IBISWorld Market Research
Demand for cigarettes has declined over the past five years due to rising health concerns, frequent anti-smoking campaigns, increasing regulation and higher excise taxes
Melbourne, Australia (PRWEB) July 27, 2014
Although Cigarette and Tobacco Product Manufacturing in Australia is restricted to two companies, heavy government regulation results in extremely fierce competition. According to IBISWorld industry analyst Spencer Little, “Demand for cigarettes has declined over the past five years due to rising health concerns, frequent anti-smoking campaigns, increasing regulation and higher excise taxes.” As a result, industry revenue is estimated to fall at a compound annual 0.8% over the five years through 2014-15. Revenue is forecast to drop by 3.8% in 2014-15 to reach $1.8 billion. Smoking tobacco has been proven to cause a range of health issues such as lung cancer, throat cancer and respiratory diseases. Industry products therefore cannot be advertised and must be sold in plain packaging that includes health warnings. Excise taxes, which are excluded from the industry's cost structure, have risen over the past five years. However, profitability has increased over this period, as manufacturers have been able to increase cigarette prices due to the relatively inelastic demand for tobacco products.
Over the next five years, the industry is anticipated to continue struggling. Tobacco product manufacturers are expected to continue to face rising government regulation. “Further declines in the national smoking rate will also reduce the size of the market,” says Little. As a result, prices of cigarettes and other tobacco products are projected to rise, in order to offset falling demand. The popularity of unpackaged tobacco and roll-your-own cigarettes is anticipated to continue over the next five years, bolstering profit margins. Philip Morris has signalled its intention to cease domestic cigarette manufacturing by the end of 2014, which would dramatically change the industry's current structure.
The Cigarette and Tobacco Product Manufacturing industry has a very high market share concentration, as there are only two manufacturers that operate in Australia. There are more distributors that import and wholesale tobacco products, including major tobacco company Imperial Tobacco, but these firms are included in the Tobacco Product Wholesaling industry. The two companies in the industry, British American Tobacco and Philip Morris, operate globally and have manufacturing facilities in Australia. On a global level, these firms have been involved in large amounts of merger and acquisition activity over the past five years. However, the number of companies operating domestically has remained at two over this period. As a result, market share concentration has remained unchanged over the past five years.
For more information, visit IBISWorld’s Cigarette and Tobacco Product Manufacturing report in Australia industry page.
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IBISWorld industry Report Key Topics
Companies in the industry primarily manufacture tobacco products such as cigarettes, cigars, roll-your-own cigarettes and loose pipe tobacco. These products are sold to specialist tobacco wholesalers and retailers, supermarkets and convenience stores. Smokeless tobacco products such as chewing tobacco and snuff are banned in Australia and are therefore not included in the industry. Industry revenue does not include excise taxes.
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