September 09, 2014

Marlboro Maker Faces Difficulties with Taxes on Its Best Selling Cigarettes

Cigarette smoking is decreasing in Western countries, and unfortunately no one can do something about it.  Of specific worry to Philip Morris International (PMI) is the sudden drop-off in tobacco volume in the European Union, where the company gains about 31% of its operating revenue.

Slow-moving economic expansion and higher joblessness are speeding up European consumers' travel from cigarettes into other smoking products. This has caused a crazy hasten by Philip Morris, British American Tobacco (BAT), Imperial Tobacco, and Japan Tobacco to hook as much priced out consumers as it can be. As reported by an industry financed research, European Union cigarette sales decreased from 793.7 billion sticks in 2000 to about 608.8 billion sticks in 2010, a 23% decline within 10 years. Excise taxes, from time to time going above 60% of the price of a cigarette and a poor economy pushed smokers into other tobacco categories.

The categories that have gained probably the most are roll-your-own and cigarillos. The distinction in price may be enormous. For instance, the tax on a carton of Marlboro cigarettes is greater than that of the roll-your-own.

Roll-your-own, volume boosted 42% between 2000 and 2010, practically twice the percentage decrease in cigarette volume. Cigarillo volume rose by around 3.3 billion units, or 72%. The amount of the profits in these groups is not going to constitute for the 185 billion stick drop-off in cigarette volume, nevertheless it helps to reduce the fall for cigarette manufacturers set to reap the benefits of it. Although Philip Morris preserves a major share of the tobacco market, its volume in the European Union dropped by around 6.5% in 2013. Regrettably, the company is behind its European competitors in all groups that take advantage from decreasing cigarette volume.

The major cigarette makers, among which are Philip Morris, British American Tobacco, Imperial Tobacco, and Japan Tobacco constituted 90% of the European Union market in 2010, higher from about 60% in 2000 as a result of industry merging. At the same time, while its three competitors ravened smaller sized cigarette makers, Philip Morris kept out of the European consolidation madness. This could possibly affect the share of the groups nowadays gaining from significantly better pricing in comparison with cigarettes.

Philip Morris' position in the fast-growing RYO and cigarillo markets is a short-term issue. Despite the fact Imperial Tobacco gains simply because it is the market leader, the advancement in these groups will never compensate the drop in cigarette volume. Finally, cigarette makers should look for a new growing category or deal with a long term fall. Philip Morris is having difficulties in the European Union. Considerable taxes, rigorous regulation, and fragile consumer trust have wrecked the managing environment.

By Lora Dowson, Staff Writer
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