Cigarettes in india

DEPARTMENT OF ECONOMICS

MARKETING RESEARCH Analyzing Cigarette Consumption in India

2014 -15

No Content Page no:
1
Introduction 3
1.1
Weather & climate
3
1.2
Religion & language
3
1.3
Indian economy
4
2
Tobacco in India
4
2.1
Introduction of tobacco
4
2.2
Market leader
5
2.3
International market &Indian consumer
5
2.4
After effect of cigarettes
5
3
Analysis
6
3.1
Retail volume
6
3.2
Company share
7
3.3
Brand share
8
3.4
Distribution
10
3.5
Pricing
12
3.6
Category
13
3.7
Illicit trade penetration
14
3.8
Trade statistics
16
4
Conclusion
17
5
Reference
18
1. INTRODUCTION
India, officially the “Republic of India” is a country in south Asia. The seventh largest country by area , the second most populous country with over 1.2 billion people and the most populous democracy in the world. India was home to the ancient Indus Valley Civilization, and is the birthplace of four world religions—Hinduism, Sikhism, Buddhism, Jainism, India endured colonization, eventually being administered by the United Kingdom from the mid-19th century to the mid-20th century.
India is bounded by Indian ocean on the south , Arabian sea on the south west , bay of Bengal on the south east , it shares land border with Pakistan to the west , china, Nepal, and Bhutan to the north east , Myanmar and Bangladesh to the east .

1.1. Weather and Climate
The weather is mainly hot most of the year with significant variations from region to region. The coolest weather lasts from around the end of November to the beginning of March, with fresh mornings and evenings, and mostly sunny days. The really hot weather, when it is dry, dusty and unpleasant, is between March and June. Monsoon rains occur in most regions in summer anywhere between June and early October.

1.2. Religion& language
About 80% of the people in India are Hindus, 13% Muslim, with Sikh, Christian, Jain, Parsi and Buddhist minorities.
Hindi is the official language of India and, used by about 40% of the population, India’s most widely spoken. English is also enshrined in the constitution for a wide range of official purposes. In addition, 18 regional languages are recognized by the constitution. These include Bengali, Gujarati, Oriya and Punjabi, which are used in respective regions, and Tamil and Telugu, which are common in the south. Other regional languages include Kannada, Malayalam and Marathi. The Muslim population largely speaks Urdu.

1.3. Indian Economy
The economy of India is the tenth-largest in the world by nominal GDP and the third-largest by purchasing power parity (PPP). The country is one of the G-20 major economies, a member of BRICS and a developing economy that is among the top 20 global traders according to the WTO. India was the 19th-largest merchandise and the 6th largest services exporter in the world in 2013, it imported a total of $616.7 billion worth of merchandise and services in 2013, as the 12th-largest merchandise and 7th largest services importer. India's economic growth slowed to 4.7% for the 2013–14 fiscal years, in contrast to higher economic growth rates in 2000s. IMF projects India's GDP to grow at 5.4% over 2014-15. Agriculture sector is the largest employer in India's economy but contributes a declining share of its GDP (13.7% in 2012-13).Its manufacturing industry has held a constant share of its economic contribution, while the fastest-growing part of the economy has been its services sector - which includes construction, telecom, software and information technologies, infrastructure, tourism, education, health care, travel, trade, banking and others components of its economy.
2. Tobacco in India
2.1. Introduction of Tobacco Tobacco was first brought to India by Portuguese merchants 400 years ago. The most commonly consumed by men and women is hookah. By 1610 smoking entered into all social economic and gender group. Although there were already some strains of locally-grown tobacco in India these were outclassed by the new imported varieties from Brazil.
The trade boomed and tobacco quickly established itself as the most important commodity passing through Goa in the 17th century. Virtually every household in the Portuguese colony took up the new fashion of smoking or chewing tobacco. Later on the British introduced modern commercially-produced cigarettes.
Smoked tobacco in India
The tobacco cultivation of India began in the late 17th century, and beedies were first created in Gujarat. Crushed and dried tobacco is wrapped in tendu leaves and rolled into a beedi. Beedis are smaller in size than the regular company-made cigarettes so more beedis are smoked to achieve the desired feeling caused by nicotine. Beedi smokers are at least at an equal risk of developing cancers as cigarette smokers due to use of smoked tobacco. Beedi making is a source of livelihood for many families. In some families, everyone – including children – helps make beedis. The frequent inhalation of tobacco flakes has similar effects as the actual use of the tobacco product. Therefore, these families have an increased risk of lung diseases and cancers of the digestive tract. By the middle of the 20th century beedi manufacture had grown into a highly competitive industry.
Later educated classes in India grew to prefer beedies to cigarettes. Cigarettes may come with Filters, as thins, low-tar, menthol, and flavored – to entice more users, including women and youth and also to suggest the cigarettes have a lower health risk, which they do not. Many people view cigar smoking as less dangerous than cigarette smoking. Yet one large cigar can contain as much tobacco as an entire pack of cigarettes.
Cigarette smoking is more common in the urban areas of India, and cigar use is seen in the big cities. Cigarette smoking in on the rise and is now also seen among teenage girls and young women.
Indian tobacco Law
Government officials say India accounts for nearly a third of an estimated three million tobacco-related deaths in the world (per year). In 2001, officials in Delhi, the Indian capital, banned the sale of cigarettes to people under the age of 18.
The Tobacco Products Bill 2001 prescribes jail sentences of up to three months to those who sell tobacco to children. It also requires companies to print the tar and nicotine content on the packaging. Smoking is completely banned in many public places and workplaces such as healthcare, educational, and government facilities and on public transport. Advertising through many forms of mass media is prohibited, but tobacco companies still may advertise at the point of sale, subject to some restrictions. Health warning labels are pictorial and text, cover 40 percent of the front panel of the package, and must be rotated every 24 months.

2.2. Market leader
ITC is the market leader in cigarettes in India, with its wide range of invaluable brands. ITC has a leadership position in every segment of the market .Brand includes Gold Flake , Berkeley , Bristol , Flake , silk cut , Duke and Royal etc.
Gold Flake is a well-positioned brand in India .It is one of the finest Virginian cigarettes in the market.

2.3. Indian consumer & Indian consumer

India is the second largest producer of tobacco in the world with the highest consumption level.
Smokers with college level education tend to consume more cigarettes, which are relatively expensive. Almost 30 percent of the Indian population older than age 15 uses some form of tobacco. Men use more smoked tobacco than smokeless tobacco. Women are more likely to use smokeless (chewed) tobacco. Beedis are smoked more than cigarettes.
2.4. After effects of cigarettes
Tobacco use, cause a wide range of major diseases which nearly every organ of the body. It causes cancer. People who use tobacco are at risk for several cancers. Smokers are at risk for mouth (oral), larynx, and lung cancers, and other serious diseases, such as heart and lung diseases, circulatory disease, and stroke. Those who use tobacco that they put in their mouth are at greatest risk for mouth cancer. Mouth cancer is one of the most common cancers in India due to the use of tobacco.
In this field, India is facing a large complex problem than any of the other countries in the world. Due to smoking, the people of India caught cancer and even their life is in danger .The most widely used form of tobacco is cigarette smoking. Cigarette kill one in two smokers prematurely and among their half of them death in the age of 30 -50.
3. Analysis

3.1. Retail volume of cigarettes in India

The sales decrease 1%in 2012.central government increase the excess tariff on 64mm, which leads to may brand extensions. Social awareness brings by the government to protect people from using cigarettes. ITC remains undisputed leader in retail volume share. The main decline was due to mainly due to the growth of illicit cigarettes trade and increase in VAT by state government across India .The increase in taxes led to retail volume of 13% in 2013.Govt brings rules in packaging and labeling to provide awareness to the people to protect them self by seeing this, this reduce sale of product.
Smoking prevalence

Men smoking in India coming down from 2008 to 2013, it is happened because lot of programs where taken by the government to reduce smoking to avoid death and cause of diseases.

3.2. Company share
ITC is the market leader in cigarettes in India, with its wide range of invaluable brands. ITC has a leadership position in every segment of the market .Brand includes Gold Flake , Berkeley , Bristol , Flake , silk cut , Duke and Royal etc.
Gold Flake is a well-positioned brand in India .It is one of the finest Virginian cigarettes in the market.

COMPANY NAME
2008
2009
2010
2011
2012
2013

ITC Ltd
72.7
74.6
75.9
76.4
78
78
Godfrey Phillips India
10.7
9.8
9.8
9.6
8.9
9.0
VST Industries Ltd
7.8
7.8
7.8
7.9
7.6
7.3
Philip Morris International Inc.
2.4
2.9
3.1
3.1
2.7
2.8
Japan Tobacco Inc.
1.6
1.7
1.6
1.4
1.8
1.9
Golden Tobacco Ltd
2.1
0.8
0.6
0.5
0.4
0.3
British American Tobacco Plc.
0.1
0.2
0.2
0.2
0.3
0.3
GTC Industries Ltd
-
-
-
-
-
-
Gallaher Group Plc.
-
-
-
-
-
-
Philip Morris Cos Inc.
-
-
-
-
-
-
Others
2.6
2.3
1.0
0.9
0.3
0.4
Total
100
100
100
100
100
100

The picture shows, each year the ITC company share is getting high. In India, cigarettes were dominated by three players. ITC Ltd was the undisputed leader with a retail volume share of 80%, followed by Godfrey Phillips India Ltd with 11% and VST Industries with 8%.

3.3. Brand share
The Gold Flake of ITC Company has the highest brand share in Indian market. The brand was still positioned as a premium cigarette. Gold Flake is targeted the adult as well as the youth smokers. It differentiated from other products due to the purity and quality of its experience. The comparison with gold stayed, but the target audience the brand was reaching out to, was supposedly larger. Wills and scissors have the second and third brand share in the Indian market, but it is also from the ITC product .Godfrey Philips has the four the position in the brand market.

Change View
Brand
Company name (GBO)
2008
2009
2010
2011
2012
2013
India
Cigarettes

Gold Flake
ITC Ltd
35.3
34.3
35.1
35.5
36.6
37.6

Wills
ITC Ltd
16.0
17.3
18.0
18.0
19.4
18.8

Scissors
ITC Ltd
8.0
9.4
9.9
9.9
9.3
9.2

Four Square
Godfrey Phillips India Ltd
8.1
7.6
7.4
7.4
6.7
6.7

Bristol
ITC Ltd
7.1
6.5
6.2
5.8
4.7
4.4

Charms
VST Industries Ltd
3.9
4.0
4.4
4.2
3.9
3.7

Capstan
ITC Ltd
4.1
4.5
4.0
4.1
3.8
3.5

Classic
ITC Ltd
1.5
1.9
2.0
2.1
2.9
3.0

Red & White
Philip Morris International Inc.
2.3
2.7
2.8
2.7
2.1
2.1

Berkeley
Japan Tobacco Inc.
1.6
1.7
1.6
1.4
1.8
1.9

Cavenders
Godfrey Phillips India Ltd
2.1
1.8
2.0
1.8
1.7
1.6

Moments
VST Industries Ltd
0.8
1.0
1.2
1.2
1.4
1.4

Charminar
VST Industries Ltd
2.8
2.3
1.6
1.6
1.5
1.4

Marlboro
Philip Morris International Inc.
0.1
0.2
0.3
0.4
0.5
0.7

Duke
ITC Ltd
-
0.1
0.2
0.4
0.6
0.7

Benson & Hedges
British American Tobacco Plc.
0.1
0.2
0.2
0.2
0.2
0.3

Panama
Golden Tobacco Ltd
1.8
0.6
0.5
0.4
0.3
0.2

North Pole
Godfrey Phillips India Ltd
0.2
0.2
0.2
0.2
0.2
0.1

Tipper
Godfrey Phillips India Ltd
0.3
0.2
0.1
0.1
0.1
0.1

Special Extra Smooth
VST Industries Ltd
0.1
0.1
0.1
0.1
0.1
0.0

Berkeley
Gallaher Group Plc.
-
-
-
-
-
-

Chancellor
GTC Industries Ltd
-
-
-
-
-
-

Panama
GTC Industries Ltd
-
-
-
-
-
-

Red & White
Philip Morris Cos Inc.
-
-
-
-
-
-

Others
Others
3.7
3.5
2.2
2.4
2.2
2.5

Total
Total
100.0
100.0
100.0
100.0
100.0
100.0

3.4. Distribution
Distributors depends on the demand, they provide warehousing for the goods, Handle volumes of up to Indian rupees 5-6 Crore/Month , An Assistant Manager along with 1-2 sales assistants on the payroll of ITC/GPI is present, Sales teams are paid and managed by the distributors, All transactions are cash and carry.

Dealers /Wholesalers
Very important members of the distribution channel, Drive large volumes of sale, Inject credit into the system, Have their own storage, Supply to large/small retailers and paan shops, Often buy large amounts based on speculation.
Small Retailer
Sell 15-20 packs a day. They Makes a margin of about Rs.10-20 per pack. Procures cigarettes from a dealer on daily basis Large Retailer .Gets his goods from the company distributors directly .The goods come to his shop via the sales team •Cash and Carry •Point of Purchase displays Super stores and Hypermarts sell larger packs.

Newsagent-tobacconists/kiosks (paan-cigarette retail outlet) were the leading distribution network of cigarettes holding 69% of total regional volume sales in 2012. The majority of paan-cigarette retail outlet owners have a loyal consumers residing in similar localities. Some state governments have banned the sales of cigarettes in bars and restaurants which forced the major companies in India to sell through small kiosks near restaurants and bars.
In India, the government does not control the distribution of tobacco. Distribution is mainly carried out by manufacturers. The typical supply chain of cigarettes constitutes main manufacturer origin point to company-appointed clearing and forwarding agents, which are linked to regional distributors who finally forward the cigarettes to retailers.

3.5. PRICING
Prices of different types and size of cigarettes depend inter alia on the level of and changes in excise duty imposed by the central government in its annual fiscal budget. Any more than moderate increase in excise duty effectively raises prices of cigarettes. At times, a modest increase in taxation has helped to maintain retail prices. Owing to the variations in prices as a result of differential changes of taxation on different types and size of cigarettes, their share in total sales has changed considerably. During 2012, economy and mid-priced cigarettes held the largest proportion of sales in India accounting for a combined 97% volume share. The price and availability across India is the major factor. Price-sensitive consumers tend to buy these cigarettes. ITC Ltd and Godfrey Phillips India Ltd have wide portfolios catering to different consume income segments. The company’s price range starts from Rs2.50 per stick and goes up to Rs8.00 per stick. The increased in taxes and higher unit prices will definitely shift the consumer base from the premium to mid-priced and from mid-priced to economy brands.
Price brand
Price
Unit
Brand examples
Premium

Above Rs116

Pack of 20

Marlboro; Benson & Hedges; Classic; Lucky Strike; Gold Flake Kings

Mid-priced

Rs72.00-116

Pack of 20

Gold Flake; Four Square, Capstan, Scissors, Red & white

Economy
Rs72.00 and below
Pack of 20
Charminar; Cavenders; Berkeley; Scissors; Charms

3.6. Category
Cigarettes by blend
The Indian cigarette environment is dominated by Virginia blend, which held around 99% of total manufacture and consumption in India. Indian companies commonly use Virginia blend as it is the type of tobacco cultivated in India.

Cigarettes by carbon filter or non-carbon filter
Non-carbon filter cigarettes are widely smoked across India and this type held the majority share of total retail volume sales. The manufacturers are limited to promote the less harmful as these claims are against the legislation.
Cigarettes by filtered or unfiltered
Traditionally, Indians smoked unfiltered cigarettes but from 2009 filtered cigarettes became very popular. In 1996 the split between unfiltered and filtered cigarettes was fairly equal, but in 2012 filtered cigarettes accounted for 99% of total retail volume sales. Unfiltered cigarette sales declined from 2009 due to an increase in excise duty. Unfiltered cigarette retail volume sales stood at less than 1% in 2012. Manufacturers are now focusing on filtered cigarettes following the disproportionate excise hike in 2008, which almost completely wiped out unfiltered cigarettes. Manufacturers converted unfiltered cigarette brand to filtered products from 2009 onwards. Unfiltered cigarettes will completely vanish in two years, with only filtered cigarettes available across India.
Cigarettes by length
Cigarettes in India have different lengths starting from 59mm to 97mm.. Short cigarettes are the most popular in India and account for around 84% of total volume of cigarette sales. The most popular short cigarette length in India is 69mm which are known as “small”. The other cigarette length available is 84mm, which is referred to king size/regular, and accounted for a 16% share of total volume sales in 2012, with shares increasing year-on-year over the review period. The Central Government of India, in allowing a new excise segment of 64mm in 2012, has set a new trend in India.
Most pack of Indian cigarettes was 10’s, it is accounted as 97% of the total sale was of this 10’s cigarettes. The majority of smokers prefer a pack of 10 as there are not many offers or discounts provided to encourage the purchase of 20s in India, as the cost per stick remains the same whether the consumer buys 10s or 20s. In India, the majority of cigarettes are traded over the counter in stick form.
Cigarettes pack type was folding type it is used by manufacture which the customer can carry and easily promoted by them. Manufacturers continued the same pack types and designs over the review period. However, color and shades of packaging became more dominant in recent years. Logos and branding are visible clearly on packs.
Regular cigarettes were used by the people of India and 0.1% of then are using slim, but it is not taken as an important in the market sales.
A standard cigarette was used by 99% of people, and only less people are using menthol.

3.7. Illicit Trade Penetration & Product by Ingredients
There is a slight variation from 2008 to 2013.The illicit trade volume has increasing slightly, lot of fraud activities are taken place, in the sales of cigarettes. Increasing excise taxes by the Central Government of India, and VAT hikes by the majority of states across the country are helping illicit trade to grow. Illicit trade is becoming popular as sometimes even consumers are not aware that they are buying illicit cigarettes. Illicit trade consists of domestic duty non paid, contraband and counterfeit products. The increase in VAT rates in most states reduced legitimate cigarette sales. The domestic duty non paid and lower priced cigarettes from countries such as China, Myanmar, Nepal, Bangladesh, Indonesia and Pakistan are posing a great threat to cigarettes in the country. Illicit trade is an inevitable threat to legal tobacco sales unless concrete steps are introduced by the government to curtail the phenomenon.

Change View 2008
2009
2010
2011
2012
2013
Cigarettes
India

Total ingredients
100.0
100.0
100.0
100.0
100.0
100.0

Botanicals
1.0
1.0
1.0
1.0
1.0
1.0

-Other Botanicals
1.0
1.0
1.0
1.0
1.0
1.0

Cocoa Powder
0.9
0.9
0.9
0.9
0.9
0.9

Fats and Oils
0.0
0.0
0.0
0.0
0.0
0.0

-Other Fats and Oils
0.0
0.0
0.0
0.0
0.0
0.0

Flavors
0.6
0.6
0.6
0.6
0.6
0.6

-Other Flavors
0.6
0.6
0.6
0.6
0.6
0.6

Humectants
4.0
4.0
4.0
4.0
4.0
4.0

-Glycerol (Humectant)
2.0
2.0
2.0
2.0
2.0
2.0

-Propylene glycol (Humectant)
2.0
2.0
2.0
2.0
2.0
2.0

Sweeteners
1.9
1.9
1.9
1.9
1.9
1.9

-Sugars and Bulk Sweeteners
1.9
1.9
1.9
1.9
1.9
1.9

--Invert Sugar
1.5
1.5
1.5
1.5
1.5
1.5

--Sucrose
0.4
0.4
0.4
0.4
0.4
0.4

Miscellaneous Ingredients
1.7
1.7
1.7
1.7
1.7
1.7

-Other Miscellaneous Ingredients
1.7
1.7
1.7
1.7
1.7
1.7

Commodities
89.9
89.9
89.9
89.9
89.9
89.9

-Other Commodities
89.9
89.9
89.9
89.9
89.9
89.9

3.8. Trade statistics

Change View 2008
2009
2010
2011
2012
2013
India
Cigarettes

Production
103,250.0
101,000.0
100,000.0
105,350.0
104,258.0
103,215.4

Import
186.6
201.6
222.0
298.6
368.7
449.8

Export
1,903.4
4,800.0
7,800.0
9,700.0
10,690.0
11,759.0

From the figure, it is clear that there is a rise in both import and export of cigarettes in country. The youth in the country are more addicted to the import cigarettes from the other country. As well as it is also clear that there is a lot of export from the country to other country , so it is also helping the country financially beneficial , as well if there is a huge level of export the production of the goods also has to increase .

4. Conclusions
From the graph, we can see a variation in all the levels of field. The level is decreasing from the point of a particular stage, it is coming down .This variation is due to government regulation over the tobacco market of the country. The government is implementing lot of awareness program to the people, to reduce using of tobacco. They are advertising the aftereffects of using tobacco through media , and even through the products that we use for smoking .The government is also increasing the rate of the product , so usual costumer cannot buy the product, by this the sales will come down .
There has been tremendous progress in implementing package warnings, India increasing warning size, than other countries. India might be doing better than other developed countries like Germany, Italy, Spain and Japan or even its best competitor country China when it comes to 'displaying' pictorial warnings on the tobacco product packets, but 'the pictures are either very small or meaningless.
Some of the provisions are stated below
The Act prohibits smoking of tobacco in public places, except in special smoking zones in hotels, restaurants and airports and open spaces
Advertisement of tobacco products including cigarettes is prohibited
Tobacco products cannot be sold to person below the age of 18 years, and in places within 100 meters radius from the outer boundary of an institution of education, which includes school colleges and institutions of higher learning established or recognized by an appropriate authority.
Tobacco products must be sold, supplied or distributed in a package which shall contain an appropriate pictorial warning, its nicotine and tar contents
A fine up to Rs. 200 can be imposed for smoking in public place, selling tobacco products to minors, or selling tobacco products within a radius of 100 meters from any educational institution
The owner/manager/in-charge of a public place must display a board containing the warning “No Smoking Area - Smoking here is an offence “in appropriate manner at the entrance and inside the premises. From my point of view, the coming years, the consumption of cigarettes will come down from the marginal point to the lower, because of steps taken by the government.

5. Reference 1) http://www.portal.euromonitor.com/Portal/Pages/Search/GeographyTreePage.aspx
2) http://en.wikipedia.org/wiki/Cigarettes_and_Other_Tobacco_Products_Act
3) http://timesofindia.indiatimes.com/city/bangalore/India-consumes-lowest-number-of-cigarettes-per-annum/articleshow/17568769.cms
4) http://www.tobaccocontrollaws.org/legislation/country/india/summary
5) http://www.cpaaindia.org/infocentre/acs/eng/Tobacco%20Abuse.pdf
6) http://www.bbc.co.uk/worldservice/sci_tech/features/health/tobaccotrial/india.htm
7) http://en.wikipedia.org/wiki/Category:Tobacco_in_India
8) http://tobaccocontrol.bmj.com/content/12/4/e4.full.html
9) http://en.wikipedia.org/wiki/Economy_of_India
10) http://www.indianjcancer.com/article.asp?issn=0019-509X;year=2012;volume=49;issue=4;spage=401;epage=409;aulast=Prabhakar
11) http://www.worldtravelguide.net/india
12) http://www.tobaccofreekids.org/research/factsheets/pdf/0274.pdf
13) http://www.who.int/fctc/reporting/Annexthreeindia.pdf
14) http://www.who.int/tobacco/publications/en_tfi_tob_tax_chapter4.pdf
15) http://en.wikipedia.org/wiki/Indian_consumer_confidence_index
16) http://en.wikipedia.org/wiki/Gold_Flake
17) http://en.wikipedia.org/wiki/Beedi
18) http://www.itcportal.com/businesses/fmcg/cigarettes.aspx
19) http://en.wikipedia.org/wiki/India