UK Cigarettes and Tobacco Market – An Oligopoly of Addiction

The cigarette and tobacco market is split into four main sections: cigarettes, hand-rolling tobacco (HRT), cigars and pipe tobacco. Currently this market contributes 1.7% of all consumer expenditure which currently is around £1.1 trillion a year and increasing. In 2014 the UK cigarettes and tobacco market was worth £19.18bn: cigarettes took a dominant standing with a worth of £16,427bn, HRT has increased in popularity over recent years and is currently worth £2,527bn, cigars and pipe tobacco on the other hand have continued to decline with a worth of 213bn for cigars and 13bn for pipe tobacco.

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The UK cigarettes and tobacco market is shrinking in size and has been doing so for some time. Due to external pressures, competitors within this market have had to raise prices and invest in new smoking products in order to remain competitive. The UK cigarettes and tobacco market is heavily effected by political factors, this is due to the high concern that the government has concerning the dangers of smoking. In order to combat smoking the government implemented a tobacco control plan which was designed to reduce all aspects of smoking including: consumption, promotion, affordability and exposure, it was also designed to help smokers to quit. In 2014 smoking cost the NHS around £2bn and so the Chancellor of the Exchequer discussed a tobacco levy, this aimed to increase the taxes on tobacco companies to increase their contribution to the economy in order to recover their damages.

For a long time now retail costs have been rising and tax on tobacco products have increased dramatically. On the 1st of January 2005 a pack of 20 cigarettes would cost on average £4.83 RRP, of this charge £3.77 was tax. As of the 1st of January 2014 the average cost of a pack of 20 cigarettes was £8.23 RRP, £6.26 of this charge was tax; this meant that tax typically accounted for 75.9% of the RRP of cigarettes. In the 2013/2014 fiscal period the UK cigarettes and tobacco market contributed approximately £12.3bn into the UK economy as a result of tax. There have also been talks of a minimum excise tax (MET) for lower brands as they have found large success in recent years when people were unable to afford the high priced tobacco brands. The aim of MET is to make cheaper brands less affordable in an attempt to further reduces the amount of people who would be willing to pay for high cigarette prices, currently there are 24 of 27 EU countries that have implemented MET.

One of the largest concerns when it comes to the UK cigarette and tobacco market is underage smoking, according to a national statistics report 22% of children aged 11-15 have tried smoking at least once with 57% say that a friend gave them the cigarette; this report also showed that on average an underage smoker consumes 31.1 cigarettes every week. Smoking also causes a large amount of health issues, it is estimated that 17% of all deaths aged 35 and over in the UK are caused in some way by smoking. To counteract this the government runs services and social events to help those who do smoke to quit, between April 2013 and March 2014 the NHS Stop Smoking Services help 300,539 successfully quit. Alongside this every October an event is held known as “28-day Stoptober” where people attempt not to smoke for that month, this is a smart and affective method as it gives people the motivation to quit and it has been shown that people are 5 times more likely to give up during this month than any other.

no-smoking-sign-k-2685As the awareness about smoking increases the UK cigarette and tobacco market had to respond and did so with two main methods: Reduced risk cigarettes and E-cigarettes. The reduced risk cigarette was designed for smokers who enjoy the taste of tobacco, it is an alternative healthier option to a cigarette which heats tobacco up and produces a tobacco flavoured vapour. The reduce risk cigarette does however still use real tobacco which is heated by a carbon cigarette tip, this carbon tip is designed to produce the vapour without any of the other harmful chemicals which are released when burning tobacco rather than heating it. E-cigarettes were a whole different game however as they do not contain tobacco but instead contain a flavoured liquid, because of this e-cigarettes are not subject to the same regulations as cigarettes or tobacco. This has caused a lot of uncertainty around the potential health effects, there are tests and the product is being monitored as the long term effects are unknown. There is also talk around legislation for flavourings and advertisement of this product, currently the main concern is to ban under 18 year olds from purchasing these products; since it is still a product that requires the action of smoking it is believed that it could encourage younger people to smoke later on in life.

The UK cigarette and tobacco market has many environmental issues attached to it from farming, to smoking, to disposal. According to a WHO study around 200,000 hectares of forest and woodland is destroyed each year because of tobacco farming, combine this with the 2.6 billion kilograms of carbon dioxide and 5.2 billion kilograms of methane that are pumped into the atmosphere every year as a direct cause of smoking and the environmental effects are gigantic for this single market. Many other countries have taken action in order to cut this down however, in the People’s Republic of China they have started reducing emissions produced from the cigarette manufacturing process in an attempt to better the environment. In Costa Rica they have classed cigarette butts as special waste, this means that they must be disposed of in a certain way, this prevents their country from being littered with cigarette butts like many other countries including England.

The UK cigarettes and tobacco market is under strict UK law which is aimed to discourage people from smoking and encourage people to give up. The most significant and impacting law was enforced in 2007, this law banned smoking in enclosed space and was enforced across the whole of the UK. This law shook up the UK public and was the beginning to a nationwide anti-smoking campaign: soon after the UK raised the legal limit to buy tobacco to 18, in 2008 the European Commission enforced printed warnings on all tobacco products, later in 2011 tobacco became illegal to sell out of a vending machine and in 2012 tobacco displays were banned from large stores. These legislations brought a lot of unwanted attention to the UK cigarettes and tobacco market, people started to open their eyes and the realisation of just how harmful smoking can be was brought to light. An industry that was built on sophistication and the hazy perception of being “cool” suddenly had a negative image that people did not want to be associated with.

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However despite the best efforts of the government and outside organisations, the lucrative nature of the UK cigarettes and tobacco market is that they sell a very addictive substance which allows them to capture and keep their market. This means that regardless what the increase of price for this product, the demand will fall at a radically decreased rate to the increase in prices. The pressure that is being placed on tobacco companies have allowed the prevalence of counterfeit products, these products are available across the country and are far less expensive the regular cigarettes. The downside to counterfeit cigarettes is that they are far more dangerous to the consumer’s health, The Guardian (2014) stated “Efforts to reduce smoking and improve health are being hampered by the black market trade of millions of illegal cigarettes filled with human excrement, dead flies, rat droppings, mould and asbestos”.

At the end of 2013 the three largest companies were Imperial Tobacco Group PLC, British American Tobacco PLC and Gallaher Ltd. Combined these three businesses had a turnover of £48.326bn; this lead them to a total profit before tax of £7.218bn. Within the UK the cigarette and tobacco market is dominated by this oligopoly, new entrants to the market are mostly companies capitalising off the newer lower risk alternative to smoking.

The cigarette and tobacco market is one that is heavily regulated and holds strong social opinions. Even with a large fall in the consumption of tobacco products, it is a closed market with a heavily demanded set of goods. Be it tobacco, alcohol or anything else, it is in human nature to feed addictions; until an alternative that almost replicates the smoking process perfectly comes across this market will continue to grow and make a profit.

References

GOV.UK (2014) Available at: https://www.gov.uk/

Key Note (2015) Cigarettes and Tobacco: Market Update 2015. London: Key Note Limited

The guardian (2014) New Effort to Stop Fake Cigarettes Filled with Excrement, Mould and Asbestos. Available at: http://www.theguardian.com/society/2014/aug/23/councils-crack-down-fake-cigarettes-excrement-mould-asbestos (Accessed: 25 January 2016).

WHO IRIS (2014) Framework Convention on Tobacco Control – Global Progress Report 2014. Word Health Organisation

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