Farmer's Voice

Citi Research Releases Fourth Annual Global Cigarette Report

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The Fourth Annual Global Cigarette Report released on March 25th by Citi Research, which provides a detailed, multi-year analysis of the ~US$ 800 billion global cigarette market, based on data compiled from a multitude of company and industry reports and the estimates of Citi Research's team of global tobacco analysts, showed that in 2013, global cigarette volumes (excluding China and duty-free) declined 3.0%, compared with the US's 4.6% decline, with this volume outperformance entirely driven by emerging markets (-1.7%), as OECD (Organization for Economic Co-operation and Development ) volumes (-6.0%) underperformed the US for the fourth consecutive year; in the EU, which accounted for about 16% of global cigarette volumes in 2013, volume declines continued (-7.5%), with Spain (10% of EU volumes) once again being the single biggest drag on the region with a 11% decline in volumes; and although the EEMA still accounted for roughly 38% of global volumes in 2013, after posting modest volume growth in the prior year, volumes fell nearly 4%, largely driven by second-half weakness in key markets such as Russia and Turkey.

The report showed that in the Asia Pacific region, cigarette volumes fell 0.2% in 2013, after two years of volume growth, driven by a nearly 16% decline in the Philippines, while Indonesia (+1.9%), proved to be less of an offset than in previous years (2012's +8.2% increase). In 2013, Latin America andCanadaaccounted for approximately 8% of international cigarette volumes, and posted another year of -4% volumes, withBrazilonce again registering a steep decline of nearly 12% year-year. US cigarette volumes in 2013 fell ~4% year-year on an adjusted basis (or -4.6% on a reported basis), as pricing accelerated some, while the excise tax environment remained benign, with President Barack Obama's proposal to increase the Federal excise tax on cigarettes by 94 cents to $1.95 per pack failing to gain traction in Congress.

Deep-discount brands lost share for the third consecutive year to 13.1%, while premium brands gained 20 bps of share to 73.5%, value (excluding deep discount) gained a slightly bigger 30 bps to 13.4%, which the report attributed to the introduction of lower-priced premium-brand line extensions. The menthol subcategory continued to gain share in theUSin 2013 (+30 bps, to 31.4%), and while menthol cigarettes have posted consistent growth in theUS, the report said it is interesting to note that the magnitude of these share gains have diminished in each of the last three years. The report said with younger adult cohorts showing an outsized menthol preference, menthol's steady share gains is expected to continue. In 2014, industry volumes are expected to be down 3-4%, though the researchers believe that accelerating pricing as well as e-cig category growth could put modest pressure on industry volumes (Citigroup 3/25).