Price hikes on cigarettes and rising health awareness have led to declining sales of cigarettes in Western Europe, according to a new report from Euromonitor International – “The World Market for Tobacco”.
Euromonitor International's research shows that volume sales of cigarettes in Western Europe declined by 4.4% between 1999-2004, and by 3.7% over 2004 alone. Although fewer people are smoking, with per capita consumption declining by 5% over 1999-2004, per capita spend on cigarettes increased by approximately 12% over 1999-2004, as a result of rising cigarette prices.
Taxes deter price sensitive consumers
Significant increases in taxes and duties on cigarettes have been a key reason for slowing sales across Western Europe. Rising prices have forced consumers to either quit smoking or switch to lower priced alternatives such as roll-your-own (RYO) smoking tobacco. To meet EU directives set in 2002, EU accession countries attempted to harmonise their tax structures, which resulted in a massive increase in the average price of cigarettes across the board, with the Baltic countries hit the hardest. Tax hikes in France and Germany over 2003-2004 had further repercussions for the region's volume sales, as rising prices deterred more and more consumers. In Germany, for example, many price sensitive smokers switched to cheaper alternatives including RYO, private label cigarettes and cigarillos, which led to a decline of 12.8% in cigarette volume sales between 2003-2004, from a decline of only 3.9% in 2002-2003, according to Euromonitor International.
The smoking tobacco sector, which accounts for a very small share of the Western European tobacco industry, has now become the fastest growing sector after cigars, growing by 13% between 1999 and 2004. This is of course the result of rising cigarette prices that have forced consumers to look for cheaper options and the widespread consumer perception that RYO is a chemical and additive-free alternative to cigarettes.
Health concerns encourage people to give up
Increasing health awareness has also played a role in declining volume sales, and is encouraging a growing proportion of Western Europeans to stop smoking entirely. In the UK, for example, there have been widespread measures to not only publicise the health effects of smoking through informative and often shocking advertising campaigns but to offer public services that support people quitting the habit.
Further, there is a growing trend towards lower tar cigarettes, following the EU's phasing out of the high tar segment and the banning of terms such as "light" and "mild" in labelling. Cigarette manufacturers are also starting to innovate in terms of filter technology in order to assure smokers that lower-tar cigarettes will retain the same flavour as the high tar cigarettes they are used to, as well as limit the harmful effects of tobacco.
Health concerns are also fuelling arguments to ban smoking in public places, which could impact cigarette volume sales. Ireland introduced a ban on smoking in all public spaces, including bars and restaurants, at the end of March 2004 and the UK is set to introduce the ban in summer 2007. In the short term, this is expected to have a negative impact on cigarette volume sales and in the long-term, premium brands are thought to be the most likely to suffer due to their market share amongst social smokers. This reduction in social smoking may also reduce the incidence of the adult smokers in the under 30 age group.
As Western European consumers continue to face rising cigarette prices and public pressure to quit smoking, volume sales of cigarettes are expected to continue declining. Euromonitor International forecasts that volume sales will decline by an average rate of 2.1% per year between 2004-2009. Smoking tobacco, on the other hand, is expected to continue benefiting from the increasingly high price of cigarettes and is likely to average 1.4% volume growth per year between 2004-2009.
In Western Europe, the tough operating environment means that branding is more important than ever before. Restrictions on advertising make it difficult for cigarette manufacturers to launch new brands or persuade smokers to switch brands. Consequently, opportunities for manufacturers in mature markets are likely to involve leveraging the strength of their brands to develop existing and new markets.
“The World Market for Tobacco” is a new report from Euromonitor International. It offers a comprehensive guide to the size and shape of the market at an international level. It provides the latest retail sales data, allowing you to identify the sectors driving growth. It identifies the leading companies, the leading brands and offers strategic analysis of key factors influencing the market - be they new product developments, packaging innovations, economic/lifestyle influences, distribution or pricing issues. Forecasts illustrate how the market is set to change.
For further detail about this article and other related findings, please visit Euromonitor International by clicking here.