In 2014, according to a securities analyst, Phillip Morris USA, maker of Marlboro, could see its overall industry market share drop from 47% in 2014 to 32% in 2023.
Definition / Scope
The tobacco industry consists of those persons and companies who are engaged in the growth, preparation, sale, shipment and advertisement of tobacco and tobacco related products.
The tobacco industry suffered greatly in United States in 1990’s when it was sued my several states in the United States. The suits claimed that tobacco causes cancer and can even lead to death.
An estimate of 45.3 million people or 19.3% of adults in United States smoke tobacco in 2010.
Market Overview
In May 2004, US became the 108th country to sign the World Health Organisation’s treaty on Tobacco control. The treaty places restriction on the shipment, distribution and taxation of tobacco products.
Raising the age for sale of tobacco to 21 years in United States would substantially reduce teenagers from developing smoking habits, according to an article released in March 2015.
Approximately 4,80,000 people die each year from cigarette smoking and exposure to second-hand smoke.
Tobacco costs USA $170 billion in health expenditure and more than $150 billion in lost productivity each year, in 2015.
US retail sales of e-cigarettes increased to $1 billion in 2013 from $600 million in 2012.
Hookah use almost doubled among USA high school students to 2.5% in 2014 from 1.1% in 2013
An hour long hookah session involves 200 puffs compared to 20 puffs in a cigarette. The amount of smoke inhaled during a session of hookah is 90,000 milliliters, compared to 500-600 milliliters from a cigarette and thus hookah is not a safer alternative to cigarette.
Market Risks
Tobacco products are subjected to excise duty which represent a substantial percentage of the retail price.
Increase in excise duty or any unfavorable change in tax treatment of tobacco, will have an effect on the demand of tobacco in the US. If the US Food and Drug Administration moves against menthol cigarettes, Lorillard will lose some of its sales overnight, according to a report in 2014.
In the budget for financial year 2016, the president of United States requested for an increase in the tax on all tobacco products.
The tax of cigarettes and small cigars will increase 94% from the current $1.01 per packet.
Top Market Opportunities
According to a report in 2013, the three largest manufacturers of tobacco, Philip Morris, Reynolds America Inc. and Lorillard, which control 85% of the market in 2014 will be selling e-cigarettes.
In 2015, Phillip Morris and Altria Group signed an agreement where they will collaborate on research, technology and licensing of e-vapour products or electronic cigarettes.
US retail sales of e-cigarettes increased to $1 billion in 2013 from $600 million in 2012.
In April 2014, the FDA proposed new regulations for tobacco production including e-cigarettes. It required the disclosure of the ingredients used in e-cigarette liquids, proof that the ingredients were safe and regulation of devices used to vaporize and deliver liquid.
The shares of Reynolds America and Lorillard jumped up in February 2015.
A group including Sillicon Valley invested around $ 75 million in a leading market of e-cigarettes in USA in 2013.
Other Key Market Trends
Although US production of tobacco has decreased from 1,80,000 tobacco growing farms in 1980 to 10,000 tobacco growing farms in 2012, it continues to be the leasing producer of tobacco leaves.
US is the fourth largest tobacco producing country in the world after China, India and Brazil.
During 2014, almost 264 billion cigarettes were sold in USA, a decrease fro 273 billion in 2013.
Imports, primarily from Canada and South Korea account for 7.7% of US cigarettes in 2013 and 8.2% cigarettes in 2014.
About 13 billion cigars were sold in USA in 2014.
Cigarettes and smokeless tobacco companies spent $9.6 billion on advertising in USA in 2012 alone.
According to a research conducted in 2015, 16.4% boys and 15% girls who are high school students in USA are smokers.
In 2013, 14.7% of high school boys and 8.8% of high school students use smokeless products
20.5% men and 15.3% women adults are smokers, according to 2015 statistics.
29.2% of the people who love below the poverty line in 2015 smoke cigarettes and 16.2% of the people who live at or above the poverty line smoke cigarette.
Approximately 4,80,000 people die each year from cigarette smoking and exposure to second-hand smoke.
Smoking related health conditions are a leading cause of death in the USA, accounting for 1 out of 5 deaths annually, as seen in 2014.
Tobacco costs USA $170 billion in health expenditure and more than $150 billion in lost productivity each year, in 2015.
The number of smokers has, however declines from 20.9% in 2005 to 17.8% in 2013.
Between 2011 and 2014, the percentage of people smoking tobacco reduced from 15.8% to 9.2%
According to their age, the number of smokers in USA in 2015 are:
AGE
PERCENTAGE OF SMOKERS
18-24 YEARS
18.7%
25-44 YEARS
20.1%
45-64 YEARS
19.9%
64 YEARS AND ABOVE
8.8%
The number of traditional cigarettes sold in USA has fallen 29.4% since 2004 and the sale of e-cigarettes in USA in 2014 is seen around $1.5 billion.
Of the 4.6 million youth tobacco users in 2014, 2.4 million use e-cigarettes
Among high school students the use of electronic cigarettes increased to 13.4% in 2014 from 4.5% in 2013
Overall tobacco use among high school students increased to 24.6% in 2014 from 22.9% in 2013.
Raising the age for sale of tobacco to 21 years in United States would substantially reduce teenagers from developing smoking habits, according to an article released in March 2015.
Hookah use almost doubled among USA high school students to 2.5% in 2014 from 1.1% in 2013.
An hour long hookah session involves 200 puffs compared to 20 puffs in a cigarette. The amount of smoke inhaled during a session of hookah is 90,000 milliliters, compared to 500-600 milliliters from a cigarette and thus hookah is not a safer alternative to cigarette.
From 1st January 2016, there will be restrictions on the sale, purchase or use of electronic cigarettes for those under the age of 21.
In 2014, cigarettes were taxed highest in New York at $4.35 per pack.
Market Size and Forecast
Two primary catalysts for growth in the tobacco industry in USA is e-cigarettes and the ability to sell tobacco in large markets such as China and Russia.
In 2014, according to a securities analyst, Phillip Morris USA, maker of Marlboro, could see its overall industry market share drop from 47% in 2014 to 32% in 2023.
Lorillard Inc’s market share will increase from 14% in 201 to 25% in 2023.
It is predicted in 2014 that Reynolds will make a revenue of $4 billion in 2021 from e-cigarettes compared with $3.9 billion from conventional cigarettes. E-cigarettes sales are expected to rise nearly 25% per year through 2018, according to a research conducted in 2014.
Smokeless tobacco is expected to increase in volumes at a CAGR of 3% over 2014 to 2018.
Value sales of smokeless tobacco is expected to increase at a CAGR of 5% over 2013-2018 to reach US$9.2 billion in 2018.
Competitive Landscape
The leading manufacturers of tobacco in USA in 2014 are Phillip Morris, Reynolds America Inc. and Lorillard. They account for 85% of US cigarette sales in 2014.
Phillip Morris is the largest producer of tobacco in the world with a revenue of $23 Billion.
In USA, the major companies manufacturing tobacco by their sales value are:
COMPANY
SALE VALUE IN US$
Phillip Morris
46.7 billion
Reynolds America Inc.
21.7 billion
Lorillard
13.6 billion
Imperial
9.2 billion
Ligget Vect
3.5 billion
According to 2014 sales data, Marlboro was the most popular cigarette brand in United States, having a market of 40.8%.
According to 2013 sales data, Swisher Little is the most popular brand of small cigars in United States, with 43.7% of the market share.
Market Share of leading Cigarette Brands in 2014:
CigaretteMarlboro
Market Share40.8%
Newport
12.4%
Camel
7.9%
Pall Mall Box
7.8%
Pyramid
2%
Phillip Morris is the largest international tobacco company in the world with a net sales of US$29.7 billion in 2015 followed by British International Tobacco with a net sales of US$23 billion.
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