THE GLOBAL CIGARETTE INDUSTRY

1 THE GLOBAL CIGARETTE INDUSTRY . About 80% of the world's smokers live in low- and middle-income countries, and the tobacco INDUSTRY is increasingly targeting these emerging ,2 If current consumption trends continue, approximately one billion people will die from tobacco use during the twenty-first The GLOBAL CIGARETTE INDUSTRY is one of the most Globally, CIGARETTE consumption is growing in low- profitable and deadly industries in the world. and middle-income countries and decreasing in high-income countries. CIGARETTE retail values in 2018 were worth US$ Sales are shifting from developed markets, like those in Western In 2018, over trillion cigarettes were sold to more than one Europe, where smoking prevalence is declining and where tobacco billion smokers ,4.

2 Company operations are more restricted by government policies, Between 2004 and 2018, GLOBAL CIGARETTE volume sales to emerging markets, like those in Asia and Africa, where tobacco decreased by while real retail values increased by companies take full advantage of lax regulatory environments, INDUSTRY analysts predict that by 2023 the GLOBAL CIGARETTE growing populations and increasing volume will decline by , and real value will decline by Between 2005 and 2018, CIGARETTE sales in the Asia Pacific and Middle East and Africa regions have increased while all other regions have experienced declining sales (Figure 2).

3 3. Figure 1. GLOBAL CIGARETTE MARKET: HISTORIC RETAIL VOLUME Figure 2. GLOBAL CIGARETTE MARKET BY REGION. AND CURRENT VALUE (2004-2018). Western Europe Western Europe 9%. CURRENT RETAIL VALUE (MILLION USD). RETAIL VOLUME (MILLION STICKS). 12% North America North America 5%. 8% Middle East and Africa Middle East 9%. and Africa Asia Pacific Latin America Asia Pacific 7% 55% 3% 64%. Latin America 5% Eastern Europe 10%. Eastern Europe 13% Australasia Australasia 0%. 0%. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2005 2018. YEAR. Source: Euromonitor International, 2019 Source: Euromonitor International, 2019.

4 TRANSNATIONAL TOBACCO COMPANIES. While CIGARETTE sales are expanding to new markets, INDUSTRY market shares are consolidating, and the market is increasingly controlled by a few international companies. In 2001, a little more than 43% of GLOBAL market sales were controlled by the five leading transnational tobacco companies (T T C ).6 By 2017, of the market was controlled by T T C Over the last decade, the international CIGARETTE market has been dominated by five companies: China National Tobacco Corporation, Philip Morris International, British American Tobacco, Japan Tobacco Inc.

5 And Imperial Tobacco (Figure 3).3. China National Tobacco Corporation (C N T C ) is owned and Figure 3. TOBACCO COMPANY SHARES OF GLOBAL CIGARETTE operated by the Chinese government and is the world's single largest MARKET, BY RETAIL VOLUME 2018. producer of cigarettes with of the GLOBAL C N T C sells the majority of its product in China; around 1% of cigarettes produced Other 18% are exported to other C N T C is increasing efforts to sell heritage brands such as R D G , Dubliss and Harmony CNTC Imperial 44% JT. Philip Morris International (P M I ) is a publicly traded American company with headquarters in Lausanne, Switzerland.

6 P M I controls BAT. 12% an estimated of the international CIGARETTE Since PMI separating from its parent company, Altria, in 2008, P M I only sells its 14%. tobacco products outside of the United States. The company operates Source: Euromonitor International, 2019. in more than 180 markets and sells 6 of the top 15 brands, including Campaign for Tobacco-Free Kids December 2019. THE GLOBAL CIGARETTE INDUSTRY . Marlboro, the world's top selling P M I experienced declining parent company to Japan Tobacco International (J T I ), which is CIGARETTE volume sales in all regions except Western Europe between headquartered in Geneva, Switzerland.

7 International tobacco sales 2017 The company continues to focus on expanding sale of account for more than 60% of J T 's operating With products its heated tobacco product, IQOS, with key markets of Japan, South available in 130 countries, J T is the fourth largest tobacco company Korea, and in the world, and controls of the GLOBAL CIGARETTE ,11 The Japanese government holds of J T 's issued Top British American Tobacco (B AT ) is a publicly traded company brands include Winston, Camel, Liggett Ducat (LD), and Mevius based in London. B AT operates in over 200 markets, is the third (formerly Mild Seven).

8 3 J T I continues to expand its presence in largest company in the GLOBAL tobacco market, and controls emerging markets: it acquired companies in Russia and Bangladesh of the international CIGARETTE ,10 Top selling brands include in 2018, following 2017 acquisitions in the Philippines, Indonesia, Pall Mall, Rothmans, Kent, Dunhill, and Lucky Strike, and these five and ,11. brands account for over half of all BAT CIGARETTE sales. Acquisition Imperial Tobacco Group is a British company. It is the fifth largest of Reynolds American, Bulgartabac, and other tobacco companies company participating in the GLOBAL tobacco market and controls in 2017 contributed to increases in the company's overall CIGARETTE of the international CIGARETTE Imperial operates in more volume and revenue in 2018.

9 However, volumes declined in many than 160 markets, and key growth markets for cigarettes are Italy, key markets in 2018, such as Brazil and Russia, Japan, Taiwan, and Saudi Top brands include West, Japan Tobacco, Inc. (J T ) is headquartered in Tokyo and the Davidoff, John Player Special, and LARGEST CIGARETTE MARKETS: TOBACCO INDUSTRY TARGETS. The five largest CIGARETTE consuming nations China, Indonesia, CIGARETTE volume sales in 2012, the GLOBAL CIGARETTE market volume Russia, and Japan account for of the volume of all has decreased by , but it declined by more ( ) when cigarettes sold in 2018 (Figure 4).

10 3 excluding China's retail In Russia, CIGARETTE sales by volume has declined by Figure 4. TOP 10 CIGARETTE MARKETS BY VOLUME between 2013 and Over the same time period, real retail values increased by to US$ billion. Between 2017 and COUNTRY RETAIL VOLUME, 2018 (BN STICKS). 2018 alone, retail volume fell by , while real value of sales fell China 2, With a market share, J T is the market leader in Indonesia* Russia, but P M I , B AT and Imperial also have a USA Russia The Indonesia CIGARETTE market is unique because sales are Japan dominated by kreteks (cigarettes made with a blend of tobacco and Turkey cloves).