Cigarette sales may see steepest dip in 20 years on lockdown, tax rise

The last steepest decline the sector had witnessed was in 2015 when sales volume contracted by 8.2 per cent at 88.1 billion sticks – a 15-year low then
Cigarette sales may fall by 10 per cent — the steepest decline in the last two decades — in this calendar year owing to a rise in taxes and the nationwide lockdown, according to market research firm Euromonitor International.

“The current situation, in conjunction with the rise in the National Calamity Contingent Duty (NCCD) at the beginning of 2020, will have a negative impact of close to 10 per cent on cigarette volumes during 2020 overall,” Euromonitor International said.

The last steepest decline witnessed by the sector was in 2015, when sales volume contracted 8.2 per cent to 88.1 billion sticks — a 15-year low then.

Data sourced from Euromonitor showed that cigarette sales declined 3.6 per cent to 84.9 billion sticks in 2016, and 4.2 per cent to 81.3 billion sticks in 2017. However, sales saw a marginal rise of 1.5 per cent at 82.5 billion sticks in 2018. Last year, sales volume fell by 1 per cent to 81.7 billion sticks.

Given this trend, a 10 per cent fall in sales volume will be momentous for the sector.

Incidentally, in 2017, ITC had hiked cigarette prices by 6-7 per cent across brands, while in 2019, the company had hiked prices of Bristol, Capstan and Flake Excel brands by 7-14 per cent.

ITC declined to comment, while an e-mail sent to a Godfrey Phillips official went unanswered.

As the Centre has prohibited the sale of tobacco products during the lockdown, ITC has halted cigarette production and is directing all its resources towards foodstuff and health and hygiene portfolios.

Godfrey Phillips has also suspended operations at its factories.

According to Euromonitor, ITC has a 77 per cent market share followed by Godfrey Phillips at 9.2 per cent.

On the other hand, cigarette prices in the black market have surged by 20-40 per cent over the MRP across the country. The prices of some of ITC’s best-selling brands had risen by 10-20 per cent following an increase in the NCCD in the Union Budget in February this year. It was one of the steepest price hikes ITC had implemented in the past 2-3 years.

Distributors said whatever stock is currently there in the market that is of February-March, and because of unavailability, price rise, and serious restrictions on the movement, smokers are either cutting down consumption or have started quitting.

“Although there is no data available right now, it is a serious concern, which can impact sales volume. There is currently high demand in the market, but as things ease, the demand might ease as well,” an industry official said.

In a report titled ‘The Impact of Coronavirus on Tobacco’, Euromoitor noted that some consumers may increase their consumption during periods of economic distress.

However, “post Covid-19, the tobacco industry will be confronted with a consumer who, on average, will be more conscious of their health, inhabit public space less frequently, consider their interactions with others more carefully, scrutinise the value of their consumption more zealously and (perhaps most of all) be looking for a way to escape doing all of the above”, the market researcher noted.

“Under the government guidelines, the ceased distribution and retail sales of tobacco is negatively impacting the bottom line,” Euromonitor said.

During the nine months ended December 31, 2019, ITC had posted a 6.31 per cent rise in its income from cigarettes at Rs 17,928.69 crore, while profit from cigarette sales rose by 7.59 per cent to Rs 12,188.58 crore.


Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel