The Tobacco Industry: Disruptive and Continuative?

With ever-tightening regulation, the emergence of credible alternatives and growing reputational challenges on its supply chain and sustainability it is clear that the tobacco industry is living through its own version of the (apocryphal) Chinese curse. However – as Euromonitor’s updated 2018 Passport Tobacco database makes clear – amongst all the disruption there is continuity.

In 2017, global cigarette volume was 1.4% (3.1% excluding China) representing the best year-on-year performance since 2014. Relative volume stability (some prominent exceptions such as the heated tobacco adopting Japanese market aside) is projected over the 5 year forecast period – including and excluding China – but the cumulative impact of changing demographics and wider availability of alternatives will become clear towards the end of this horizon.

The traditional considerations of cigarette volume and value evolution remain – for the time being – vital. The fastest growing RMC markets are exclusively in Middle East and Africa and Asia Pacific with the only major global markets forecast to see volume and value growth up to 2022 located in these two regions. Indeed – and conversely – the number of markets forecast to struggle to obtain either volume or value growth has expanded since last year.

Affordability substantially declined in many markets between 2007 and 2017 but the recent trend is towards stabilisation. Nonetheless, consumer purchasing power remains high in developed markets indicating there is still some scope for price taking. To this extent there is continuity. But 2017’s global pack price growth was the lowest since 2013 and – in the aggregate – our analysts expect to see pack price growth be more and more sluggish year-on-year into the forecast period.

Smoking prevalence dipped under 20% globally in 2017 according to our research but raw population growth again drove increase in the global smoking population. However, prevalence is contracting globally and particularly amongst younger adult consumers increasingly large numbers of whom cannot reconcile smoking with their prevailing priorities and to whose digitalised eye, the cigarette appears an unappealing analogue proposition.

In market after market, traditional tobacco regulation is set to become an agent of commoditisation as measures such as plain packaging and flavour restrictions proliferate. The upshot of this is that migrations and value-oriented innovations are increasingly important tools of cigarette brand management as a greater proportion of global volumes become consolidated through a more select group of multinational manufacturer key portfolio brands. (In 2017, the top 20 international brands account for 41% of total global volumes – excluding China – up from 30% in 2008)

Vapour products – driven by heated tobacco expansion – grew 48% in constant terms and will continue to grow well, albeit with growth moderating to low double digits by 2022. In the short term, heated tobacco will continue to be the most dynamic category while in the longer term platform interaction with other substances – such as the emerging legal cannabis markets – may determine the predominant nicotine delivery format.

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