shipments declined an annualized 1.1% between 2013 and 2016 (latest data available). The market for cigarettes is heavily concentrated, with Altria Group Inc.’s Marlboro brand alone accounting for a 43.1% share of revenue, followed by Reynold American Inc.’s respective top brands, which are now rolled up into British American Tobacco PLC (34.0%), according to retail sales data from Management Science Associates Inc. in 2017 (latest data available).
Products & Markets Supply Chain | Products and Services | Demand Determinants Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES
44511 Supermarkets & Grocery Stores in the US Supermarket chains are a major purchaser of tobacco products since they are a key link to final consumers.
44512 Convenience Stores in the US These stores are convenient sources of cigarette and other tobacco product purchases
44531 Beer, Wine & Liquor Stores in the US Liquor stores are another key link in selling brands to end-users.
44611 Pharmacies & Drug Stores in the US Pharmacies and drug stores are a relatively minor source of sales for wholesalers, but they are another link to consumers.
44711 Gas Stations with Convenience Stores in the US These stores are convenient sources of cigarette and other tobacco product purchases
45399 Small Specialty Retail Stores in the US This industry includes specialist tobacco stores, which purchase such products via distributors.
71321 Non-Hotel Casinos in the US Non-hotel casinos operate bars and typically sell tobacco products alongside alcoholic beverages.
71391 Golf Courses & Country Clubs in the US These private clubs are responsible for a small portion of cigar and pipe tobacco sales, either directly from the manufacturer or through a wholesaler.
72241 Bars & Nightclubs in the US Such establishments also sell cigarettes, cigars and loose tobacco to customers, so they are an important source of sales for wholesalers.
KEY SELLING INDUSTRIES
31222 Cigarette & Tobacco Manufacturing in the US All products purchased for further sale onto retailers are sourced from cigarette and other tobacco product makers.
Supply Chain
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 15
Products & Markets
Products and Services continued
Factors that have reduced cigarette consumption include greater awareness over the potential health risks associated with smoking, rising excise taxes at both the federal and state levels, increasing social stigma against smoking and stricter restrictions on where people can smoke (i.e. bars and other establishments). IBISWorld anticipates this product segment’s share of industry revenue to shrink over the five years to 2024, as per capita cigarette consumption continues declining in response to ongoing regulatory and societal pressure against smoking.
Other tobacco products Other tobacco products include smokeless and pipe tobacco, cigars and other noncigarette tobacco products. Cigars are a small niche market in terms of sales volume and value, accounting for an estimated 4.8% of industry revenue in 2019. Relatively lower excise taxes on both large and small cigars (also known as cigarillos) have helped boost this product category over the five years to 2019. Furthermore, cigars are not subject to the same regulations as cigarettes and can therefore be sold individually (rather than by the pack) or flavored with mint or fruit flavors. The recent ruling on
machine-made and premium cigars by the US Food and Drug Administration (FDA) has yet to have a significant effect on this product category’s performance.
Chewing tobacco and other smokeless tobacco products are a small but rapidly growing product category for this industry, representing an estimated 5.4% of industry revenue in 2019. This growth can be attributed to growing numbers of smokers switching from cigarettes to smokeless tobacco products. Over the past five years, smokeless tobacco has experienced fewer hikes in federal or state tax rates than cigarettes have, which has kept the per-unit price of smokeless tobacco relatively lower than a pack of cigarettes. Furthermore, smokeless tobacco products are generally perceived to be a less harmful alternative to cigarettes, although multiple studies have shown that smokeless tobacco can lead to major health issues such as gum disease or mouth cancer. IBISWorld expects consumption of smokeless tobacco products to continue rising over the next five years, partially offsetting declining cigarette consumption. Manufacturers are heavily promoting smokeless tobacco products, while demand for these products will continue to rise as smokers increasingly look for new alternatives to satisfy their nicotine habit.
Products and services segmentation (2019)
Total $131.0bn
46.3% Regular cigarettes
26.1% Menthol cigarettes
17.4% Nontobacco products
5.4% Other tobacco products
4.8% Cigars
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 16
Products & Markets
Demand Determinants
Demand for the Cigarette and Tobacco Products Wholesaling industry is dependent on downstream demand from retailers, which in turn is dependent on overall demand for tobacco products from American consumers. From a scientific standpoint, consumers primarily demand cigarettes and other tobacco goods because of its naturally high nicotine content, which has been shown to cause long-term addiction in tobacco users. Partly due to tobacco’s inherently addictive nature, dollar sales of tobacco products have remained surprisingly high over the past two decades, despite growing efforts to curb smoking and further regulate the tobacco industry.
Although industry revenue has actually increased over the five years to 2019, per-unit consumption of cigarettes has nonetheless steadily declined, mostly in response to steps taken by the federal and state governments to discourage consumption of tobacco products. These measures include restricting advertising and sales promotion activities, requiring health warnings be printed on cigarette packets, bans on smoking in specified locations and public anti-smoking campaigns funded by annual payments from the largest tobacco manufacturers (See Industry Assistance and Regulation and Policy).
Products and Services continued
Nontobacco products Electronic cigarettes, better known as e-cigarettes, are electronic devices designed to simulate the experience of smoking a conventional cigarette by heating a liquid solution or aerosol, which then produces a smoke-like vapor that delivers a dose of nicotine to the user. Unlike conventional tobacco products, e-cigarettes not regulated by FDA for most of the five-year period, although the FDA recently extended its regulatory control over e-cigs and other similar novel products in mid-2016. IBISWorld estimates that wholesale revenue from the distribution of e-cigs has grown from less than 0.1% of industry revenue in 2014 to an estimated 2.0% in 2019. The largest operators in this industry mostly distribute e-vapor products to convenience stores and generally do not serve e-vapor shops and other independent tobacco stores. In 2015, the leading e-vapor product sold at convenience stores was Reynold American’s VUSE brand, which generated $221.1 million in retail sales
that year. However, in 2018, the leading product was an electronic cigarette from JUUL Labs, a spinoff of PAX labs. According to Bonnie Herzog, a senior analyst at Wells Fargo, JUUL Labs recorded $2.0 billion in revenue in 2018 (latest data available). Other leading e-vapor brands include blu, Logic and Nu Mark.
In addition to e-cigarettes, industry wholesalers also purchase and distribute a variety of smoking accessories and other products, ranging from lighters, ashtrays and water pipes (hookahs) to vaporizers and nicotine replacement therapy solutions. Industry operators also distribute nontobacco products, such as breath-freshening gum, lozenges, candy, beverages and snacks to convenience stores, pharmacies and a variety of other retail outlets; sales of these products are expected to account for the remaining 17.4% of industry revenue in 2019. The largest categories within this miscellaneous segment are candy and chocolate (6.5% of the industry), snacks (less than a 3.5% share) and frozen food products (less than 1.5% share).
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 17
Products & Markets
Major Markets
Tobacco companies sell their products to intermediary distributors, which then resell the products to retailers such as convenience stores, grocery stores, supermarkets, pharmacies and specialty tobacco shops. Since the Cigarette and Tobacco Products Wholesaling industry includes the sales and distribution branches of tobacco product manufacturers (formally known as MSBOs), wholesalers represent the single largest market for industry products. This market segment consists of two broad types of wholesalers: candy and tobacco distributors and broadline grocery distributors. At the retail level, convenience stores represent the single-largest market for tobacco products, followed by supermarkets and grocery stores, pharmacies and discount stores and other retailers.
Wholesalers The wholesale distribution branches of major tobacco companies such as Altria Group Inc. and British American Tobacco PLC sell substantially all of their products to intermediary national and regional wholesalers. None of the leading tobacco manufacturers sells directly to consumers. In fact, IBISWorld estimates that MSBOs generate over 99.6% of sales from direct shipments to domestic wholesalers, with export sales and sales to military bases and
certain retailers accounting for the balance. As a result, this industry experiences very little, if any, external competition from wholesalers. In contrast, wholesalers do present a significant threat to many other nondurable goods wholesalers (IBISWorld reports 42445 and 42449). In 2019, sales associated with MSBO-to-wholesaler and wholesaler-to-wholesaler distribution operations are expected to account for 46.5% of total industry revenue.
Convenience stores Cigarettes and other tobacco products are sold through a variety of outlets, with convenience stores and supermarkets representing the largest retail channels for tobacco products. Cigarette and other tobacco products contribute over 40.0% to average convenience store’s annual sales, according to the Association for Convenience and Fuel Retailing. Convenience stores are the largest market for industry sales other than wholesalers because they are located throughout urban areas and are often attached to gas stations, thereby making them a highly visible and convenient place to purchase cigarettes and other tobacco products. Most of these locations are served by convenience store wholesalers, which include national leaders such as Core-Mark International, as well as
Major market segmentation (2019)
Total $131.0bn
46.5% Wholesalers
40.1% Convenience stores and gas stations
8.7% Supermarkets, pharmacies and grocery stores
4.7% Other retail
channels
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 18
Products & Markets
Major Markets continued
regional leaders such as Eby-Brown, HT Hackney and AMCON Distributing Co. This market has been the fastest-growing segment in the Cigarette and Tobacco Product Wholesaling industry over the past five years. IBISWorld estimates convenience stores to account for 40.1% of industry revenue in 2019.
Grocery stores and supermarkets Although the grocery store and supermarket segment has traditionally been a major market for tobacco wholesalers, a growing number of well-known grocery store chains are choosing to remove cigarettes and other tobacco products from their shelves in response to negative scrutiny over their effects on consumer health. This market segment also includes pharmacies, discount stores (e.g. dollar stores), department stores and mass merchandisers (e.g. Walmart). For example, CVS Pharmacy, which operates over 7,700 locations nationwide, set a new precedent by removing all tobacco items from its shelves on October 1, 2014. CVS’s move is likely to pressure other large pharmacy or grocery chains to follow suit in the near future. As a result, IBISWorld estimates that this segment accounts for an estimated 8.7% of industry revenue in 2019, having declined steadily since 2014 and anticipated to continue
declining as a share of revenue during the next five-year period.
Other retail channels Other outlets, which include specialty tobacco stores (e.g. cigar bars, hookah bars and e-vapor shops), street vendors and online retailers account for the remaining 4.7% of industry revenue in 2019. This segment has remained stable over the past five years, with expanding sales to street vendors and specialty tobacco stores offset by declining sales to online tobacco sellers. Despite widespread expansion in internet sales within other wholesale and retail industries, the number of online tobacco retailers has actually decreased over this period. This trend is primarily caused by the increasingly uncertain regulatory environment surrounding online tobacco sales, which has discouraged most internet retailers from further expanding their business operations. The majority of online tobacco distributors sell premium handmade cigars, premium snuff or snus products imported from abroad, smokers’ accessories and other noncigarette tobacco products. Wholesaler shipments to online retailers of cigarettes currently account for a negligible share of revenue and are likely to remain insignificant over the five years to 2024.
International Trade No trade data is recorded for the Cigarette and Tobacco Products Wholesaling industry since it is accounted for exclusively at the manufacturer level (IBISWorld report 31222). Some wholesalers are involved in importing and exporting tobacco products across Canada, although substantial tariffs that target tobacco
trade across international lines and the overall regulatory environment discourages most operators from directly importing or exporting tobacco products to other countries. Certain cigar distributors, most of which are situated in Florida, may also import premium cigars from Nicaragua, the Dominican Republic and other countries.
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 19
Products & Markets
Business Locations 2019
MO 2.0
West
West
West
Rocky Mountains Plains
Southwest
Southeast
New England
VT 0.4
MA 1.5
RI 0.1
NJ 4.2
DE 0.3
NH 0.4
CT 1.2
MD 1.0
DC 0.0
1
5
3
7
2
6
4
8 9
Additional States (as marked on map)
AZ 0.8
CA 11.6
NV 1.0
OR 0.4
WA 1.8
MT 0.4
NE 0.7
MN 2.0
IA 1.0
OH 2.8
VA 2.4
FL 10.9
KS 0.5
CO 0.9
UT 0.4
ID 0.5
TX 6.4
OK 0.9
NC 3.4
AK 0.4
WY 0.1
TN 2.3
KY 2.2
GA 2.2
IL 4.5
ME 0.3
ND 0.3
WI 1.2 MI
2.9 PA 6.4
WV 0.7
SD 0.3
NM 0.4
AR 1.2
MS 1.0
AL 1.3
SC 1.7
LA 1.4
HI 0.4
IN 2.0
NY 7.4 5
6 7
8
3 21
4
9
SOURCE: WWW.IBISWORLD.COM
Mid- Atlantic
Establishments (%)
Less than 3% 3% to less than 10% 10% to less than 20% 20% or more
Great Lakes
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 20
Products & Markets
Business Locations The spread of establishments in the Cigarette and Tobacco Products Wholesaling industry generally follows the spread of upstream tobacco product manufacturers and downstream retailers. Based on data from the US Census Bureau, tobacco product wholesalers are heavily concentrated in the Southeast, Mid-Atlantic and the Great Lakes regions. A large share of cigarette manufacturing establishments is also located in these regions. The Southeast region accounts for the largest share of industry establishments, with Florida and North Carolina being most significant states in this region at 10.9% and 3.4% of establishments, respectively, in 2019. Likewise, almost two-thirds of tobacco product manufacturing establishments are also based in this region, and the region is major tobacco growing area. The region is also home to about one-third of all convenience stores, a major downstream market for this industry’s products. Overall, the Southeast region accounts for 30.5% of industry establishments in 2019.
The Mid-Atlantic region represents the second-largest region in terms of tobacco product wholesaling establishments, accounting for an estimated 19.2% of the total in 2019. Furthermore, the Great Lakes accounts for 13.4% of wholesaling establishments in 2019, but less than 5.0% of all manufacturing facilities. This indicates that wholesalers are primarily located in the Great Lakes and New England (with
3.9% of establishments in 2019) regions to service local area customers. Almost one-quarter of all of convenience stores in the United States are located in these two regions.
The Southwest and West regions account for an estimated 8.5% and 15.6% of industry establishments, respectively, in 2019. These establishments are also located close to both tobacco product makers and farming areas. In 2019, California accounts for 12.1% of the population and 11.6% of establishments. These establishments position themselves where they will likely have greater access to a larger portion of the population and the markets that have a higher demand.
%
40
0
10
20
30
So ut
hw es
t
W es
t
G re
at L
ak es
M id
-A tl
an ti
c
N ew
E ng
la nd
Pl ai
ns
R oc
ky M
ou nt
ai ns
So ut
he as
t
Establishments Population
Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 21
Key Success Factors Economies of scale Achieving scale economies through investment in large warehouse facilities can maximize profitability if the wholesaler operates at peak volume processing capacity. This is critical in an industry that operates at a razor thin gross profit margin.
Having relationships with key markets Linkages with large convenience store or supermarket chains, which generate
the majority of sales, are paramount to ensuring a continuous demand for the tobacco products traded.
Automation – reduces costs, particularly those associated with labor The ability to improve and invest in warehousing and order processing technology will likely reduce processing
Market Share Concentration
The Cigarette and Tobacco Products Wholesaling industry as a whole is characterized by a medium level of market share concentration, with the four largest operators expected to account for just over 55.0% of industry revenue in 2019. This industry can be categorized into two distinct classes of operators: merchant wholesalers, otherwise known as independent tobacco distributors; and the wholly owned distribution subsidiaries of tobacco product manufacturers, formally known as manufacturers’ sales branches and offices (MSBOs). Despite representing the vast majority of industry enterprises, establishments and employees, tobacco distributors are expected to generate just three-fourths of industry revenue in 2019.
Market share concentration is considerably higher among MSBOs, where just the top two operators account for almost 90.0% of total manufacturer wholesaling revenue. Among merchant wholesalers, which only distribute and do not produce any tobacco products, the top four companies account for a 46.6% share of total merchant wholesaling revenue. Nonetheless, market share concentration drops quickly after accounting for the top four operators, with the next four largest companies combined (including both MSBOs and merchant wholesalers) accounting for under 10.0% of total revenue.
In terms of overall competitive landscape, this industry is characterized by four major players that manufacture or
distribute tobacco products on a national level, followed by four distributors that operate on a regional level. In turn, these eight large players are trailed by hundreds of small distributors that operate at the state or local level. In fact, nonemployers, or one-person businesses, comprise 56.2% of all industry establishments, although they are anticipated to generate less than 0.2% of total industry revenue. Moreover, individual businesses with more than 500 workers comprise only 2.0% of all industry operators, although they generate more than three-fourths of total revenue.
IBISWorld forecasts market share concentration to increase considerably in the upcoming years because of industry consolidation among both manufacturing distributors and merchant wholesalers. In fact, the third-largest company, British American Tobacco PLC (British American Tobacco), recently completed its acquisition of Reynolds American Inc., which boosted the company’s market share from 3.7% in 2014 to an estimated 8.7% in 2019. Merchant wholesalers (e.g. Core-Mark Holding Company Inc. and Eby-Brown) have also increased their share of the market via acquisitions in recent years. While acquisition activity among MSBOs will likely be limited in the coming years, consolidation activity among merchant wholesalers is expected to increase as national operators continue to expand their distribution capacity reach via acquisitions.
Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Level Concentration in this industry is Medium
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 22
Competitive Landscape
Cost Structure Benchmarks
Except for mandatory remittance of excise taxes at the state or local levels, the Cigarette and Tobacco Products Wholesaling industry’s cost structure is mostly consistent with those of other nondurable goods wholesaling industries. Purchases make up the majority of operating expenses, while depreciation rates and profit margins are characteristically low despite very high sales volume.
Wages Labor represents a very small share, estimated to account for only 2.1% of revenue in 2019. Wage’s share of revenue has increased slightly over the past five years from 2.0% in 2014, primarily due to increased capital expenditures on automated inventory control systems, which has enabled operators to manage their distribution networks more efficiently and effectively, but requires higher skilled labor
Key Success Factors continued
and labor costs while maximizing total volume sold.
Optimum capacity utilization Using up all warehouse capacity is essential to maximize the economic efficiency of an operation, thereby reducing the ratio of overhead costs to revenue.
Operators experience a comprehensive and increasingly tougher regulatory environment The success of industry operators depends heavily on compliance with broad, comprehensive regulation of tobacco products, which can vary widely across states lines and different tobacco product types.
Sector vs. Industry Costs
n Profi t n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other
Average Costs of all Industries in sector (2019)
Industry Costs (2019)
0
20
40
60
Pe rc
en ta
ge o
f re
ve nu
e
80
100
SOURCE: WWW.IBISWORLD.COM
3.6 1.0
15.9 0.50.2 0.2
80.1
2.1
14.0 0.60.3 0.6
75.6
5.3
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 23
Competitive Landscape
Cost Structure Benchmarks continued
to operate. In turn, this has lowered the average number of employees per establishment, while slightly increasing wages. As competition for talented employees intensifies, workers will gain more bargaining power for corporate reputation and benefits. Nonetheless, overall industry employment has remained relatively flat during the five-year period at 56,243 workers in 2019. Over the next five years, wages’ share of revenue will likely remain low as anticipated future spikes in federal or state excise taxes, coupled with declining tobacco consumption, pressure operators to minimize labor costs to remain profitable.
Purchases Purchases of tobacco products from manufacturers are the largest expense for industry participants, accounting for 80.1% of revenue in 2019. This cost category also includes purchases of diesel, liquefied petroleum gas (LPG) and other fuels used to operate distribution vehicles. Industry operators purchase most of their tobacco products from the three largest tobacco manufacturers: Altria, British American Tobacco PLC and Imperial Brands PLC. These manufacturers have raised their unit prices significantly over the past five years to compensate for falling sales volume, increases in per-unit excise taxes at the federal level, ongoing payments as part of the Master Settlement Agreement (MSA), and to pay for tobacco-related litigation expenses not covered by the MSA. In general, federal excise taxes on tobacco products are remitted by tobacco manufacturers to the appropriate federal agencies. As a result, changes in federal excise taxes are directly reflected in the per-unit price charged by manufacturers to downstream wholesalers. In other words, federal excise taxes are included in the purchases category for this industry, while state and local excise taxes are included in the other category.
Profit The average industry profit margin, measured as earnings before interest and taxes, is estimated to account for only 1.0% on revenue in 2019, having decreased slightly from 1.5% in 2014 due to rising federal and state-level excise taxes and declining per capita cigarette consumption. Despite increasing regulatory scrutiny over all tobacco products, industry operators were able to maintain profitability by streamlining their distribution networks and minimizing operational costs associated with order fulfillment. In general, companies that have both manufacturing and distribution segments have a considerably higher profit margin compared with merchant wholesalers that exclusively purchase and distribute tobacco products from other manufacturers. Tobacco manufacturer Altria Group Inc. (Altria), for example, sustained an average operating margin of 36.4% over the five years to 2019 (excluding the value of federal excise taxes), while merchant wholesaler Core-Mark Holding Company Inc. (Core-Mark) sustained an average operating margin of only 0.4% during the same period.
Depreciation Depreciation costs are expected to account for just 0.2% of revenue in 2019, which is common for wholesaling industries. Depreciation expenses have remained relatively stable over the past five years. Conversely, distribution and logistics expenses have increased slightly over the past five years, reflecting the increased costs associated with vehicle fleet upgrades, maintenance and repair.
Marketing Marketing is expected to account for 0.2% of industry revenue in 2019. Tobacco wholesalers allocate very little or no funds to marketing because tobacco product advertising is conducted almost exclusively at the manufacturing level. Furthermore, federal and state-level regulations effectively
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 24
Competitive Landscape
Cost Structure Benchmarks continued
prohibit tobacco-affiliated businesses from engaging in traditional methods of advertising such as billboards, TV or radio commercials, attractive product packaging and banners (IBISWorld report 31222).
Rent Rent expenses are estimated to account for 0.4% of industry revenue in 2019, slightly down from 0.6% in 2014.
Utilities Utilities are estimated to account for only 0.1% of industry revenue in 2019. Utilities include heat, electricity, water and other expenses required for day-to- day operations.
Other In 2019, all other expenses account for the remaining 15.9% of industry revenue and include taxes, administrative and legal fees, among others. Other expenses have slightly decreased from 16.1% of industry revenue in 2014. The most important category of expenses that is unique to tobacco wholesalers is state or local excise taxes. Federal excise taxes on tobacco products are levied exclusively on the manufacturers, which collect the appropriate per-unit tax on their products and pass down the added expense to wholesalers in the form of higher purchase costs. Conversely, excise taxes at the state, county or provincial levels are levied on wholesalers, that are in turn, obligated to calculate the applicable tax level
per unit sold/distributed and remit the collected taxes to the appropriate public agency. Unlike federal taxes, which are currently set at $1.01 per pack of cigarettes across the country, state excise taxes vary widely across different states, counties and cities. As of January 2019, state-level tax rates for a pack of cigarettes ranged from a low of $0.17 per pack in Missouri to a high of $4.35 per pack in New York State. Certain localities, such as New York City and Chicago, have implemented even higher excise taxes on tobacco products sold within their city limits. The median excise taxes on tobacco products across all states reached $1.65 in early 2019, according to latest figures from the Campaign for Tobacco-Free Kids.
In general, state excise taxes are only relevant for large wholesalers with operations spanning across multiple states. Smaller wholesalers typically do not directly purchase tobacco products from the manufacturer, but rather from larger distributors such as McLane that have already remitted the appropriate taxes. Consequently, this tax burden is reflected in higher purchase costs for smaller wholesalers. Overall, remittance of excise taxes at the local and state levels is estimated to account for 13.6% of total industry revenue, with the greatest burden incurred by national wholesalers. For example, excise taxes accounted for 22.0% of Core-Mark’s industry-relevant revenue representing $3.5 billion in the most recent reporting period.
Basis of Competition
Level & Trend Competition in this industry is High and the trend is Increasing
Internal competition Competition within the Cigarette and Tobacco Products Wholesaling industry has traditionally been high because of the large number of operators and typically low profit. In recent years, however, the level of competition has increased even more due to declining sales volume associated with lower per capita cigarette consumption, and
higher taxes, which have caused cigarette prices to rise significantly.
The basis for competition varies significantly between tobacco manufacturers with sales offices (MSBOs) and traditional merchant wholesalers. Overall, the market for tobacco products is highly competitive, characterized by brand recognition and loyalty, with product quality, taste, price, product innovation, marketing, packaging
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 25
Competitive Landscape
Basis of Competition continued
and distribution constituting the significant methods of competition. Promotional activities include, in certain instances and where permitted by law, allowances, the distribution of incentive items, price promotions, product promotions, coupons and other discounts. Merchant wholesalers, which purchase products from tobacco manufacturers or other distributors for resale, can differentiate themselves based on range of products offered, quality and efficiency of their respective distribution networks and relations with suppliers. Recent vertical integration initiatives and other changes in customer buying patterns have resulted in a more dynamic and competitive operating environment. Conversely, tobacco manufacturers, which operate in this industry via their respective sales and distribution offices, compete primarily based on price, promotional activity, brand recognition and product quality.
Although stringent federal and state regulations effectively ban conventional methods of advertising, industry operators can somewhat market their products through price promotions, discounts and members-only loyalty programs and benefits. Nonetheless, major tobacco manufacturers that have previously established customer loyalty have a considerable advantage over smaller, newer operators with products and brands that are not well recognized by consumers. Likewise, larger merchant wholesalers typically have greater economies of scale than smaller operators, which enable them to obtain favorable agreements with both suppliers and customers more easily than distributors with less purchasing power. Larger operators also have more resources to invest in new technology and capital, which can lower operating expenses and increase profitability.
External competition Industry operators contend with increasing competition from the illicit
trade (smuggling) of tobacco products across state lines, sales of counterfeit cigarettes, unlawful sale of tobacco products over the internet and sales through various other channels intended to circumvent the collection of federal, state or local excise taxes. Euromonitor International estimates that 456.0 billion cigarettes a year are smuggled, counterfeited or manufactured illegally. Although illegal, smuggling of tobacco products has become a highly lucrative business in recent years because of rising tobacco taxes. Large disparities in excise tax rates between states enable individuals or criminal organizations to purchase tobacco products in states with lower tax rates to resell in states with higher tax rates. To the extent that an illicit market continues with respect to the products produced by these businesses, the costs incurred by these businesses to comply with regulatory requirements, as well as applicable excise and sales taxes, may make it difficult to compete with the illicit market or may dampen growth opportunities.
Furthermore, according to a 2016 study sponsored by the Mackinac Center for Public Policy (latest data available), smuggled cigarettes accounted for a considerable share of all cigarettes sold in several states. For example, the study concludes that an estimated 55.4% of all cigarettes consumed in New York were illegally imported from neighboring states with lower taxes such as Pennsylvania or Delaware. Similar studies, such as those published in the November 2017 Tax Foundation or the January 2018 MIT Press Journal of Health Economics have also concluded that interstate tobacco smuggling presents a growing challenge for tobacco manufacturers, wholesalers and regulators. The Federal Trade Commission Protocol to Eliminate Illicit Trade in Tobacco Products went into effect on September 25, 2018, with the aim to eliminate illegal tobacco trade.
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 26
Competitive Landscape
Industry Globalization
Globalization for the Cigarette and Tobacco Products Wholesaling industry is low because domestic tobacco manufacturers almost exclusively rely on domestic distributors to reach end use customers. Additionally, the wholesale industry’s profit margins have historically remained very low, while industry- relevant regulations and taxes have increased extensively over the past two decades. As a result, foreign companies have little incentive to enter the domestic wholesaling market.
Despite the domestic focus of this industry, some companies do have operations abroad. For example, McLane
Company Inc. (McLane) provides distribution services throughout the United States, Canada, and more than 50,000 customer locations across the world. In the international market, McLane operates several distribution centers, providing third party logistics services to large multi-national companies in Brazil and Taiwan. Similarly, Core- Mark International has increasingly focused on expanding its Canadian operations, which accounted for about 9.0% of industry revenue in 2018 (latest data available). Nonetheless, globalization remains low for this industry and is not expected to rise over the coming years.
Barriers to Entry The Cigarette and Tobacco Products Wholesaling industry has moderate barriers to entry. Unlike tobacco manufacturers, which must obtain permits from the Alcohol and Tobacco Tax and Trade Bureau (TTB) and licenses from other federal and state agencies prior to entering the market, tobacco wholesalers experience few technical barriers to entry. Conversely, intensifying levels of competition, rapidly expanding market share concentration, sinking demand for the industry’s major products and an increasingly stringent regulatory environment restricts the ability of new entrants to compete with already- established operators. One major barrier to entry is the development of well- entrenched supplier-buyer agreements between the largest tobacco manufacturers and distributors. The top two national tobacco distributors, McLane Company and Core-Mark, have
spent decades developing their national distribution networks while establishing stronger relations with Philip Morris USA (Altria Group), British American Tobacco, Vector Group and other key tobacco product manufacturers. As a result, even though operators frequently enter and exit the industry, new entrants generally fail to grow their business to a level where they can compete effectively against the top players.
Barriers to Entry checklist
Competition High Concentration Medium Life Cycle Stage Decline Capital Intensity Low Technology Change Medium Regulation and Policy Heavy Industry Assistance Low
SOURCE: WWW.IBISWORLD.COM
Level & Trend Barriers to Entry in this industry are Medium and Increasing
Level & Trend Globalization in this industry is Low and the trend is Steady
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 27
Player Performance Founded in 1894 and headquartered in Temple, TX, McLane Company Inc. (McLane) is a major supply-chain services company and distributor of grocery, food service and nonfood items to over 90,000 retail locations across the United States from its 59 distribution centers. McLane has historically been the largest merchant wholesaler operating in the Cigarette and Tobacco Products Wholesaling industry, representing the single largest customer of the top five tobacco product manufacturers. Philip Morris (Altria Group Inc.), Reynolds American Inc. (RAI), Lorillard Inc. (prior to its merger with RAI), Commonwealth Brands and Liggett Group. RAI and Lorillard are now rolled up into British American Tobacco PLC.
Since 2003, the company has been a wholly owned subsidiary of Berkshire Hathaway Inc. (Berkshire). Berkshire
employs about 46,000 individuals through its service business, which McLane is part of. McLane operates through its main subsidiaries, which include McLane Grocery and McLane Foodservice. Industry-relevant revenue is derived from the company’s Grocery subsidiary, which distributes cigarettes and tobacco products to convenience stores, grocery stores, supermarkets and pharmacies across the United States. The company is the largest distributor of tobacco products to Walmart Inc. and 7-Eleven Inc. stores across the United States.
Financial performance McLane’s industry-relevant revenue is expected to increase an annualized 6.1% to $26.2 billion over the five years to 2019. Similar to Core-Mark Holding Company Inc., McLane experienced higher revenue growth than the overall
Major Companies McLane Company Inc. | Altria Group Inc. British American Tobacco PLC | Core-Mark Holding Company Inc. | Other Companies
44.1% Other
McLane Company Inc. 20.3%
Altria Group Inc. 18.5%
British American Tobacco PLC 8.7%
Core-Mark Holding Company Inc. 8.4%
SOURCE: WWW.IBISWORLD.COM
Major Players (Market Share)
McLane Company Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 19,517.1 N/C 182.0 N/C
2015 23,943.3 22.7 249.2 41.8
2016 24,327.3 1.6 218.1 -12.5
2017 25,683.7 5.6 228.7 4.9
2018 25,459.2 -4.24 218.6 -7.7
2019 26,201.3 2.92 223.4 2.17
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
McLane Company Inc. Market Share: 20.3%
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 28
Major Companies
Player Performance Altria Group Inc. (Altria), formerly known as Philip Morris Companies Inc., is a Virginia-based holding company with subsidiaries that engage in the production and distribution of cigarettes, cigars, pipe tobacco, smokeless tobacco products and wine. While the company was originally incorporated in 1985, its involvement in manufacturing tobacco products dates back to 19th-century London, and the company’s cigarettes have been sold in the United States since 1902. Its production subsidiaries include Philip Morris USA Inc., US Smokeless Tobacco Company (UST), John Middleton Co. and Ste. Michelle Wine Estates Ltd.
The company has several leading tobacco product brands: Marlboro (the top-selling cigarette brand in the United States since the 1970s), Black & Mild Cigars, Copenhagen and Skoal smokeless tobacco brands, as well as smaller cigarette brands
such as Benson & Hedges and Virginia Slims. According to the company’s latest annual report, Marlboro accounted for 43.1% of cigarette retail sales in 2018, while the Copenhagen and Skoal brands make up a combined 50.6% share of the smokeless tobacco retail sales. In 2018, the company as a whole shipped 109.8 billion cigarettes from its domestic production facilities, representing a 5.8% decline from 2017 (latest data available). Across all operating segments, the company generated net sales of $25.6 billion in 2018 (latest data available). The company participates in this industry through its wholly owned subsidiary Altria Group Distribution Company, which directly sells the company’s tobacco products to wholesale distributors, large retail chains and military bases across the United States.
Just prior to the current period, the company acquired UST, the largest
Player Performance continued
industry. This growth can be attributed to more favorable purchase agreements between McLane and the top three tobacco manufacturers. Additionally, strong sales to smaller grocery and discount store chains, such as Family Dollar Stores Inc. (Family Dollar) locations, have boosted industry-relevant revenue. In particular,
Family Dollar signed an agreement with McLane in 2012 to supply over 6,000 of its locations with cigarette and smokeless tobacco products. Strong demand for tobacco products from convenience stores, relative to other retail channels, has also helped drive the company’s financial performance over the past five years.
Altria Group Inc. Market Share: 18.5% Industry Brand Names Phillip Morris, USA Middleton, Co. U.S. Smokeless Tobacco Company Ste. Michelle Wine Estates Alta Group Distribution Company
Altria Group Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 23,748.0 N/C 7,379.5 N/C
2015 24,742.0 4.2 8,133.5 10.2
2016 24,998.0 1.0 8,508.1 4.6
2017 24,878.0 -0.5 9,295.2 9.3
2018 24,559.0 -1.3 8,825.7 -5.1
2019 24,230.6 -1.3 9,523.7 7.9
*Estimates; operating income refl ects profi t at the manufacturing level SOURCE: ANNUAL REPORT AND IBISWORLD
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 29
Major Companies
Player Performance British American Tobacco PLC (British American) was founded in 1904 when the United Kingdom’s Imperial Tobacco Company and United States’ American Tobacco Company agreed to form a joint venture, the British American Tobacco Company Ltd. In 2017, the company went through a restructuring and acquired Reynolds American Inc. (RAI). Following this merger, British American became the second-largest US manufacturer of cigarette and smokeless tobacco products, with a brand portfolio that includes three of the top four best-selling cigarettes in the United States: Newport, Camel and Pall Mall.
The deal to acquire RAI not only created a stronger, global tobacco footprint for British American, but it also enabled the company to leverage complementary skills from the new, enlarged workforce. Consequently, British American now has a balanced presence across emerging markets and developed markets, including the US market. With more than 5,000 employees in the United States, British American cigarette packing and making can reach between 500 and 1,000 cigarette packs per minute through its main manufacturing facilities, which are located in Winston-Salem, NC. The
Player Performance continued
producer of smokeless tobacco in the United States. With growth in its core cigarette business in decline, the UST acquisition helped Altria diversify its product portfolio to include faster-growing tobacco products, such as moist smokeless tobacco. In 2012, the company reorganized its operations to reduce costs and achieve operational efficiencies by combining its former cigarettes and cigars segments into a single smokable products segment. Altria now divides its operations into smokable products, smokeless products, wine and financial services. In 2014, the company formally entered the electronic cigarette category by acquiring the e-vapor segment of Green Smoke Inc. for $130.0 million. In mid-2015, Altria announced plans to collaborate with its global counterpart, Philip Morris International, to jointly develop and market new e-vapor products within the United States. More recently, in January 2017, Altria acquired Sherman Group Holdings LLC, the producer of super-premium Nat Sherman cigarettes and premium cigars. In December 2018, Altria entered into a stock purchase agreement with Juul Labs Inc. (Juul) for a $12.8 billion purchase of Juul’s class C common stock. Upon antitrust clearance,
Altria will possess 35.0% of Juul’s outstanding voting power.
Financial performance Altria’s industry-relevant revenue is expected to expand an annualized 0.4% to $24.2 billion over the five years to 2019. Altria has only experienced slight growth during the current period, which is largely the result of stagnating sales of cigarettes. This has only been partially offset by increased sales of noncigarette products such as Middleton cigars and smokeless tobacco. Despite the 2009 hike in federal excise taxes and rising tobacco-related litigation costs, the company was able to pass on increased operating expenses to consumers, enabling Altria to sustain a high profit margin during the five-year period. Although currently a small share of total group revenue, Altria’s smokeless tobacco segment was a key driver of growth over the past five years due to the product segment’s lower effective tax rate and per-unit cost relative to cigarettes. Altria is expected to hover at current levels in 2019, as volatility remains relatively stagnant due to increased pricing on premium cigarettes and sustained demand for the company’s smokeless tobacco brands.
British American Tobacco PLC Market Share: 8.7% Industry Brand Names Newport Camel RJ Reynolds Tobacco Company Santa Fe Natural Tobacco Company American Snuff Company
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 30
Major Companies
Player Performance Headquartered in Westlake, TX, Core- Mark Holding Company Inc. (Core- Mark) is a national distributor of tobacco products, candy, snacks, nonalcoholic beverages, health and beauty aids to over 45,000 convenience stores, drug stores, grocery stores and cigarette and tobacco shops nationwide. The company operates 32 distribution centers across the United States and Canada, 25 of which are located domestically. In 2014, Core-Mark opened a new distribution facility in Ohio, which began to serve 1,600 additional customer locations in 2015. Within the United States, the company
has a fleet of over 870 trucks and employs 7,432 workers, 1,491 of whom are involved in sales and marketing and 4,992 of whom are involved in direct warehousing and distribution operations. Along with McLane, Core- Mark is one of only two convenience store wholesalers that operates across all 50 states. Similar to other major tobacco distributors, state level excise taxes account for a large share of the company’s annual costs, representing 21.3% of total net sales in 2018 (latest data available).
Over the past five years, the company has increasingly focused on distributing
Player Performance continued
company’s main US manufacturing facilities, central distribution center and corporate headquarters are all located in North Carolina.
Financial performance British American’s industry-specific operations have performed well over the five years to 2019, driven primarily by its recent merger with Lorillard Inc. and RAI, as well as sustained demand for the company’s existing smokeless and alternative tobacco brands.
Similar to the overall tobacco market, the company has experienced declining volume sales of cigarettes over the past five years. However, growing demand for smokeless tobacco products and increased pricing on premium cigarette brands has helped offset this negative trend. Overall, following the company’s acquisitions, British American’s industry-specific revenue is expected to grow at an annualized rate of 20.7% to $11.3 billion over the five years to 2019.
British American Tobacco PLC (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 4,431.3 N/C 1,441.9 N/C
2015 3,016.7 -31.9 1,049.1 -27.2
2016 3,333.9 10.5 1,238.6 18.1
2017 4,745.3 42.3 1,382.1 11.6
2018 11,215.8 136.4 4,264.8 208.6
2019 11,343.0 1.1 4,069.9 -4.6
*Estimates SOURCE: ANNUAL REPORT
Core-Mark Holding Company Inc. Market Share: 8.4%
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 31
Major Companies
Player Performance continued
fresh products, such as milk, produce and bread, to convenience stores and pharmacies. In 2014, the company signed a contract with major pharmacy chain Rite Aid Corporation to distribute fresh products to over 4,500 retail locations. However, this new partnership has not significantly affected the company’s industry- relevant tobacco distribution operations. In 2013, the company acquired JT Davenport & Sons Inc., which further expanded Core-Mark’s reach into the Southeast region of the United States. More recently, the company has relied less on acquisitions and more on expanding distribution networks and boosting same-store sales to drive revenue. For example, the company signed significant distributor agreements with two major convenience store chains in 2015. These agreements will extend Core-Mark’s distribution network to an additional 1,300 Murphy USA Inc. (Murphy USA) locations and 900 7-Eleven Inc. (7-Eleven) locations over the coming years.
Financial performance Core-Mark’s industry-relevant revenue is anticipated to grow an annualized 10.3% to $11.1 billion over the five years to 2019. During the current period, Core-Mark has experienced significantly faster revenue growth than the overall industry, primarily due to aggressive acquisition and organic expansion activity. More specifically, acquisitions of regional distributors in the highly populated Southeast and Mid-Atlantic regions have helped Core-Mark serve a much greater number of convenience store chains. Additionally, double-digit growth in the downstream convenience store market, of which Core-Mark is a major supplier alongside McLane, has also helped boost company sales despite declining levels of cigarette consumption and a falling profit margin. The company will likely continue to experience exceptionally strong performance in 2019, driven primarily by expanded distribution relationships with Murphy USA, 7-Eleven and other major convenience store chains.
Core-Mark Holding Company Inc. (US industry-specifi c segment) - fi nancial performance*
Year Revenue
($ million) (% change) Operating Income
($ million) (% change)
2014 6,793.7 N/C 45.1 N/C
2015 7,458.2 9.8 58.4 29.5
2016 10,367.2 39.0 64.3 10.1
2017 11,042.1 6.5 26.5 -58.8
2018 10,580.3 -4.2 46.3 74.7
2019 11,068.8 4.6 82.3 77.8
*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 32
Major Companies
AMCON Distributing Company is a leading distributor of over 17,000 consumer-packaged goods (e.g. snacks, beauty and personal items), tobacco products, candy and beverages to the convenience store and small grocery store markets. The company serves over 4,000 retail locations across 25 states and employs an estimated 790 workers,
primarily within the Rocky Mountains and Central regions of the United States. Sales of cigarettes and other tobacco products represented 83.7% of the company’s gross revenue in 2018 (latest data available). Across all business segments and geographic regions, the company generated total net sales of $1.3 billion in 2018 (latest data available).
H.T. Hackney Company (H.T. Hackney) is a privately owned regional distributor of tobacco products, which distributes to over 30,000 retailers across the Southeast region of the United States. Founded in 1891, the company employed about 3,400 workers and generated an estimated $3.8 billion in total company revenue in 2018 (latest data available). The company’s distribution network encompasses convenience stores and gas stations, drug stores and small grocery stores across 22 states. Along with its candy and tobacco distribution business, the company owns
various subsidiaries that are not industry relevant, including Uncle Rays, Neuro Fuel and Hackney Home Furnishings. The company also operates a small chain of gas stations along the East Coast. Over the five years to 2019, H.T. Hackney’s industry-relevant operations have performed well, primarily driven by strong demand from the convenience stores market segment and expansion via many small acquisitions. Overall, IBISWorld estimates the company’s industry-relevant revenue to reach $3.9 billion in 2019.
Other Company Performance
Eby-Brown is the largest privately owned distributor of tobacco products in the United States. The company has about 2,300 employees and six distribution centers that serve over 13,500 retail locations across 18 states within the Midwest and Mid-Atlantic regions. The company’s main distribution products
include cigarettes, smokeless tobacco, candy and general merchandise. Total annual sales are projected to reach an estimated $5.6 billion in 2019; however, industry-relevant revenue for tobacco product sales is estimated to account for $4.8 billion that same year, representing an estimated 85.0% of total company revenue.
Other Companies The highly competitive Cigarette and Tobacco Products Wholesaling industry comprises about 3,200 other companies that operate throughout the United States. In general, the industry landscape includes some large, diversified wholesalers and vertically integrated tobacco product companies, along with smaller regional distributors and nonemployer operations. Important
regional tobacco distributors with less than a 5.0% share of the market include Eby-Brown, H.T. Hackney Company, AMCON Distributing Company and PYXUS International Inc. Other notable tobacco manufacturers that account for less than 5.0% of the industry include ITG Brands LLC, a subsidiary of Imperial Brands PLC, and Liggett Vector Brands PLC, a subsidiary of Vector Group Ltd.
Eby-Brown Market Share: 3.7%
H.T. Hackney Company Market Share: 3.0%
AMCON Distributing Company Market Share: 1.1%
Other Company Performance
Other Company Performance
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 33
Major Companies
PYXUS International Inc. (PYXUS), formerly Alliance One International Inc., is a 145-year-old agricultural company that provides responsibility produced, independently verified, sustainable and traceable agricultural products to businesses and customers. Headquartered in North Carolina, the company contracts growers across five continents to help them produce sustainable and compliant crops. The company’s core business is packing, processing, storing and shipping tobacco to large manufacturers of cigarettes and other tobacco products worldwide. PYXUS deals primarily in flue-cured, burley and oriental tobaccos that are used in international brand cigarettes. Revenue from the company’s tobacco segment is primarily comprised of sales of processed tobacco and fees charged for
processing and related services to these manufacturers of tobacco products. However, processing and other revenue account for less than 5.0% of the company’s total revenue. In fiscal year 2019 (year-end March 31), the company acquired 51.0% of Humble Juice Co., an e-liquid company. Additionally, in January of fiscal 2019, the company acquired 71.0% of FIGR East, a medical cannabis producer in the Canadian Province of Prince Edward Island.
In fiscal 2019 (latest data available), the company employed 3,347 people in the United States, excluding an estimated 6,039 seasonal employees, and generated $285.0 million in industry-relevant revenue, representing 15.8% of overall revenue for the company. IBISWorld expects the company’s industry-relevant revenue to reach $271.0 million in fiscal 2020.
Similar to other major tobacco distributors, state level excise taxes account for a large share of the company’s annual costs, representing
roughly 36.0% of total company sales in 2018 (latest data available). IBISWorld expects the company’s industry-relevant revenue to reach $1.4 billion in 2019.
PYXUS International, Inc. Market Share: 0.2%
Other Company Performance continued
Other Company Performance
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 34
Capital Intensity Similar to most other distribution industries, the Cigarette and Tobacco Products Wholesaling industry has a low level of capital intensity. Using wages to represent labor costs and depreciation as a proxy for capital, IBISWorld estimates that for every dollar spent on wages, industry operators will likely spend $0.09 on machinery, equipment and other capital expenses in 2019. Similar to most other wholesaling industries, the most significant capital costs come from expenditures on computerized logistics equipment, inventory management software and warehouse expenses related to the purchase and maintenance of trucks and distribution centers.
Over the five years to 2019, capital intensity has increased marginally, with
depreciation as a share of sales hovering under 0.2% while total wages as a share of sales remained flat during this period.
Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance
Capital Intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COM Dotted line shows a high level of capital intensity
Capital units per labor unit
Cigarette & Tobacco Products
Wholesaling
Wholesale Trade
Economy
Level The level of capital intensity is Low
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 35
Operating Conditions
Revenue Volatility The Cigarette and Tobacco Products Wholesaling industry exhibits a moderate level of revenue volatility. Industry revenue has grown marginally over the five years to 2019, growing by as much as 4.0% in 2016 and declining as much as 4.0% in 2014. This industry has traditionally exhibited very little revenue volatility because of the addictive and appealing nature of tobacco products,
especially cigarettes and chewing tobacco. In fact, tobacco products have colloquially been known as ‘recession-proof’ products because their sales are not significantly tied to short-term changes in economic factors such as per capita disposable income or unemployment. However, due to the general stigma of tobacco, and the increase of tobacco quitting campaigns, volatility has become moderate.
Technology and Systems
The Cigarette and Tobacco Products Wholesaling industry experiences a moderate level of technological change. Tobacco products are agricultural products under US law and are not technological or strategic in nature. Therefore, there has been marginal changes in technology during the five- year period to 2019, with advancements mainly related to the ongoing development of cloud-based distribution network mapping, increased adoption of just-in-time inventory control systems and more efficient stock-keeping-unit (SKU) management solutions. Larger wholesalers that operate across state lines have also invested heavily in developing new computer systems to track cigarette shipments, remit excise taxes to the appropriate agencies and better serve the needs of independent convenience stores.
A fully automated inventory control system records inventories in real time, determines minimum order quantities and prepares the products for dispatch to customers. A greater share of retail customers is using continuous
replenishment practices, where their computer terminals are linked directly to the wholesaler’s inventory system. These systems enable retailers to re-order products automatically and quickly with little human input, thereby saving on labor costs and making inventory management more efficient.
Other technological developments, such as electronic data interchange, have permitted wholesalers to manage their distribution networks more efficiently and to comply with tobacco-related regulation and taxes more effectively. Although tobacco manufacturers are responsible for remitting the required tobacco taxes at the federal level, wholesalers that operate across state borders are responsible for accurately calculating the appropriate excise taxes at the state or county level. Mainstream adoption of advanced inventory control systems has enabled wholesalers to minimize their tax liability to state-level regulators, while decreasing the quantity of tobacco products illegally diverted (smuggled) from states with lower excise taxes to states with higher excise taxes.
Capital Intensity continued
However, with computerization and larger operations, capital intensity is expected to increase, albeit slightly, over the coming years. Anticipated merger and acquisition activity among the largest
merchant distributors, including McLane Company Inc., Core-Mark Holding Company Inc., Eby-Brown and H.T. Hackney Company, is likely to increase capital intensity further.
Level The level of technology change is Medium
Level The level of volatility is Medium
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 36
Operating Conditions
Revenue Volatility continued
Unlike sales for most other non- durable goods, sales of tobacco actually increased during the recession, and have surprisingly endured despite major public efforts to curb smoking among Americans over the past several decades. For example, the April 2009 national tax hike on tobacco, which raised the federal excise tax per pack of cigarettes from $0.39 to $1.01, was expected to encourage over one million smokers nationwide to quit. Even though this 159.0% spike in cigarette taxes has moderately reduced per capita cigarette consumption over this five-year period (according to 2013 figures from the Centers for Disease Control and Prevention), it has yet to have a significantly negative effect on either the Tobacco Manufacturing or Wholesaling industries’ sales performance. Although total shipments of cigarettes have fallen steadily over the past five years, tobacco manufacturers have been able to offset this decline by increasing the per-unit price of their products or by focusing their marketing resources on alternative
tobacco products, such as smokeless tobacco or e-cigarettes, which currently experience less regulatory scrutiny than regular cigarettes, despite the recent FDA ruling on innovative tobacco products. Indeed, tobacco manufacturers have historically been able to raise prices on tobacco products in line with increased excise taxes without suffering significant losses in sales volume.
IBISWorld estimates that revenue volatility will remain moderate in the coming years. While revenue is expected to contract during the latter half of the next five-year period, sales are expected to drop at a steady rate as unit sales of cigarettes begin to fall at a faster rate than manufacturers’ ability to raise prices. Conversely, the continued innovation of noncigarette tobacco products such as e-cigarettes and strong demand for smokeless tobacco is likely to help the Tobacco Wholesaling industry endure, despite an increasingly unfavorable regulatory environment and growing social stigma against tobacco use.
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 37
Operating Conditions
Regulation and Policy The tobacco industry as a whole operates in a highly regulated environment. The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes. Most tobacco-related regulation is aimed at regulating tobacco manufacturers, although operators in the Cigarette and Tobacco Products Wholesaling industry are indirectly affected by changes in regulation at the manufacturing level (IBISWorld report 31222). Much of the regulation that shapes the environment for industry operators is driven by the World Health Organization’s Framework Convention on Tobacco Control which entered into force in 2005.
The US Alcohol and Tobacco Tax and Trade Bureau (TTB) aims to ensure the collection of tobacco federal excise taxes and to qualify applicants for permits to import tobacco products or to operate tobacco export warehouses. They undertake tobacco inspections to verify an applicant’s qualification information, check the security of the premises, and ensure tax compliance. The Bureau of Alcohol, Tobacco, Firearms and Explosives investigates trafficking of contraband tobacco products in violation of Federal law and sections of the Internal Revenue Code. These requirements add significantly to administrative duties and costs within the Tobacco and Tobacco Product Wholesalers industry to ensure compliance.
The Federal Trade Commission enforces the Surgeon General’s warning on certain tobacco products. There are also laws regulating the age of individuals who can purchase, use, possess, or sell tobacco products; and regulations regarding smoking in public places. The Center for Disease Control and Prevention describes several of these regulations, such as: smoking bans on domestic flights; and, smoking and at locations, which provide federally funded children services. While these do not directly affect the
Cigarette and Tobacco Products Wholesaling industry, they do affect the end consumers of tobacco products.
The Masters Settlement Agreement (MSA) was signed between the Attorney General’s Office and the largest tobacco manufacturers in 1998. In exchange for indemnification against individual tobacco-related lawsuits, the signatory manufacturers are required to pay a minimum $206.0 billion by 2025 to the signatory states. The MSA also placed certain marketing regulations against the tobacco industry, including a complete ban on traditional marketing and promotional activity (e.g. commercials or billboard ads). However, this agreement also indemnifies tobacco distributors from class action suits arising from these states, which ultimately minimizes potential litigation costs for non- manufacturing operators such as McLane Company and Core-Mark International.
In mid-2009, the government granted the Food and Drug Administration broad authority to regulate cigarettes and other tobacco products in the US. The bill includes complete prohibition of flavored cigarettes other than menthol, requiring the inclusion of graphic warnings on cigarette packages; banning the use of the term “light” or “mild” to describe tobacco products and full disclosure of the quantities of certain ingredients in tobacco products. These regulations are mostly relevant to tobacco companies; see Report 31222 for more information.
In October 2018, the Framework Convention on Tobacco Control governing body, the Conference of the Parties (CoP), has adopted non-binding guidelines and policy recommendations that go beyond the original outline of the original policy. The CoP recognized the need for more scientific assessment and improved reporting to define policy on heated tobacco products, e-liquids and e-cigarettes. The CoP invites countries to regulate, restrict or prohibit heated
Level & Trend The level of Regulation is Heavy and the trend is Increasing
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 38
Operating Conditions
Industry Assistance Tobacco industry protection is mostly applicable to manufacturers, although restricting the importation of foreign brands or imposing import quotas on tobacco has assisted US wholesalers to sell greater volumes of locally made products. Additionally, several tariffs apply to imported tobacco products, according to the US International Trade Commission. For more information on applicable tariffs, please refer to the Cigarette and Tobacco Manufacturing industry (IBISWorld report 31222).
Most national tobacco-related trade organizations and advocacy groups also focus more on serving tobacco manufacturers than wholesalers. Conversely, groups such as Transforming Tobacco, which is funded by Reynolds American Inc., offer legal and business resources to help wholesalers and retailers comply with federal or state regulations and sell tobacco products responsibly. Other relevant trade organizations include the Tobacco Vapor Electronic Cigarette Association (TVECA) and the American Wholesale Marketers Association.
The Tobacco Master Settlement Agreement (MSA), signed in November
1998 between the four largest tobacco manufacturers of the time and the US Attorney General’s office, acts as a blanket settlement to prevent future litigation suits against the tobacco industry in exchange for annual payments to 46 states to compensate for tobacco-related public health issues and expenses. The settlement also placed substantial limitations on tobacco advertising and marketing, while dissolving the largest tobacco advocacy groups such as the Tobacco Institute and Council for Tobacco Research. The outcome of this settlement has been a major setback for tobacco manufacturers, forcing the largest companies, which include present-day Altria Group and Reynolds American Inc., to pay a minimum of $206.0 billion to the 46 signatory states by 2025. In contrast, the MSA has actually been favorable to merchant wholesalers operating in this industry because the settlement forever indemnifies tobacco wholesalers from any litigation arising from the sale or distribution of tobacco products, instead transferring the liability to the manufacturers.
Regulation and Policy continued
tobacco products as appropriate under their national laws.
Furthermore, the US Food and Drug Administration (FDA) extended its regulatory control overall all tobacco products, but primarily focused on the e-cigarette segment during the period. The new regulations require disclosure of ingredients used in e-cigarette liquids, proof of safety of those ingredients and regulation of the devices used to vaporize and deliver the liquid. In 2014, attorney generals from over two dozen states
pushed the FDA to enact restrictions on entry level e-cigarette flavors such as candy and beverage flavors. It was not until May of 2018 until the FDA began to crack down on e-liquid and e-cigarette brands whose packaging resembled that of candy, juice boxes and other products intended to appeal to children. It is impossible to forecast whether or to what extent measures or guidelines recommended by regulatory agencies will be implemented and what effect they will have on industry operators.
Level & Trend The level of Industry Assistance is Low and the trend is Steady
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 39
Key Statistics Revenue
($m)
Industry Value Added
($m) Establish-
ments Enterprises Employment Exports Imports Wages ($m)
Domestic Demand
Percentage of smokers
(%) 2010 125,392.3 4,420.6 2,532 2,304 51,186 -- -- 2,665.1 N/A 19.3 2011 124,077.5 5,380.4 2,766 2,541 49,067 -- -- 2,650.7 N/A 19.0 2012 131,121.4 5,697.9 2,917 2,703 49,948 -- -- 2,550.9 N/A 18.1 2013 134,331.3 4,711.1 3,096 2,884 50,444 -- -- 2,561.8 N/A 17.8 2014 129,016.9 4,724.2 3,316 3,113 50,700 -- -- 2,531.0 N/A 16.9 2015 133,142.8 5,476.4 3,365 3,134 52,633 -- -- 2,680.4 N/A 15.2 2016 138,534.8 4,869.4 3,418 3,152 57,093 -- -- 3,207.1 N/A 15.5 2017 132,666.3 3,514.6 3,551 3,275 56,186 -- -- 2,718.7 N/A 16.0 2018 131,874.5 4,408.9 4,195 3,305 56,205 -- -- 2,777.9 N/A 15.6 2019 131,030.4 4,387.9 4,206 3,321 56,243 -- -- 2,774.8 N/A 15.2 2020 129,869.9 4,357.0 4,194 3,318 56,111 -- -- 2,763.7 N/A 14.8 2021 128,573.6 4,320.7 4,175 3,308 55,902 -- -- 2,749.1 N/A 14.4 2022 127,304.1 4,284.6 4,153 3,295 55,673 -- -- 2,733.9 N/A 14.0 2023 126,045.1 4,246.4 4,121 3,273 55,352 -- -- 2,715.3 N/A 13.7 2024 124,755.2 4,203.5 4,086 3,247 54,869 -- -- 2,690.6 N/A 13.3 Sector Rank 18/67 48/67 49/67 49/67 38/67 N/A N/A 48/67 N/A N/A Economy Rank 87/694 436/694 412/694 400/694 420/694 N/A N/A 418/694 N/A N/A
IVA/Revenue (%)
Imports/ Demand
(%)
Exports/ Revenue
(%)
Revenue per Employee
($’000) Wages/Revenue
(%) Employees
per Est. Average Wage
($)
Share of the Economy
(%) 2010 3.53 N/A N/A 2,449.74 2.13 20.22 52,066.97 0.03 2011 4.34 N/A N/A 2,528.74 2.14 17.74 54,022.05 0.03 2012 4.35 N/A N/A 2,625.16 1.95 17.12 51,071.11 0.04 2013 3.51 N/A N/A 2,662.98 1.91 16.29 50,785.03 0.03 2014 3.66 N/A N/A 2,544.71 1.96 15.29 49,921.10 0.03 2015 4.11 N/A N/A 2,529.64 2.01 15.64 50,926.22 0.03 2016 3.51 N/A N/A 2,426.48 2.32 16.70 56,173.26 0.03 2017 2.65 N/A N/A 2,361.20 2.05 15.82 48,387.50 0.02 2018 3.34 N/A N/A 2,346.31 2.11 13.40 49,424.43 0.02 2019 3.35 N/A N/A 2,329.72 2.12 13.37 49,335.92 0.02 2020 3.35 N/A N/A 2,314.52 2.13 13.38 49,254.16 0.02 2021 3.36 N/A N/A 2,299.98 2.14 13.39 49,177.13 0.02 2022 3.37 N/A N/A 2,286.64 2.15 13.41 49,106.39 0.02 2023 3.37 N/A N/A 2,277.16 2.15 13.43 49,055.14 0.02 2024 3.37 N/A N/A 2,273.69 2.16 13.43 49,036.80 0.02 Sector Rank 65/67 N/A N/A 8/67 62/67 18/67 58/67 48/67 Economy Rank 692/694 N/A N/A 21/694 683/694 308/694 391/694 436/694
Figures are in inflation-adjusted 2019 dollars. Rank refers to 2019 data.
Revenue (%)
Industry Value Added
(%)
Establish- ments
(%) Enterprises
(%) Employment
(%) Exports
(%) Imports
(%) Wages
(%)
Domestic Demand
(%)
Percentage of smokers
(%) 2011 -1.0 21.7 9.2 10.3 -4.1 N/A N/A -0.5 N/A -1.6 2012 5.7 5.9 5.5 6.4 1.8 N/A N/A -3.8 N/A -4.7 2013 2.4 -17.3 6.1 6.7 1.0 N/A N/A 0.4 N/A -1.7 2014 -4.0 0.3 7.1 7.9 0.5 N/A N/A -1.2 N/A -5.1 2015 3.2 15.9 1.5 0.7 3.8 N/A N/A 5.9 N/A -10.1 2016 4.0 -11.1 1.6 0.6 8.5 N/A N/A 19.7 N/A 2.0 2017 -4.2 -27.8 3.9 3.9 -1.6 N/A N/A -15.2 N/A 3.0 2018 -0.6 25.4 18.1 0.9 0.0 N/A N/A 2.2 N/A -2.2 2019 -0.6 -0.5 0.3 0.5 0.1 N/A N/A -0.1 N/A -2.5 2020 -0.9 -0.7 -0.3 -0.1 -0.2 N/A N/A -0.4 N/A -2.6 2021 -1.0 -0.8 -0.5 -0.3 -0.4 N/A N/A -0.5 N/A -2.6 2022 -1.0 -0.8 -0.5 -0.4 -0.4 N/A N/A -0.6 N/A -2.7 2023 -1.0 -0.9 -0.8 -0.7 -0.6 N/A N/A -0.7 N/A -2.7 2024 -1.0 -1.0 -0.8 -0.8 -0.9 N/A N/A -0.9 N/A -2.8 Sector Rank 49/67 53/67 40/67 32/67 44/67 N/A N/A 47/67 N/A N/A Economy Rank 577/694 577/694 474/694 419/694 545/694 N/A N/A 553/694 N/A N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 40
Apr 2017 - Mar 2018 by company revenue Apr 2014 - Apr 2015 - Apr 2016 - Apr 2017 - Small Medium Large Mar 2015 Mar 2016 Mar 2017 Mar 2018 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 1.9 1.9 1.7 1.8 n/a 1.7 1.7 Quick Ratio 0.7 0.8 0.8 0.9 n/a 0.9 0.7 Sales / Receivables (Trade Receivables Turnover) 33.0 32.5 29.4 31.3 n/a 28.0 31.3
Days’ Receivables 11.1 11.2 12.4 11.7 n/a 13.0 11.7 Cost of Sales / Inventory (Inventory Turnover) 19.5 20.7 25.2 21.1 n/a 13.0 24.0
Days’ Inventory 18.7 17.6 14.5 17.3 n/a 28.1 15.2 Cost of Sales / Payables (Payables Turnover) 49.9 55.7 58.4 71.0 n/a 49.9 72.1
Days’ Payables 7.3 6.6 6.3 5.1 n/a 7.3 5.1 Sales / Working Capital 25.6 24.8 27.6 25.6 n/a 16.9 33.1
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) / Interest 4.8 4.3 3.7 3.3 n/a 3.2 3.1
Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 6.4 5.8 6.3 1.7 n/a n/a 2.2
Leverage Ratios
Fixed Assets / Net Worth 0.2 0.1 0.2 0.2 n/a 0.2 0.2 Debt / Net Worth 1.6 1.7 1.6 1.4 n/a 0.8 1.7 Tangible Net Worth 36.7 34.0 32.1 38.0 n/a 43.2 40.1
Operating Ratios
Profit before Taxes / Net Worth, % 14.2 15.0 12.5 9.2 n/a 10.2 7.5 Profit before Taxes / Total Assets, % 4.4 4.8 3.9 2.8 n/a 3.0 2.6 Sales / Net Fixed Assets 144.2 137.9 157.6 120.0 n/a 106.8 116.8 Sales / Total Assets (Asset Turnover) 8.3 8.4 9.1 8.1 n/a 5.7 10.2
Cash Flow & Debt Service Ratios (% of sales)
Cash from Trading 6.3 6.1 5.1 5.8 n/a 11.5 4.5 Cash after Operations 0.8 0.5 0.6 0.6 n/a 2.7 0.3 Net Cash after Operations 1.2 0.6 0.8 0.8 n/a 2.1 0.4 Cash after Debt Amortization 0.3 -0.1 0.3 n/a n/a n/a -0.2 Debt Service P&I Coverage 3.1 1.5 1.8 1.9 n/a 2.2 0.8 Interest Coverage (Operating Cash) 6.3 3.1 3.8 2.5 n/a 4.0 1.6
Assets, %
Cash & Equivalents 13.2 9.4 11.3 13.1 n/a 17.0 8.6 Trade Receivables (net) 24.9 26.8 28.6 26.5 n/a 20.4 31.6 Inventory 41.7 40.9 37.7 37.2 n/a 35.3 39.3 All Other Current Assets 2.6 2.1 3.7 3.8 n/a 1.9 3.2 Total Current Assets 82.3 79.2 81.3 80.6 n/a 74.7 82.7 Fixed Assets (net) 9.7 8.5 10.1 9.1 n/a 8.1 10.2 Intangibles (net) 1.6 3.7 1.8 1.9 n/a 4.0 1.1 All Other Non-Current Assets 6.5 8.6 6.9 8.4 n/a 13.2 5.9 Total Assets 100.0 100.0 100.0 100.0 n/a 100.0 100.0 Total Assets ($m) 2,516.5 2,549.9 1,991.8 2,002.6 4.9 256.8 1,740.9
Liabilities, %
Notes Payable-Short Term 20.2 18.5 24.4 19.3 n/a 14.5 23.1 Current Maturities L/T/D 1.3 2.1 1.8 2.0 n/a 1.8 2.0 Trade Payables 18.9 15.8 14.9 11.9 n/a 12.6 12.5 Income Taxes Payable 0.1 0.1 0.2 0.1 n/a 0.2 0.1 All Other Current Liabilities 7.9 9.9 12.7 14.8 n/a 17.6 8.3 Total Current Liabilities 48.3 46.4 54.0 48.2 n/a 46.7 46.1 Long Term Debt 8.6 10.1 9.2 8.8 n/a 4.6 8.9 Deferred Taxes 0.2 0.4 0.3 0.2 n/a n/a 0.3 All Other Non-Current Liabilities 4.6 5.4 2.6 2.9 n/a 1.5 3.6 Net Worth 38.3 37.7 33.9 39.9 n/a 47.2 41.2 Total Liabilities & Net Worth ($m) 2,516.5 2,549.9 1,991.8 2,002.6 4.9 256.8 1,740.9
Maximum Number of Statements Used 107 94 85 89 7 25 57
Industry Financial Ratios
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 41
Jargon & Glossary
BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.
CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.
CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.
EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.
ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.
EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.
INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.
INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.
LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.
Industry Jargon
IBISWorld Glossary
BROADLINE DISTRIBUTOR Wholesalers that distribute a wide range of grocery and nonfood items; tobacco products generate only a small and incidental share of these wholesalers’ revenue.
CANDY AND TOBACCO DISTRIBUTOR Wholesalers that primarily distribute tobacco products and confectioneries (e.g. candy and snacks); these companies generate only a small share of revenue from general grocery and nonfood items.
CIGARILLO A small and narrow cigar that is often wrapped in leaf tobacco (not paper).
E-CIGARETTE A battery-powered electronic device that simulates the act of smoking cigarettes by producing water vapor (which resembles smoke), while delivering nicotine via the liquid solution when heated.
MANUFACTURERS’ SALES BRANCHES AND OFFICES (MSBO) The sales and distribution divisions of large tobacco manufacturers, which sell directly to large, national wholesalers such as McLane Company Inc. and Core-Mark Holding Company Inc.
MERCHANT WHOLESALER Traditional distributors that purchase products from upstream suppliers for distribution to retailers and other downstream markets.
SNUS A smokeless tobacco product that is placed under the lip for absorption through the gums rather than being inhaled or ingested.
WHOLESALE BYPASS A trend whereby producers supply goods directly to retailers and end users using their own distribution channels, rather than relying on intermediary merchant wholesalers.
WWW.IBISWORLD.COM Cigarette & Tobacco Products Wholesaling in the US October 2019 42
Jargon & Glossary
IBISWorld Glossary continued
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.
PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.
VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.
Disclaimer
This product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use
of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication – in papers, reports, or opinions prepared for any other person – it is agreed that it will be sourced to: IBISWorld Inc.
At IBISWorld we know that industry intelligence is more than assembling facts It is combining data with analysis to answer the questions that successful businesses ask Identify high growth, emerging & shrinking markets Arm yourself with the latest industry intelligence Assess competitive threats from existing & new entrants Benchmark your performance against the competition Make speedy market-ready, profit-maximizing decisions
Who is IBISWorld? We are strategists, analysts, researchers, and marketers. We provide answers to information-hungry, time-poor businesses. Our goal is to provide real world answers that matter to your business in our 700 US industry reports. When tough strategic, budget, sales and marketing decisions need to be made, our suite of Industry and Risk intelligence products give you deeply-researched answers quickly.
IBISWorld Membership IBISWorld offers tailored membership packages to meet your needs.
Copyright 2019 IBISWorld Inc
www.ibisworld.com | 1-800-330-3772 | [email protected]
