In today’s blog we’re going to discuss the current state of the tobacco industry. We recently took Euromonitor’s ‘State of the Global Tobacco Industry’ webinar with Shane McGuill to learn more about the impact of emerging regulation and the emergence of a new nicotine industry.
Shane began his presentation with a quick summary of the key figures from 2015:
- Approximately 5,543 billion cigarettes were consumed globally.
- Over one fifth (20.4%) of the world’s adult population smoke.
- There was a 5.2% increase in the value of global cigarettes. It is now estimated to be worth $USD698.3 billion.
- Cigarettes made up 90.5% of the total value of sales in the global tobacco market.
How will the combustible cigarette develop over time? Shane says there are two different ways to look at the evolution of the combustible cigarette and its role in society - positively (bull) and negatively (bear).
Positive indicators include:
- Governments are senior partners with the tobacco industry in a lot of respects (regulation, excise, etc).
- Illicit consumption is stable (or declining).
- Increased smoking population, even where prevalence is declining. Even in major markets that we associate with smoking, like China, the prevalence is declining at a slower rate than population growth. This means the market will likely have a larger consumer base in the coming years.
- There is no market leading e-vapour technology with mass appeal to take consumers away from combustible cigarettes.
Negative indicators include:
- The relative economic importance of tobacco (employment, taxation) can fluctuate. This is evidenced by the softening pricing power and increased sensitivities in some markets (eg x3 in Russia).
- An amplified impact of denormalization is possible. This could see prevalence plunge and existing consumption commoditised.
- A huge technological leap in e-vapour technology sufficient to tip the balance. For example, an iPhone equivalent for the e-cigarette market.
In recent years, we have seen the implementation of plain tobacco packaging in the majority of developed markets. This requires the removal of all branding, permitting manufacturers to print only the brand name in a mandated size, font and place on the pack, in addition to health warnings.
By 2030, 50% of the world’s cigarettes could be in plain packaging. This has proved problematic for manufacturers, with little room for brand ownership or innovation except that directed at price point.
Other regulatory issues highlighted in the webinar include flavour bans, turbo taxation, birth year bans and restrictions on the stick itself. Could we start seeing health warnings on the stick itself? Could the focus of tobacco control move to filter innovation? Shane believes we could see financial levies against tobacco companies becoming more common, with increasing pack prices and government incentives for reduced risk products.
Trends & Forecast
To compare an equivalent time period, the global cigarette market grew 0.1% between 2001 and 2016. Shane puts forward two scenarios for growth during the period 2015-2030. A best case or ‘Positive Realist Scenario’ would see the cigarette market decline 10% in volume. In a pessimistic or worst case scenario, we could see a 25% volume loss.
There is also the China conundrum. A market that is notoriously difficult to evaluate, there is some indications of a change in attitude toward tobacco. There is a chance we could see China begin a managed slowdown of cigarette volumes, with smoking bans mooted and recent wholesale excise increases.
Migrations have become an increasingly established strategy in the cigarette industry. The world’s top 10 international brands (excluding China) shared a total global volume of 28% in 2008. This figure rose to 36% in 2015 and is forecast to increase further over the next 15 years. Migrations are emblematic of the renewed focus on cost-saving in major tobacco companies, as well as the ongoing functionalization of consumption.
Is there a future for innovation? We’re seeing a significant amount of new, ambitious launches (e.g double capsule, innovative flavour - tea, tropical) and launches that target the bottom of the market. But going forward, as manufacturers are forced to look at other areas away from packaging, filters could be an area for innovation. Shane also highlights premium products, reduced risk products and innovations in communication and marketing as areas to watch out for.
So where does this leave us going forward? By 2030, the vapour devices global market could be worth more than $USD60 billion and represent 5-10% of total tobacco industry. There were 29 million electronic vapour products users in 2015. By 2030, there could be 130 million users, which would represent 10-15% of total nicotine consuming population.
However, there are some factors challenging further e-vapour growth. For example:
- Regulation & Taxation
- Confused public health messaging
- New product development.
In the early years of e-cigarettes we saw a medicinal style of regulation in some countries. But the predominant form of regulation is now ‘as tobacco’ regulation and taxation is a logical fallout from this designation. If taxes on e-liquid were widely adopted, this would have the impact of narrowing price gaps and in most markets and would lead to reduced use.
Mainstream consumers are also being discouraged by inconsistent messaging. Data in the US and UK indicates growth in user population stalled between 2014 and 2015. This is largely due to a misperception of risk amongst consumers and the general public in recent years.
Lastly, can emerging e-cigarette products address some of the issues consumers have with the technology? For example, could outside players enter the market and bring about a technological leap which replicates the combustible experience and drives significant adoption.
The webinar provided great insight into emerging trends and developments in the global tobacco and nicotine markets. For more information on this topic, Euromonitor recently published the Global Tobacco - A Challenging Future on Research and Markets.
Euromonitor publish the world’s most comprehensive market research on the tobacco industry, with global insights on category trends in 80 countries worldwide, including:
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(Photo Credit - Lindsey Fox)