The US tobacco market is expected to reach US$ 119.3 billion by 2025. Revenue in the tobacco products market amounts to US$ 98,042 million in 2018. The market is expected to grow annually by 1.2 per cent.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Trends
- Technology Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Distribution Chain Analysis
- Competitive Landscape
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
Tobacco is a substance people smoke in pipes, cigars, and cigarettes that is prepared from the dried leaves of plants. It is the most addictive substance in the world. Tobacco kills up to half of it users.
Tobacco kills more than 7 million people each year and more than 6 million of those deaths are the result of direct tobacco use while around 890,000 are the result of non-smokers being exposed to second-hand smoke.
Tobacco industry refers to the company and organization that are involved in manufacturing, marketing, distribution and selling of tobacco and tobacco-related products.
The Cigarette & Tobacco Manufacturing in the US industry consists of regular cigarettes, menthol cigarettes, smokeless tobacco, cigars and e-vapor products. Cigarette smoking has been one of the major causes of preventable disease, disability and deaths in US.
Cigarette smoking kills more than 480,000 Americans each year, with more than 41,000 of these deaths from exposure to secondhand smoke.
Additionally, smoking-related illness in the US costs more than US$ 300 billion a year.
- Cigarette consumption has declined steadily since the early 1980s because of increasingly unfavorable public attitudes toward smoking. Information disseminated by health authorities on the health consequences of smoking damaged industry performance as people purchased fewer cigarettes.
- Rising excise taxes on tobacco products at the federal, state and municipal levels have raised tobacco prices, further reducing per capita consumption. As the percentage of smokers declines, demand for cigarettes and tobacco products deteriorates, hampering industry revenue growth.
- Smoking causes many kinds of cancer, heart disease and respiratory illness which are fatal for many sufferers.
Top Market Opportunities
While cigarette smokers will generally continue purchasing industry despite disposable income levels due to the addictive nature of nicotine, when consumers have more income at their disposal, they are more likely to purchase premium industry products.
Thus, an increase in per capita disposable income benefits industry operators, as it results in more consumers willing to purchase premium brands and try new products, such as e-cigarettes.
In the US, North Carolina and Kentucky dominate tobacco production with 65,154 and 32,496 acres harvested in 2017, respectively. Since 1992, producer prices of tobacco have risen from $1.74 per pound in North Carolina and $1.84 per pound in Kentucky to $2.00 per pound and $2.14 per pound in 2017.
The five largest cigarette consuming nations- China, Indonesia, Russia, US and Japan – account for 61.7 per cent of the volume of all cigarettes sold in 2017.
Increasing consumption of tobacco products by the youth and increasing consumer disposable income are driving the market growth. Additionally, female population has further elevated the demand. Earlier, tobacco smoking was considered as a masculine habit, but with globalization, the female population has also adopted smoking.
Availability of superior products
Availability of superior products such as e-cigarettes, pipes, vapor products and others are also boosting the market growth.
Chewing tobacco is considered to act as an appetite suppressant as it is consumed through the mouth and hence a person cannot eat when it is being consumed. Therefore, it is beneficial for weight loss.
According to a study by the American Journal of Epidemiology, smoking tobacco can reduce the risk of Parkinson’s disease. Smoking tobacco by addicted in various forms such as cigarettes and others are anticipated to reduce stress levels.
Advertising and promotion
Tobacco advertising and promotion are causally related to increased tobacco use. Since tobacco manufacturers have a keen interest in driving consumers to select their products over their competitors, they invest heavily to promote specific brands.
Cigarettes are one of the most heavily marketed products in the US. The sales and marketing expenditures include categories such as direct mail, internet, point of sale, price discounts, coupons, sampling distribution and sponsorship.
In 2016, cigarette and smokeless tobacco companies spent US$ 9.5 billion on advertising and promotional expenses in the United States.
Stringent government regulations pertaining tobacco production and distribution may slow down the market growth.
Increasing health consciousness and government initiatives to control tobacco-related diseases is hampering the market growth. For example, in 2016, Department of Health planned to introduce a bill to ban the sale of cigarettes from vending machines.
Between 1965 and 2015, the US adult smoking rate plunged from 42 per cent to 15 per cent, due to tougher anti-smoking regulations and higher excise taxes.
About 80 per cent of the world’s smokers live in low and middle-income countries. The cigarette consumption is growing in low and middle-income countries and decreasing in high-income countries.
One driver in market is innovation in tobacco packaging. Innovation centres at tobacco packaging companies are working with technologies and printing.
Packaging companies are coming up with various innovations in technologies by offering complex graphics design and unique structural designs. One of the notable innovations in packaging was the introduction of Skruf Moist Snuff tobacco packaging designed by Neumeister.
One of the packaging companies, MeadWestvaco, designed light-up cartons for Kent brand of cigarettes. Kent comes under the top tobacco product manufacturer, the British American Tobacco.
MeadWestvaco placed a setup box with a magnetic lid that includes electronics to expose a line of text when the consumer uses the 10-pack cartons.
The purpose of this packaging is to create brand awareness among the consumers and grasp the market of affluent and early adopting consumers.
- The Family Smoking Prevention and Tobacco Control Act, signed into law on June 22, 2009, provides the US Food and Drug Administration with broad authority to regulate tobacco product marketing.
- In 2010, the US Food and Drugs Administration (FDA) issued a final rule that placed several restrictions on marketing and promotion of cigarettes and smokeless tobacco, including prohibiting brand name sponsorship of athletic, musical or other social or cultural events and prohibiting the sale or distribution of certain items with cigarette and smokeless tobacco brands or logos.
- In August 2016, the US Food and Drug Administration implemented a rule to regulate vapoured tobacco such as hookah, e-cigarettes, and pipe tobacco.
Other Key Market Trends
Historically, the relative obscurity of vapor products resulted in the majority of sale occurring online as retailers were hesitant to carry such niche products in their bricks-and-mortar stores.
As vapor products have experienced dramatic growth in recent years, retail channels which have long had a presence in tobacco distribution thus started to stock them.
The below tables shows the consumption of tobacco in US by race, age, educational level, gender and income status.
Market Size and Forecast
- In 2015, an estimated 36.5 million people, or 15.1 per cent of all adults (aged 18 years and above) smoked cigarettes.
- The US tobacco market size was US $100.3 billion in 2016.
- Over the past five years, the cigarette & tobacco manufacturing in the US industry has grown by 1 per cent to reach revenue of US $46 billion in 2018. In the same time frame, the number of business has grown by 2.7 per cent and the number of employees has declined by 3.1 per cent.
- In 2017, the US market for tobacco reached around 120 billion US dollars, with an increase expected in 2018.
- The average revenue per person in the market for tobacco products amounts to US$ 299.05 in 2018.
Distribution Chain Analysis
Tobacco products are available via various distribution channels such as online portals, vending machines, tobacco specialists.
Cigarettes segment dominated the US market. It was valued at US $83.3 billion in 2016 and is anticipated to grow at a CAGR of 1.4 per cent over the forecast period.
However, smokeless tobacco segment is expected to be the fastest-growing segment. These products are available in various forms such as tobacco chews, nicotine patches, nicotine discs and others.
The key players in the market are focusing on collaborating with other players. Moreover, they are making huge investments in R&D to develop innovative solutions and gain a competitive edge over others.
Various companies undertake mergers & acquisitions to gain a competitive edge. For example, in 2017, British American Tobacco acquired Reynolds American Inc., a tobacco company, for approximately USD 49 billion to get access to the US tobacco market.
Key Market Players
The prominent industry participants include Altria Group Inc., Reynolds American Inc., Philip Morris International, Imperial BRANDS, and Japan Tobacco Inc. among others.
The tobacco industry remains a major contributor to the economies of United States and the livelihoods of millions of people including farmers, retailers, and those employed in the tobacco supply chain.
Increasing consumer disposable income and availability of superior products such as customized e-cigarettes and pipes have bolstered the market growth in this industry.