Abstract
Why buy this report
- Get insight into trends in market performance
- Pinpoint growth sectors and identify factors driving change
- Identify market and brand leaders and understand the competitive
environment
Product coverage
Cigarettes; Cigars; Smoking tobacco
Executive summary
Cigarette volume sales continue to fall
Volume sales of cigarettes continued their downward trend in 2005. Spurred by
high prices, health concerns and an increasingly negative public attitude
towards smoking, people quit smoking in greater numbers, while restrictions on
advertising continued to impede manufacturers' ability to attract new smokers.
Deep discounters still a factor
Escalating cigarette prices, caused by the Master Settlement Agreement and
higher state excise taxes, provided an opportunity for deep discounters to
supply economy cigarettes to consumers fed up with paying more for cigarettes.
In a declining market, the impact of these deep discounters was felt almost
immediately, and economy brands quickly grabbed market share. By 2005, the
main manufacturers had successfully implemented a combination of price cuts
and more advertising for their premium brands, allowing them to regain much of
their lost market share. That said, economy cigarettes still remain a threat,
forcing manufacturers to monitor the price gap closely between their brands
and discount competitors.
Speciality cigarettes and PREPs
Confronted with a highly competitive market with limited room for advertising
or product innovation, many cigarette manufacturers have turned to premium
positioning to differentiate their brands and add value. Brands such as
Natural American Spirit and Nat Sherman promise a more luxurious, higher
quality smoking experience, offering a range of different blends combined with
more daring packaging and often significantly higher prices. Along with
menthol and flavoured products, they represent one of the sector' s few growth
areas.
By contrast, potentially reduced exposure products (PREPs) have fared poorly.
Using a process that heats tobacco rather than burning it, PREPs are claimed
to produce less second-hand smoke and tar. Consumers have been less than
receptive, however, while manufacturers remain highly restricted in the types
of statements they can make regarding PREPs. For now, the technology remains
confined to a select group of brands, such as Reynolds American' s Eclipse, and
PREPs, overall share of the market is minimal.
State governments go on the offensive against on-line cigarette sales
One of the key consequences of ever-rising cigarette prices has been the
proliferation of Internet cigarette retailers. Generally operating in areas
with relatively low or no state excise taxes, such as tobacco-producing states
or Native American reservations, which are exempt from state taxes, on-line
retailers have proven popular with consumers increasingly willing to trade
convenience for lower prices. While consumers are still liable for paying
sales tax on cigarettes purchased over the Internet, many do not. In addition,
some Internet retailers have taken advantage of the lack of government
oversight to sell counterfeit or smuggled cigarettes at low prices. As a
result of the growing concerns over lost tax revenues and the proliferation of
smuggled products, 2005 saw legislation limiting sales through sites, with
co-operation from Philip Morris, the country' s major credit card companies as
well as shipping firms UPS and DHL.
More Americans rolling their own
Long a major factor in Northern Europe, the US RYO/MYO segment showed strong
growth in 2005. High packaged cigarette prices have led many consumers to
RYO/MYO tobacco, which is often significantly cheaper on a per-stick basis,
while a number of firms have begun to market their products as more
flavourful, higher quality alternatives to mass-produced cigarettes.
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