Rising health consciousness and smoking restrictions will dampen industry sales
Los Angeles, CA (PRWEB) December 05, 2013
Falling consumption volumes and rising prices are key trends for the Cigarette and Tobacco Products Wholesaling industry, which has been forced to adjust to changing consumer preferences and the overall sector structure. As taxes and fuel prices grew over the past five years, an increasing number of tobacco manufacturers entered the wholesaling industry to combat these costs. Along with accelerated merger and acquisition activity, manufacturers added distribution divisions, referred to as manufacturer's sales branches and offices (MSBOs). This put independent third-party wholesalers at risk of retailers bypassing them and purchasing directly from manufacturers. Even the largest tobacco product manufacturers, Altria Group and Reynolds, have integrated wholesaling operations.
According to IBISWorld Industry Analyst Kerry Coughlin, "Growing health awareness and negative publicity of tobacco products in the United States have caused overall demand for tobacco products to decline." Manufacturers have responded by adapting the marketing and production of noncigarette tobacco products such as cigars, pipe tobacco and roll-your-own tobacco to minimize taxes and thus reduce their prices compared to cigarettes and boost their demand. Consequently, recent consumption patterns, such as increases in large cigar and pipe tobacco use, slowed the overall decline in tobacco product consumption.
Despite price increases, IBISWorld estimates that revenue for the Cigarette and Tobacco Products Wholesaling industry contracted at an average annual rate of 2.4% to $93.1 billion due to falling consumption in the five years to 2013. While the wholesaling industry saw growth in 2009 of 3.0%, it returned to decline the following years. In 2013, revenue is expected to decline 2.3% to $93.1 billion.
"Consumers will continue to kick the habit over the next five years," says Coughlin. The wholesale of tobacco products will also suffer from profit-seeking retailers participating in wholesaler bypass, increased government taxes passed on to middlemen and higher fuel costs. In the five years to 2018, industry revenue is expected to contract further. As revenue decreases over the next five years, employment and establishments will follow suit.
The concentration within the US Cigarette and Tobacco Products Wholesaling industry is low.
Consequently, about half of industry firms are nonemployers that operate on a small scale in niche tobacco product markets. They also rely on high volumes to generate profit since wholesale earnings per pack of cigarettes are just a small fraction of the retail price. However, there have been signs of industry consolidation, as some industry players have indicated that they must acquire additional wholesalers in order to compete with larger MSBOs and successfully remain in the industry.
For more information, visit IBISWorld’s Cigarette & Tobacco Products Wholesaling industry
in the US industry report page.
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IBISWorld industry Report Key Topics
Companies within the Cigarette and Tobacco Products Wholesaling industry acquire packaged cigarettes and other tobacco products from manufacturers and sell the goods to various retail stores such as supermarkets and convenience stores, specialized tobacco stores and bars. They may also sell to other wholesalers. The sales and distribution offices of tobacco product manufacturers are included in this industry.
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