Cigarette IndustryIs it Growing or Declining?

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Table of contents

• Market Definition• Market Scenario – Asia Pacific• India - Industry Structure

• Competitive Landscape – India• Market Scenario – India

• Supply Front – India• Demand front

• Policy framework – India• Other Competitive forces• Export Challenges• Export Opportunities

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Market Definitions

• Legal sales of cigarettes considered

• Loose sales of tobacco excluded• Volume = numbers of cigarettes

sold• Value = Retail Selling Price * ×

Volume * inclusive of taxes

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Market Scenario – Asia Pacific

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Market Scenario – Asia Pacific

• The only market growing by volume & value• Growth drivers

• Rising incomes• Emergence of the young female smoker in Asia

• Where the volume is not growing…• Value continues to expand due to rising tobacco

prices, Government is the primary beneficiary• Strategies

• Introduction of both economy and premium-priced cigarettes to maintain customers and build revenues.

• Health awareness + growing incomes led to increased demand for lower tar cigarettes

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India - Industry Structure

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Competitive Landscape - India

• ITC Ltd• Wills and Gold Flake,• 69.7% market share

• Godfrey Philips India Ltd• Red and White, Four Square• 11.4% share (West and North)

• VST Industries Ltd• Collaboration with BAT, UK• Charminar and Gold; 8.9 % share (South and

East)• GTC Industries Ltd.

• Panama, Style, Esquire and Flair• 8.4 % market share

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Market Scenario - India

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Supply Front - India

• World’s 2nd largest producer of tobacco• Diverse agro climatic conditions facilitates

production of wide range of tobaccos• Contrary to international trend, non-cigarette

tobaccos dominates production48% chewing tobacco + 38% Bidis + 14% cigarettes

• Industry contributes 5 percent of the budget revenue and supports about 100 million people

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Demand front

• Largely inelastic & Loyal demand

• Economic growth – Rising Income levels

• Effort to look cool and beat stress

• Working women - women smokers

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Policy framework - India

• Growing tobacco is heavily subsidized• Cigarettes - 14% of the total tobacco

consumption, contribute over 90% of the total excise revenue from tobacco.

• Bidis are encouraged by the government through excise duty and tax breaks for small-scale industry

• Taxation framework ineffective for Fragmented Indian tobacco industry - Dual smokers

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Other Competitive forces…

• Barriers to entry• Punitive taxation policies & Complete ban on advertising and

promotions• Huge investments setting up distribution network.

• Substitution• Bidis and Cigars

• Competition• Mainly between branded cigarettes, bidis and contraband

• Bargaining power of customers – Limited extent• Consumption is more or less a habit

• Bargaining power of suppliers – Less • Backward Integration and have their own supply chain

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Export Challenges

• Domestic tobacco produce is suitable for the chewing tobacco, bidis and other cheap tobacco products, which have no demand outside the country

• Heavy competition from exporters of China and Vietnam• 39 $ per 10,000 cigarettes against 45 $ by India

• Decreased exports to Middle East due to proliferation of cigarette-manufacturing units in the free trade zone of UAE

• Competition from Bangladesh in export of Bidis, coupled with 15% Increase in prices reduced export volumes

• China - Strict import/export regulations as trade barriers

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Export Opportunities

• Increasing cost of production in Brazil and the significant amount of export cess by the Govt of Zimbabwe

• Low conversion costs of tobacco into cigarettes of 11 $ per 10000 pieces in India against 48 $ in UK

• Low to medium nicotine’s to suit the current requirement of world markets

• Anticipated decline in production in China, USA, Zimbabwe, EU in the next five years due to declining consumption in USA & EU

“Short, snappy, easily attempted, easily completed or just as easily discarded before completion – the cigarette is the symbol of the machine

age.”New York Times, 1925

Is it still the same in this Information Age ?

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References

• ISI Analytics – ISI Emerging Markets• Euromonitor International Reports• Datamonitor Reports

Sale of Cigarettes will suddenly fall to ZERO if it is mentioned “Cigarettes contain FAT”

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Any questions ?

STM

Thank You