Cigarettes Industry
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Transcript of Cigarettes Industry
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