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Euromonitor Analyst Zora Milenkovic explains how 2009 was an interesting year for the tobacco industry, mainly because sales were no longer propelled by China, so they slightly declined. The industry also took a hit from high taxation in the United States. However, even though the number of people who are smoking is going down, the per capita of cigarette consumption is going up. This is a result of an emergence of a “core smoker”, or someone who smokes way more than the average amount per day.
The tobacco industry relies on value sales, which almost declined in 2009 due to currency fluctuation. Value sales are expected to pick up in the next years, beginning in 2010. Double digit growth is not expected to return for quite some time. Value sales are driven by premiumization; however, in financially-strained times, smokers are more likely to trade down from premium products. The overall winner in the industry as of late is illicit trade, which is responsible for sales of 600 million sticks globally, or 10% of total consumption.
An example of how the industry has been effected in 2009 can be seen in the U.K. market. In the year of recession, cigarette sales grew after almost 10 years of decline. This was due to the fact that the recession kept most people at home instead of traveling, and most U.K. consumers buy their tobacco in bulk on holiday in Spain or France. Therefore, they bought in bulk inside the country, but did not portion them accordingly and sales for cigarettes went up.
Finally, roll your own cigarettes have been on the upswing since they are a cheaper alternative to regular cigarettes. They continue to rise particularly in Europe. However, since RYO have been the target of taxing in the United States, they’ve plummeted in sales and have been replaced with sales of pipe tobacco.
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