April 14, 2014

Philip Morris is Facing Challenges in the European Union

Cigarette smoking is on decrease in Western countries, and there is absolutely nothing cigarette makers can do about it. Of special matter to Philip Morris International (PMI) is the abrupt drop-off in cigarette volume in the European Union, where the company gains about 31% of its operating revenue.

Gradual economic increase and large unemployment are speeding up European consumers' journey from cigarettes into other smoking products. This has produced a crazy hurry by Philip Morris, British American Tobacco, Imperial Tobacco, and Japan Tobacco to catch as many priced-out customers as possible. As outlined by an industry sponsored research, European Union cigarette sales dropped from about 793.7 billion sticks in 2000 to 608.8 billion sticks in 2010, a 23% decrease within ten years. Excise taxes, in some cases going above 60% of the cost of a cigarette and a poor economy forced cigarette users into other categories.

The categories that have gained essentially the most were roll-your-own and cigarillos. The distinction in price might be substantial; the tax on a carton of the best selling Marlboro cigarettes is a lot more than five times that of the roll-your-own, also known as fine cut variety.

Roll-your-own (RYO) volume boosted 42% between 2000 and 2010, practically double the percentage fall in cigarette volume. Cigarillo volume raised by 72%, in the decade.
The amount of the profits in these categories do affects the company's financial stability.  PMI could be the biggest non-government cigarette company on the globe; however that barely ensures its achievements in each market. Even though it preserves a top share of the cigarette market, its volume in the European Union dropped by about 6.5% in 2013. Sadly, the company falls behind its European competitors in each of the categories that take advantage of decreasing cigarette volume.

The giant European cigarette manufacturers like Philip Morris, British American Tobacco, Imperial Tobacco, and Japan Tobacco gained about 90% of the European Union market in 2010, more from 60% in 2000 because of the industry consolidation. Even so, while its three competitors ravened the smaller tobacco makers, Philip Morris remained out of the European consolidation mania. This might have harmed its share of the categories currently profiting from better pricing in comparison with cigarettes. For example, Philip Morris preserves less than 5% share of the RYO market, behind Imperial Tobacco and British American Tobacco. Moreover it follows Imperial Tobacco in cigar and cigarillo market share.

By Lora Dowson, Staff Writer
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