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Tuesday, February 21, 2023 10:23:07 PM
The COVID-19 pandemic has had a significant effect on the consumption of tobacco. Smoking is perceived to be extremely deadly, as COVID-19 is a respiratory disease, and smoking only aggravates the situation. However, trends across the globe revealed that lockdown-induced stress only led to increased consumption. The addition of new smokers remained relatively low during this period. However, the industry is expected to benefit from the consumers who resorted to excessive smoking during the pandemic, as it is expected to have cultivated a new habit among them.
The addition of a new range of tobacco products shows a moderate increase in both the number of individuals who smoke and the percentage of people who try the new products. The use of intriguing advertising strategies has produced considerable results and has proven to be a means of remaining competitive and sustaining market dominance. For instance, specific products are promoted and advertised more intensely to specific demographic or racial groups.
According to the Centre for Disease Control and Prevention (CDC) estimates, companies such as Marlboro, Newport, and Camel, whose marketing campaigns specifically targeted the youth, were the highest marketing spenders. This led to them being the most preferred brand by the youths. Most people have seen tobacco as a significant part of their life over the previous decade. This factor is expected to drive the overall product demand in the forthcoming years.
The companies are spending huge on marketing campaigns to offset the negative impacts faced by the tobacco industry due to increased health consciousness among consumers. According to the CDC data, in 2019, USD 8.9 billion was spent by large companies on marketing smokeless tobacco and cigarettes in the U.S. This amount breaks down to USD 22.5 million per day or almost USD 1 million per hour. The companies have spent extensively on discounts, thereby increasing their market penetration and sustaining growth.
Tobacco consumption has been on the decline in developed and wealthy countries across the globe, due to the higher level of awareness among the population regarding the ill effects of its consumption. To maintain demand in such countries, the companies are introducing new products that are significantly less harmful than conventional products. The market has witnessed the introduction of new nicotine products and this category has been dubbed as new, alternative, or novel tobacco. These items are now referred to as Next-generation Products (NGP) by the tobacco control community.
Major companies have diversified their strategies to develop NGPs. Phillip Morris International, for instance, has carried out several investments in heated tobacco products. The company is strongly focused on delivering smoke-free heated tobacco products, as it envisions this category to be a game-changer in the industry. The IQOS technology is an integral part of Philip Morris's efforts to disrupt itself and become a smoke-free company by 2025. The product already accounted for 23.8% of the company's revenue in 2020. IQOS is a line of heated products developed as part of its "heat-not-burn" promotion. According to IQOS's 2020 Annual Report, the company has 17.6 million users, with 12.7 million of them switching to IQOS and quitting smoking.
Product Insights
Cigarettes captured the majority share of the market in 2021, accounting for nearly 86% of the overall revenue. Cigarette consumption has remained stable due to the introduction of flavored, and menthol cigarettes. It can also be attributed to the availability of small cigarettes that facilitate smaller amounts of tobacco consumption for smokers who wish to cut down on their smoking habit. Cigarettes have an inelastic demand, which is a major factor that has driven market growth despite the heavy taxation that has been levied across the globe.
The rising popularity of partying and pub culture among millennials and working-class communities has especially fueled the demand for flavored and unflavored cigarettes around the world in recent years. Furthermore, emerging economies such as India and Thailand are seeing a significant increase in cigarette demand as a result of rising youth populations in these countries. According to the Global Adult Tobacco Survey carried out in 2017, India had the second largest number of smokers in the world with 267 million tobacco users.
The tobacco market is expected to benefit greatly from the launch of next-generation products, which is expected to become the fastest-growing segment. Major companies are investing heavily in the development of NGPs as they see this category as severely overpowering other products in the market. For instance, Japan Tobacco Inc. launched its Ploom X next-generation heated device in August 2021. Ploom X is the JT Group’s next-generation device for heated tobacco sticks. It is also equipped with Bluetooth functionalities that connect with the user's smartphone, enabling them to check the battery status, lock & unlock the device, and such other functions.
Distribution Channel Insights
The offline channel led the market and accounted for the largest market share of more than 89% in 2021. It is projected to continue leading the market during the forecast period. The segment includes all retail outlets such as hypermarkets, supermarkets, convenience stores, and departmental stores. Consumers prefer these stores as they offer considerable discounts. Location proximity of these stores facilitates immediate demand fulfillment for tobacco consumption, which is also expected to drive the growth of the segment.
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