Demand for cigarettes in Australia has declined over the past five years due to increasing health concerns, anti-smoking campaigns, increasing regulations and higher excise taxes, according to the updated industry report from Australian research company IBISWorld.
Recent regulatory restrictions include the plain packaging law introduced in December 2012. According to IBISWorld, plain packaging is expected to have a negative effect on the industry, with leading revenue expected to decline by 4.4% to $1.8 billion for the period 2013-2014.
A recent study conducted on the effects of plain packaging found that the policy is associated with lower smoking appeal, more support for the plan and more urgency to quit among adult smokers. Those who smoked plain packs in the study perceived their cigarettes to be of lower quality compared to those who smoked branded packs. They also tended to perceive their cigarettes as less satisfying and were more likely to have thought about quitting at least once a day in the past week.
Aside from the plain packaging law, the various state bans on indoor smoking and the state retail display bans are also part of the regulatory restrictions that have an effect on the cigarette and tobacco manufacturing industry in Australia.
The 25% increase on excise tax implemented by the Federal Government in April 2010 has driven the prices of tobacco up in the past two years. The demand for the industry’s products is considered relatively price inelastic according to IBISWorld. However due to the increases in excise taxes and prices, lower demand for cigarette and tobacco products is expected.
On the other hand, the consumer shift to unpackaged tobacco, which costs less to manufacture, has resulted to increased profit margins over the past five years.
“Producers have been able to benefit from consumers choosing to move from purchasing high price cigarettes to unpackaged tobacco, which is used with roll-your-own cigarettes,” said IBISWorld industry analyst Craig Shulman.
Competition remains fierce despite the fact that there are only two companies manufacturing tobacco products in Australia—British American Tobacco Australia (BATA) and Philip Morris.
The premium cigarette segment has also suffered during the past five years as rising prices pushed customers to switch to brands that fall into the mainstream category. Premium cigarettes such as Benson and Hedges which is manufactured by BATA, and Marlboro which is manufactured by Philip Morris are examples of the affected brands.
The IBISWorld industry forecast for the tobacco industry shows that while the size of the market will become smaller due to the decline in the national smoking rate, higher prices are expected to offset this. The trend of unpackaged tobacco is also expected to continue.
Click here for more information on IBISWorld’s Cigarette and Tobacco Product Manufacturing report.