| KN16003 |
| KEY NOTE CIGARETTES AND TOBACCO : JUNE 2003 |
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This report covers: cigarettes, tobacco, cigars, hand-rolled, cigarillos, pipe tobacco, tobacco advertising, action on smuggling, counterfeit cigarettes, cross-channel shopping allowances, cigarette terms, low-nicotine cigarettes, health issues, under age smoking, EU developments, US court battles, comparative EU prices,
Companies/brands covered include: British American Tobacco, Gallaher Group, Imperial Tobacco Group, Swedish Match UK, Hunters & Frankau, Ronson International, Zig Zag GB, 555 Smooth, Benson & Hedges, Davidoff, Embassy, John Player, Marlboro, Philip Morris, Rothmans, Cafe Creme, Henri Wintermans, Amber Leaf, Golden Virginia, tobacco, Samson,
| Executive Summary 1 |
| 1. Market Definition 7 |
| REPORT COVERAGE 7 |
| MARKET SECTORS 7 |
| Cigarettes 7 |
| Hand-Rolling Tobacco 7 |
| Cigars 8 |
| Cigarillo 8 |
| Pipe Tobacco 8 |
| MARKET TRENDS 8 |
| Prevalence of Smoking 8 |
| Table 1: Prevalence of Smoking in the UK by Sex and Age ( percent of adults), 1998, 2000 and 2001 9 |
| Smuggling and Taxes 10 |
| Table 2: The Cost of a Pack of 20 Cigarettes Across EU Countries (pence), October 2002 10 |
| Social Acceptance of Smoking 11 |
| Table 3: Those Agreeing that Smoking Should be Banned in Certain Places ( percent of adults), 2001 11 |
| Giving Up Smoking 12 |
| Table 4: Proportion of Total Adult Smokers Trying To Give Up Smoking and Methods Used ( percent of adults), 2001 and 2002 12 |
| The Supply of Tobacco 12 |
| Table 5: The UK Consumption of Cigarettes and Tobacco by Volume (million and 000kg), 1998-2002 13 |
| ECONOMIC TRENDS 13 |
| Gross Domestic Product 13 |
| Table 6: Index of Growth in UK Gross Domestic Product at Current Prices (index 1995=100), 1997-2001 14 |
| Household Disposable Income 14 |
| Table 7: Index of Household Disposable Income (index 1971=100), 1997-2000 14 |
| Inflation 15 |
| Table 8: UK Rate of Inflation ( percent), 1998-2002 15 |
| MARKET POSITION 15 |
| The UK 15 |
| Table 9: Indices of Total Consumer Expenditure and Spending on Cigarettes and Tobacco (index 1998=100), 1998-2002e 16 |
| Overseas 16 |
| 2. Market Size 17 |
| THE TOTAL MARKET 17 |
| Table 10: The Total UK Cigarettes and Tobacco Market by Value at Current Prices (£m at rsp),1998-2002 17 |
| BY MARKET SECTOR 18 |
| Cigarettes 18 |
| Table 11: The UK Cigarette Market by Value at Current Prices (£m at rsp and percent), 1998-2002e 18 |
| Hand-Rolling Tobacco 19 |
| Table 12: The UK Hand-Rolling Tobacco Market by Value at Current Prices (£m at rsp and percent), 1998-2002 19 |
| Cigars 19 |
| Table 13: The UK Cigar Market by Value at Current Prices (£m at rsp and percent), 1998-2002 20 |
| Pipe Tobacco 20 |
| Table 14: The UK Pipe Tobacco Market by Value at Current Prices (£m at rsp and percent), 1998-2002 21 |
| OVERSEAS TRADE 21 |
| Imports 21 |
| Table 15: Imports of Cigarettes and Tobacco by Value at Current Prices (£000s), 2000 and 2001 21 |
| Exports 22 |
| Table 16: Exports of Cigarettes and Tobacco by Value at Current Prices (£000s), 2000 and 2001 22 |
| 3. Industry Background 23 |
| RECENT HISTORY 23 |
| Number of Companies 23 |
| EMPLOYMENT 24 |
| Regional Variations in the Marketplace 24 |
| Distribution 24 |
| Table 17: Retail Distribution of Tobacco Products by Type of Outlet by Value ( percent), 2002 24 |
| HOW ROBUST IS THE MARKET? 25 |
| LEGISLATION 26 |
| KEY TRADE ASSOCIATIONS 26 |
| International Tobacco Growers' Association 26 |
| The Tobacco Alliance 27 |
| Tobacco Manufacturers' Association 27 |
| 4. Competitor Analysis 28 |
| THE MARKETPLACE 28 |
| MARKET LEADERS 28 |
| British American Tobacco PLC 28 |
| Company Structure 28 |
| Current and Future Developments 28 |
| Financial Results 29 |
| Gallaher Group PLC 29 |
| Company Structure 29 |
| Current and Future Developments 29 |
| Financial Results 30 |
| Imperial Tobacco Group PLC 30 |
| Company Structure 30 |
| Current and Future Developments 31 |
| Financial Results 31 |
| Swedish Match UK Ltd 32 |
| Company Structure 32 |
| Current and Future Developments 32 |
| Financial Results 32 |
| OTHER COMPANIES 33 |
| Hunters & Frankau Ltd 33 |
| Ronson International Ltd 33 |
| Zig Zag GB PLC 33 |
| OUTSIDE SUPPLIERS 33 |
| Table 18: Global Unmanufactured Tobacco Production by Country by Volume (tonnes), 2002 34 |
| MARKETING ACTIVITY 35 |
| Table 19: Main Media Advertising Expenditure on Cigarettes and Tobacco (£000s), Years Ending December 2001 and 2002 35 |
| EXHIBITIONS 37 |
| 5. Strengths, Weaknesses, Opportunities and Threats 38 |
| STRENGTHS 38 |
| WEAKNESSES 38 |
| OPPORTUNITIES 38 |
| THREATS 39 |
| 6. Buying Behaviour 40 |
| CONSUMER PENETRATION 40 |
| Table 20: Penetration of Cigarette and Tobacco Products ( percent of adults), 1997, 1999 and 2000-2002 40 |
| By Sex 40 |
| Table 21: Penetration of Cigarette and Tobacco Products by Sex ( percent of adults), 2002 41 |
| By Age 41 |
| Table 22: Penetration of Cigarettes and Tobacco Products by Age ( percent of adults), 2002 41 |
| By Social Grade 42 |
| Table 23: Penetration of Cigarettes and Tobacco Products by Social Grade ( percent of adults), 2002 42 |
| By Region 42 |
| Table 24: Penetration of Cigarettes and Tobacco Products by Region ( percent of adults), 2002 43 |
| 7. Current Issues 44 |
| TOBACCO ADVERTISING BAN 44 |
| ACTION ON SMUGGLING 44 |
| COUNTERFEIT CIGARETTES 45 |
| CROSS-CHANNEL SHOPPING ALLOWANCES 45 |
| CIGARETTE TERMS 45 |
| LOW-NICOTINE CIGARETTES 46 |
| HEALTH ISSUES 46 |
| UNDER AGE SMOKING 46 |
| EU DEVELOPMENTS 47 |
| US COURT BATTLES 47 |
| 8. The Global Market 49 |
| GLOBAL TRENDS 49 |
| Table 25: Global Unmanufactured Tobacco Consumption by Country by Volume (tonnes), 2002 49 |
| EUROPEAN TRENDS 49 |
| US MARKET 50 |
| CENTRAL AND SOUTH AMERICA 50 |
| INTERNATIONAL COURT CASES 51 |
| 9. Forecasts 52 |
| FORECASTS 2003-2007 52 |
| Table 26: The Forecast UK Cigarettes and Tobacco Market by Value at Current Prices (£m at rsp), 2003-2007 52 |
| FUTURE TRENDS 53 |
| Demographics 53 |
| Table 27: The UK Population by Age (000's), 2000, 2004 and 2008 53 |
| Market Segmentation 53 |
| Product Development 54 |
| Competitor Forecasts 54 |
| 10. Company Profiles 55 |
| British American Tobacco Plc 56 |
| Gallaher Group Plc 58 |
| Imperial Tobacco Group Plc 60 |
| Swedish Match Uk LTd 62 |
| 11. Further Sources 64 |
| Associations 64 |
| Publications 64 |
| General Sources 65 |
| Bonnier Information Sources 65 |
| Government Publications 66 |
| Other Sources 67 |
Executive Summary
| The UK cigarette and tobacco market grew by 12.7 percent between 1998 and 2002 to reach a value of £15.07bn. Growth rates slowed from 1999, as consumers have actively sought to reduce the cost of their habit. |
| The main sectors of the market are cigarettes, hand-rolling tobacco (HRT), cigars and pipe tobacco. Cigarette sales have seen a trading down for many consumers from higher-priced to mid-market and value for money brands. This has also encouraged HRT as a lower-priced option, which is particularly popular among younger smokers, both male and female. Cigars have seen a fall off in sales but an even sharper decline is evident in pipe tobacco. |
| The high level of smuggling in the tobacco market continues to affect duty-paid sales. According to HM Customs & Excise, over 20 percent of UK cigarettes are smuggled, with a further 7 percent legally purchased abroad. With a relaxation in the quotas imposed for personal consumption from October 2003, the latter figure is set to increase. In the HRT sector, it is estimated that up to 70 percent of tobacco may be sourced via smuggling. |
| The negative health implications of smoking continue to drive anti-tobacco legislation from the UK Government, as well as the EU. From February 2003, an advertising ban was imposed on the sector and other legislation is in the pipeline. |
| Three companies — British American Tobacco PLC, Gallaher Group PLC and Imperial Tobacco Group PLC — dominate the UK sales. All of these companies are international operations. The companies continue to focus their growth strategies on overseas markets because the UK market is heavily regulated, mature and with volumes steady or declining rather than on the rise. Since the late 1990s, there has been a high level of company activity with mergers and acquisitions providing the major route towards overseas expansion. Joint ventures have also been a strategy. |
| There is limited scope for growth in the UK market and as a result, Key Note forecasts that the market will fail to show real increases in value. The advertising ban, as well as issues such as potential bans on smoking in public places, should also serve to eventually further marginalise the habit. |
Text © 2003 Key Note
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Last updated by Amanda Porteous July 2003
