TOBACCO 2015: NEW INSIGHTS

JUNE 2015

KEY FINDINGS

SYSTEM REFRESHER

MIP

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3

The Tobacco Categories’ Performance at a GlanceKEY FINDINGS

Cigarettes• 5.7 trillion sticks sold: 90% of most markets• Legislation and Tax impacting volume sales• Price becoming main purchasing decision

Roll-your-own• Growth in EE (vols grew 4%) but slowdown in

WE - weakening of price advantage

Cigars & Cigarillos• Dominated by US and WE (US + DE = >60%)• Shrinking vols in mature markets• Growth from developing markets (CN, IN, GCC)

-0.0%

-0.4%

2013-14:

Pipe tobacco• Growth in EE (vols grew 4%) but slowdown in

WE - weakening of price advantage

Smokeless Tobacco• Dominated by US, SE and IN (bans in latter

cause of shrinking volumes)• Northern European and US snus grows• No reduced harm credentials allowed

Latest trends:

-14.5%

-3.8%

-0.1%

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Cigarettes’ Troubled Future as Alternatives AdvanceKEY FINDINGS

1 in 2 smokers by 2019 will be in China

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Vapour Devices – Latest TrendsKEY FINDINGS

VAPING POPULATION

13mn regular sole or dual users of vapour devices in 2014

VAPOUR DEVICES

>6bn US$6.5bn of vapour device sales globally in 2014

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Vapour Devices - How does it Compare to Other Categories?KEY FINDINGS

US$ 6.2 billion US$ 2.4 billion

E-cigarettes NRTLarge cigars

US$ 5.1 billion

• World’s 20th largest cigarette market equivalent

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Cigarettes’ Unit Price on Ever-Upward TrajectoryPRICE AND INNOVATION

Midd

le Eas

t and

Afri

ca

Asia P

acific

Easte

rn E

urop

e

Wor

ld

Latin

Am

erica

North

Am

erica

Wes

tern

Eur

ope

Austra

lasia

0

4

8

12

-2261014

Average Cigarette Pack Prices – Regional Comparisons 2014

Price per pack of 20 in US$

US

$

% g

row

th 2

01

3

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Pack innovation Product innovation

• Innovative closures• Tactile finishes, including raised

surfaces such as embossing and bevelled edges

• Pack size variations (eg XL pack sizes)

• Flavour capsules (double menthol)• Recessed filters• Superslims/ demislims/ microslims

(superslims with capsule)• Additive-free tobacco• Less Smoke Smell• Length (100s)• Cigarette format variations (eg Pocket

Packs, more compact sizes)

The Role of Innovation in Re-Engaging ConsumersPRICE AND INNOVATION

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Top Five Global Cigarettes PlayersPRICE AND INNOVATION

World cigarettes company share 2014 (% volume)

44.2%

14.6%

11%

8.2%

3.8%

Company’s leading brand 2014 (world ranking)

(2)

(1)

(12)

(5)

(58)

Note: Arrow indicates direction of growth/decline in share between 2013-2014

8 out of top

10 global

brands

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Heralding a ‘New Generation’ in Legislation

LEGISLATION

Core

• Advertising and sponsorship bans

• Descriptor bans• Tax-driven excise

increases

Standard

• Public smoking bans• POS display bans• Graphic health warnings

Next generation

• Plain packaging• Flavour bans• Variant limits• Turbo taxation• Birth year ban

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The Future of Legislation

LEGISLATION

EU TPD 2014

65% graphic health warnings

Ban on menthol cigarettes (2020)

No ban on slim cigarettes

Ban on packs of 10 sticks

New “positive” ingredients list

Ban on misleading labelling (eg “organic”)

E-cigarettes regulated as tobacco

Plain packaging by

stealth?

Eu

rop

ean

Un

ion

ROW Plain packaging (Australia)

Flavour bans (US, Brasil)

Variant limits (Uruguay)

Turbo taxation

Birth year smoking ban (Tasmania)

Au

stra

lia

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Other FMCG Industries Next?LEGISLATION

• Taxation (alcohol, ‘soda tax’, ‘butter tax’)

• Saturated fat content limits• Portion size• Acrylamide……………………….etc

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The Irresistible Allure of Illicit TradeTAXATION, PRICING AND ILLICIT TRADE

• £20

• £16,000

• £50,000

• £1 million

Largest seizure in EU – 120mn sticks of cigarettes

£40 million

• The global illicit trade market is referred to as the ‘third tobacco market’, ie the third biggest ‘player’ in the world, making more money than BAT and chomping at the heels of PMI.

• An international brand bought fully tax paid in Ukraine, and sold on the street in the UK at half its UK retail price can still generate the following profit:

WORLD ILLICIT TRADE

1in10Cigarettes are illicit (incl China) in 2013

THANK YOU FOR YOUR ATTENTION

Zora Milenkovic Head of Industry Research

Shane MacGuill Senior Analyst – Tobacco