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[ TOBACCO ]
"At the same time the illegal tobacco market has risen
from 11.8% to 13.3% of total tobacco consumption
following the introduction of this failing policy."
BATA estimates that 400 million illegal cigarettes
were smuggled into the country, up 1.5% to almost
14% of the market, since plain packs were introduced
in Australia and that the illegal tobacco market is
now equal to around 2.7 billion cigarettes.
CHEAPER CIGARETTES ATTRACT
MORE YOUNGER SMOKERS
A major change to the market is that cheaper
cigarettes around $13-$15) are being launched to
claim over 42% of the total legal cigarette market,
which combined with an increased black market
for illegal cigarettes, accounts for over 60% of all
cigarettes sold, British American Tobacco has claimed.
In June, BATA said raising excise and plain
packaging is increasing the number of smokers
buying cheaper cigarettes, and that the numbers of
18-29s smoking low priced cigarettes has grown from
16.4% of smokers in 2011 to 34.6% of smokers at the
end of 2013.
According to BATA figures, over 42% of the total
legal cigarette market is priced under $15 per pack,
making it the largest of all brand categories, with
1.4 million smokers purchasing legal cigarettes priced
from $13 to $15, with another 5% increase in the six
months to June 2014.
Nielsen research figures indicated that 42.3% of all
cigarettes purchased are priced below $15, compared
with 25.6% sold in the lower price segment in 2011.
BATA said it was forced to launch the cheapest
legal pack of 25 cigarettes on the market at $13 in
an effort to remain competitive in the growing low
price segment, which had grown by 66% in the last
five years, as price-sensitive smokers trade down to
Smokers are also walking into tobacco shops and
asking for the cheapest packets of cigarettes on sale,
confirmed by several retailers.
And Roy Morgan data on smoking incidence rates
showed that smokers of low price brands claim to
smoke more cigarettes a day.
LEGAL TOBACCO VOLUME
DECLINES BY 5.0%
However, according to Imperial Tobacco, total legal
tobacco volumes are declining by 5.0% this year.
The company said that the Australian tobacco
market has seen two major taxation changes in the
past 6 months. In December 2013, the Government
applied the first of four annual 12.5% tax increases. It
was followed by the March 1 introduction of biannual
AWOTE replacing historical CPI indexation.
"Rising consumer pricing has resulted in a total legal
tobacco volume decline by -5% in April 14 MAT.
Significant increases to the price of a packet of
cigarettes is a measure which drives the illegal trade
in tobacco," Imperial Tobacco said.
"Australia has the highest cigarette prices within the
Asia Pacific region, and this large price differential
between Australia and other relatively nearby markets
creates smuggling opportunities for those involved
in the illicit market. High duty rates make legitimate
tobacco products expensive for consumers.
"As a result, those on lower incomes are more likely
to move from legitimate tobacco products to illegal
tobacco products, whose price would typically be
between 50% - 75% of the price."
Moreover, as a result of high excise, the price gap
between legal product and illicit is growing, making
illicit tobacco an even more viable option to some
consumers. Each significant increase to excise results in
an increased price gap between legal and illegal product."
In Australia, illicit trade is currently 13.3% of
total consumption and accounts for approximately
$1 billion in lost revenue to the government.
One tobacco market that continues to grow is the
Fine Cut Tobacco category (previously known
as RYO), due to increasing numbers of smokers
entering the category.
"Consumer demand for Imperial Tobacco Australia
products remain strong in both the Factory Made
Cigarettes and Fine Cut Tobacco categories with JPS
being the fastest growing brand in the Australian
market." Imperial Tobacco said1.
Consumers are seeking better value through more
affordable cigarette brands or by switching to the
rolling tobacco category. This is a long-term trend
that has accelerated since the December tax hike due
to the increase in tobacco prices.
Value seeking has also led to multi-pack offer growth
and the introduction of a new Make-Your-Own
sub-category, Imperial Tobacco said.
"It is expected that further excise increases will
create an increase in sales of cheaper brands and
roll-your-own tobacco," the company added.
"This shift, combined with any consequent decline
in tobacco consumption, may affect business
decision-making of the tobacco companies and
require them to adapt their strategies to try to capture
market share of an increasingly competitive market,
for example, by increasing their range of products at
various price points.
"Any shift in product preference is a result of
consumer demand rather than supply or industry
behaviour. Importantly, excise puts a higher
relative burden on low income groups, known
as the 'regressive' effect of tobacco taxation,"
Imperial Tobacco said.
1 Sources: Smoking Incidence; RM Single Source data MAT
April 14, manufacturer's exchange of sales April 14 MAT, BH
tracking data April 14 MAT).
Prices are becoming increasingly important
as cheaper cigarettes come onto the market.
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