The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
How Big Tobacco Keeps Growing
Less people are smoking in western countries and this is of course great news, but tobacco companies are good at pivoting. As this infographic from purplebox outlines, tobacco companies are still finding ways to keep their profits healthy. In America, more was spent in retail stores on cigarettes than beer and soda/fizzy drinks combined. The people who are still smoking are paying ever increasing prices to support their habit.
While less people are smoking in western countries the number of people smoking will increase from 1 billion smokers to 1.64 billion by 2025 around the world. Companies are willing to explore other markets to keep the number of people smoking at a ‘healthy’ level. One interesting situation is happening in African countries where tobacco companies are facing lawsuits to cover past and future healthcare costs related to smoking. Tobacco companies are fully aware that it is easier to exploit people who are less educated about the health implications of smoking.
Having said that, they still have a strong foothold in many Western markets as customers who are addicted need to pay whatever price is being charged to feed their addiction. Find out more about the smoke economy in the infographic.
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The Smoke Economy
How big tobacco keeps growing
Fewer people are smoking but United States tobacco revenues continue to soar. How are tobacco companies pulling this off?
Facts and Figures
- the global cigarette Market is worth $816 billion
- this represents a compound annual growth rate of around 7%
- the industry sells 5.5 trillion cigarettes to the world’s 1 billion smokers
American spent more at retail stores on cigarettes in 2016 and they did on beer and soda or fizzy drinks combined.
However, over the same., companies increase prices-boosting cigarette Revenue by 32% in 2016.
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This is made possible by a low tax rate of 42% per pack sold. While this may seem high it is significantly lower than, for example the 82% tax rate for pack in the UK.
The number of cigarettes sold in the US fell by 37% between 2001 and 2016.
The operating profits of us tobacco manufacturers have increased 77% since 2006 to a massive $18.4 billion.
Things may be about to change with California raising tax on cigarettes $2 a pack.
In New York, things may also, would support for proposals to increase the price of a pack of cigarettes from $10.50 to $13 gathering pace.
The 1 billion smokers around the world is projected to rise to upwards of 1.64 billion by 2025.
The beneficiaries will be the five largest tobacco companies who control over 80% of the industry’s market share.
Cigarette Market Share Worldwide 2016
China National tobacco Corporation (CNTC) 44.2%
Philip Morris International (PMI) 14.6%
British American Tobacco (BAT) 10.7%
Japan Tobacco International (JTI) 8.9%
Imperial Brands 4.7%
Altria Group 3.3%
Reynolds American 1.9%
ITC Group 1.3%
Gudang Gram TbK 1.2%
KT&G Group 1.2%
The major players worldwide
- they are responsible for 98% of all cigarettes sold in China.
- a massive of 7 to 10% of all government revenue is through tobacco sales.
- Revenue $ 1.7 billion
- Profit $ 16 billion
Phillip Morris International
- around 15 years ago, Philip Morris was the largest tobacco in the world by a comfortable margin.
- Revenue $ 67.7 billion
- Profit $ 7.5 billion
British American Tobacco
- after many years of heavy marketing and Africa, governments have begun.
- Revenue $ 58.1 billion
- Profit $ 4.2 billion
Japan Tobacco International
- do to more stringent regulations in the markets they serve, their profits are only a fraction of Philip Morris International despite having very similar revenues.
- Revenue $ 65.9 billion
- Profit $ 1.5 billion
- they were once a minor player in the global tobacco industry, but through a series of aggressive acquisitions they have increased their market share.
- And 2000, they only had 0.8% of the global market share.
- Revenue $ 38.4 billion
- Profit $ 2 billion
How much are you spending?
How much do you pay for a pack of cigarettes x How many packs amount of a pack do you smoke a day x How many days or years have you been smoking = $ $ $
- the cost of smoking extends far beyond health implications and it can really put a deep hole in your wallet.
- while governments continue trying to discourage people from smoking by increasing taxes on cigarettes, those who keep smoking or ever-increasing prices.
- tobacco companies are exploiting their customers addiction by making them for the ever-increasing tax bill.
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