The tobacco industry has a big problem: people are smoking less.
Morgan Stanley’s David Adelman sees at least eight reasons why this is happening. From his latest note to clients:
Secular pressure on US cigarette consumption continues unabated, and includes: (i) An ageing and more health conscious population; (ii) A substantial decade long decline in youth smoking incidence; (iii) A lower incidence of smoking across all age levels for each successive age cohort; (iv) A shift amongst Caucasian males towards use of moist smokeless tobacco (drives menthol growth); (v) A shift in the US ethic composition towards groups with far lower cigarette consumption (e.g., Asia and Hispanic-Americans); (vi) More prevalent indoor smoking bans; (vii) A considerable shift towards far lower federally taxed pipe tobacco; and (viii) Shifts in societal pressure and changes in social norms/attitudes.
There’s also a very new, very small, yet very rapidly growing problem: e-cigarettes.
These are the smoking devices that deliver nicotine without producing actual smoke. Rather, they produce vapor.
Tobacco giant Lorillard recently said that e-cigarettes may have taken 1% of the U.S. cigarette volume.
As you can see in the chart below, Adelman estimates that e-cigarettes will take the place of around 1.5 billion cigarettes this year, up from around 600 million last year.
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