Thursday, August 28, 2003

Industry brief: Cigarettes The tobacco industry is on the rebound. The threat of lawsuits has waned for now; smoking while declining is still big business, and international sales of U.S. brands keeps going up. And limitations on marketing channels ahs solidified the position of the top four companies, keeping any newcomers from getting a toehold. In the U.S., tobacco is a very tight oligopoly. The top two firms, Philip Morris (now part of Altria) and R.J. Reynolds own 72% of the market. Add the next two companies, Loews-owned Lorillard (organized under the corporate name, the Carolina Group) and British American Tobacco (a division of Brown & Williamson), and you get over 90% of the market. The Herfindahl index is a very high, over 3,100. Market share,  U.S. cigarettes 2002 Company U.S. Brands Market share Philip Morris (Altria) Marlboro, Basic, Virginia Slims, Benson & Hedges (in U.S.), Merit, Parliament, Alpine, Cambridge, Bristol, Bucks, Commander, English Ovals, Saratoga, Superslims 49.4% R. J. Reynolds Camel, Doral, Winston, Salem, Vantage, More, Now, Century, Ritz, Monarch, Magna, Sterling 22.9% BAT/Brown & Williamson GPC, Kool, Viceroy, Raleigh, Barclay, Belair, Capri, Richland, Pall Mall, Lucky Strike 10.0% Lorrillard (Loews) Newport, Kent, True, Old Gold, Max, Style, Satin, Triumph, Montclair, Malibu, Riviera, Crowns, Special 10's, Bull Durham 8.2% Liggett & Myers L & M, Lark, Chesterfield, Eve, Pyramid 2.3% Other Peter Stuyvesant, Rothman's, Dunhill, Best Value, USA Gold, CT, Durant, Palace, Magic, First Class, Cabin, etc. 7.2% Source: IRI Capstone One brand dominates over all others - Marlboro, a billion dollar brand worldwide, owns around 39% of the U.S. market single-handedly. Of course, there are a number of Marlboro brand styles including Lights, Ultra Lights, Mediums, Menthol, and Menthol Lights. And while there are over 60 brands sold in the U.S., the top ten brands, all from the big four companies, make up 79% of the market. Discount cigarettes (like Basic and GPC) are growing, but they still own only a small portion of the market, in spite of high taxes that make the premium brands even more expensive. In any case, the leasers cover themselves by offering both premium and discount brands, effectively minimizing outside competition. The big news for the embattled industry came when earlier this year, an appeals court overturned a $145 billion dollar class-action lawsuit in Florida. The appeals court went further in denying the validity of any class action smoking suit. Some think that the worst is behind the tobacco companies, and that the almost endless liability risks have been softened somewhat. Tobacco has been a pariah industry for the past decade, but it's not dead yet, and its high concentration of financial power is likely to keep it safe. After all, in a time of declining state revenues, tobacco taxes are one of the most reliable sources of government income. Top 10 U.S. brands 2002 Brand Company Market share, 2001 1. Marlboro Philip Morris 38.8% 2. Newport Lorillard 7.8% 3. Doral R.J. Reynolds 5.8% 4. Camel R.J. Reynolds 5.6% 5. Basic Philip Morris 5.0% 6. Winston R.J. Reynolds 4.8% 7. GPC BAT/Brown & Williamson 3.2% 8. Kool BAT/Brown & Williamson 2.8% 9. Salem R.J. Reynolds 2.6% 10. Virginia Slims Philip Morris 2.4% Source: AdAge 3:01:28 PM

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