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Cigarette makers launch smaller price packs to

revive market

ET Bureau Oct 18, 2013 4:00 am IST

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KOLKATA: Top cigarette makers ITC and Godfrey Phillips have taken a leaf out of colagiants and FMCG firms' book by launching smaller price packs to revive the market aftervolume sales fell more than 3% during April-September due to a sharp spurt in prices.

rette makers launch smaller price packs to revive m... http://retail.economictimes.indiatimes.com/news/pe

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ITC, which has more than 70% market share in the around Rs 35,000-crore Indiancigarette market, has launched shorter-stick variants of its popular brands such as GoldFlake and Navy Cut nationally, over the last six months after test-marketing suchproducts in select states. The company has launched variants in both the sub-65 mmlength, which attracts lower taxes, as well as 69 mm sticks, as compared to the usual74-84 mm length.

Godfrey Phillips, maker of brands such as Four Square and Red & White, too is taking asimilar route as cigarette sales have stated falling volumes. Cigarette prices have goneup by up to 30% in the last six months due to increase in taxes.

While ITC and Godfrey Phillips do not comment on their cigarette business, fourresearch analysts tracking the sector said smaller size cigarettes are gaining fastacceptance in several markets.

"Consumers are down trading to the smaller size stick packs aided by the launch ofnewer variants under the popular brand names," Nitin Mathur, consumer research

analyst at Espirito Santo Securities, said. "These packs would play a significant role inensuring volume growth for the cigarette companies impacted due to the massive pricerise," he said.

Another factor pushing sales of small size cigarettes is the ban imposed on gutkha salesin 26 states and seven union territories. A recent survey by Edelweiss reveals thatalmost 38% of gutkha users have shifted to the consumption of cigarettes.

The sub-65 mm length of filtercigarettes became a new categorylast year when the Union budgetoffered tax benefits, mainly to curbthe growth of illegal cigarettes thataccounts for almost 18% of thesales.

A senior analyst with a leadingfinancial services firm, whorequested anonymity due tobusiness relationship with ITC, saidit's a healthy strategy to focus onthe smaller size packs because the

gross margins are almost same ascompared to the usual cigarettelength packs.

Market share of the regular size filter category, or cigarettes of 74-84 mm length,declined to 77% last fiscal from 82%, mainly due to the introduction of smallercigarettes and premiumisation of the category. This year, analysts estimate, sub-65 mmlength cigarettes can account for almost 10% of the market. Last fiscal, the Indiancigarette market declined by around 2% in volume sales due to 12-15% increase inprices with several states like UP and Rajasthan increasing VAT on cigarettes.


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The Union budget this year further increased the excise duty on cigarettes by 18%,while some states like West Bengal and Assam increased VAT on cigarettes. This led toincrease in cigarette prices in two phases: once in April and subsequently in September.

As per a research report by HDFC Securities, ITC's cigarette sales volume declined by3% in the first quarter of this fiscal year. Despite the new variants, analysts expect

companies like ITC to report similar volume decline in the second quarter as well.

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cigarette makers launch smaller price packs to revive ma

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