Age – In the age group of
25-64, 24.5% of the population has at some time consumed some form of
tobacco
(of which cigarettes is roughly one-sixth). Changing demographics
indicate an
increasingly young consuming class. Six out of ten households have a
post-liberalization
child and nearly 60% of the population are in the age group 15-59. This
trend has
significant implications on lifestyle aspirations, consumption
capability and
consequently for the value propositions of FMCG offers.
Gender – Approximately 12.8% of the male population and 1.1% of
the female
population in urban metros have consumed some form of cigarettes. Thus,
the
male population is the primary TA for the cigarette industry, while the
female
consumption is not even developed to the extent of introducing a
brand/product
oriented towards them as in international markets such as Virginia
Slims.
Income - The CAGR of 3.2%
over the last five years in per capita income is unevenly spread across
income
segments. Upper-middle income households consume the highest
cigarettes. While
consumption declines in higher income group in urban areas, increasing
consumption trend is observed in rural higher-income households. Poor
households in rural areas are the lowest cigarette consumers.
Region - The gap between
urban and rural households in cigarette consumption is the highest in
low and
lower-middle income households. Urban low and lower-middle income
households
consume more cigarettes compared to the similar income groups in rural
areas.
Education - Most developed
countries has observed lower cigarette consumption in higher educated
groups.
This is the opposite in India. As the education increases, in urban and rural
households with a
higher education smoke more cigarettes compared to lower educated
households.
Growing
disposable incomes and increased media exposure are ushering in a
revolution in
consumer behavior, presenting growth opportunities for the industry.
Economic
Environment
India is
a major grower and exporter of tobacco in the world. Presently India is
among top three producers of tobacco in the world. Despite lower
proportion of
total produce being exported Indian exports it figure among top 10
exporters of
the product in the world. Presently of the
total
tobacco produce in India, only 50% is used in the domestic
market and of
this domestic consumption of tobacco only 16% is used by cigarette
industry.
On the
average, cigarettes
account for about 85% of tobacco consumption globally, with an even
higher
share of almost 100% in large markets like China. In
sharp contrast, cigarettes account for shares have declined from 21%
two
decades ago to about 14% currently.
Natural
Environment
The main source of raw
materials for cigarettes is raw tobacco which is mainly found in the
state of
Andhra Pradesh. There is no scarcity in supply of raw tobacco since the
net
income earned by the farmers from cultivating tobacco has been found to
be much
higher than the net income earned from other crops.
Political-Legal
Environment
The
cigarette industry in India continues to operate in a challenging economic
environment, particularly
with respect to taxation and regulations relating to communication and
consumption. The regulations, dictated by circumstances in more
developed
markets, together with prolonged punitive and discriminatory taxation
have had
the effect of being directed almost exclusively at cigarettes, thereby
stifling
cigarette consumption in India in comparison with other forms of
tobacco
consumption.
High
rates of
taxes on cigarettes, in excess of 130% of the net value of the product,
have
rendered cigarettes unaffordable to the majority of tobacco consumers
in the
country. Apart from the adverse impact on the Exchequer, the reducing
base of
domestic cigarette consumption discourages investment in R&D and
quality
enhancement of tobacco varieties and thereby undermines the export
potential of
high value Indian cigarette tobaccos.
It
is estimated
that contraband cigarette trade in India
sets the country back by nearly Rs.2000 crores annually through loss of
tax
revenue and unaccounted outflow of foreign exchange.
The
Cigarettes
and Other Tobacco Products (Prohibition of Advertisement and Regulation
of
Trade and Commerce, Production, Supply and Distribution) Act, 2003,
(COTPA) is
being implemented in a phased manner with effect from 1st May 2004.
Social-cultural
Moderation
in
rates of taxes, coupled with the aspiration of tobacco consumers to
upgrade consumption,
can multiply the share of cigarettes in India
even in a shrinking basket of tobacco consumption.
There
is a
growing public concern regarding increasing consumption of tobacco, its
health
implications and the need to prevent access to minors and non-users.
With a
view to achieving improvement of public health in general, the
Government of
India has banned the advertising of cigarettes in India.
This includes all forms of advertising like TV commercials, print ads,
pamphlets, hoardings etc. Also banned is the sale of cigarettes to any
citizen
below the age of 18. Again, all forms of transaction involving tobacco
products
should be carried on with a label displaying the harmful effects of its
use.
The label should be legible and prominent and conspicuous as to size
and
colour. All such restrictions by the government have made the promotion
of
cigarettes almost impossible. It is mostly by word of mouth that the
sales of
cigarettes have risen.
Implications
The
cigarette
industry has always been on the receiving end when it comes to
imposition of
taxes and duties in the financial budget of the country. The industry
has been
reeling under ever-increasing excise duties and innovative form of
taxes like
luxury tax. Also, due to the high taxes in the country, the
competitiveness of
the Indian cigarette manufacture is adversely affected in the global
market. Its
growth is being further stifled by the imposition of ban on smoking at
public
places and ban on advertisements. In addition to this, increasing
awareness
about harmful effect of smoking and lawsuits in western countries has
made the
entire scenario pretty gloomy for the industry. This leads to increased
government regulation and public litigation and a reduced ability to
promote
the product. In such a scenario, cigarette companies in India are
going in for unrelated diversification.
Also,
with the increasing threat to the tobacco industry
as a whole and decreased consumption levels of
cigarettes, need gaps in the market are being met by new products like
non-tobacco
beedi, paan- (betel leaf) flavoured tobacco-free
gumlets, and
substitutes and tobacco patches like ‘Click’ which are targeted at the
traditional cigarette consumer base.