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Up in Smoke: What is the Future for the Global Tobacco Industry?
Business Monitor International, June 2009, Pages: 37
BMI examines the challenges facing the global tobacco industry, providing five-year growth forecasts for global markets and examining the strategy of the industry’s leading players.
Globally the cigarette manufacturing industry continues to battle a four-pronged assault on its growth prospects. Rising consumer health consciousness has hit smoking rates in developed and emerging markets alike, putting the breaks on global industry growth rates. An increasingly mainstream and dogmatic anti-smoking lobby has also served to dent sales, helping to drive through prohibitive legislation and raise awareness of the dangers of smoking. Ongoing government tax hikes–an increasingly accepted form of revenue-raising given the number of health-conscious consumers turning their backs on smoking–are similarly proving an enemy to the industry, as is the still-strong illegal trade for tobacco products.
Facing up to the challenges of a so-called ‘dying industry’ has led to rapid industry consolidation, with the big three–Philip Morris International, British American Tobacco and Japan Tobacco International–controlling around 45% of the global cigarette market. Presently, however, these giants, and their smaller local peers, are having to deal with a new challenge in addition to the aforementioned daily hurdles–a consumer-confidence crippling global recession.
In 2009, BMI is forecasting a global economic contraction of 2.5%. Of course, with few substitutes available, cigarettes are a fairly income- and price-inelastic product in the short term. However, the depth and breadth of this recession means that the industry cannot escape unscathed, as our latest short-term cigarette sales forecasts show.
Although the global economy is not expected to return to its more typical growth trajectory until 2011 and beyond, BMI is forecasting a return to global growth in 2010, albeit of a modest 1.7%. This will limit the effect of some of the demand and price based challenges facing the industry, as discussed in the Short-Term Outlook section of this report, towards the beginning and middle of our five-year forecast period. However, BMI remains bearish about the prospects for the global tobacco industry for the reasons listed above and discussed in more detail in the report’s Long-Term Outlook section. Consequently, while we are forecasting volume sales growth in some states over the five-year forecast period, we are for the most part expecting flat or declining volume sales growth.
Value sales are a different matter and a major discrepancy highlighted in this report is the vastly differing outlooks for cigarette sales in volume and value terms. For the most part, growth in value sales can be attributed to rising cigarette taxes; however, ongoing innovation–as manufacturers strive to retain market share and boost sales in an increasingly hostile environment–will also contribute to forecast value sales increases. In every single individual cigarette market analysed in this report, the value sales growth of cigarettes to 2013 is forecast to be positive.
While drivers of growth in the tobacco industry–be they economic, legislative or consumer behaviour-led–are largely global, there are some interesting differences to note between regions and between regional markets, as examined in more depth in the Regional Outlook section of this report. Largely, and perhaps unexpectedly, the key difference is in the outlook for emerging markets and developed states. While smokers in emerging markets are more exposed to the global economic slowdown, with short-term volume and value sales growth in most cases coming under immense pressure in 2009 and 2010, the longer-term outlook for emerging markets is generally more favourable than in developed states. Typically, but not exclusively, consumer health consciousness, the effectiveness of anti-smoking legislation and the work of the anti-tobacco lobby, are less established in emerging markets.
The short- and long-term outlooks examined in this report and indeed the country specific cigarette sales forecasts provided, highlight how challenging the future is for the global tobacco industry; the Company Analysis section of the report attempts to explain how global industry majors are adapting to cope.
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