51493269SO SECRETARIAL- D71 222 5175:9 2
SENT OVIMPERIAL TOBACCO '.TO 9:21
Cc-)
1992 COMP3TtTjV% REPORT CXWA
FROM: X.T.L. . CANADA
TO: T.S.G.
rMmT 19, 1993
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51493'26990
SENT 8 TOSA= '-7D. Z-19-93 SECRETARIAL- 071 222 8179;9 3
1 991 was a hectic year for the Canadian Tobacco Industry. The proliferaVon c
low Weight fine cut products-, the intmduc@on and subsequent suspension of a 6
on tobacco exports; Increased black market activity; the emergence of urnicre".
producers offering a wide variety of low cost alternatives, the establishment ot1raw
leaf as a real threat to the fine cut business In Quebec and the denial of the 81 C-
51 (advertising ban) appeal all combined to further pressure an Increasingly
dynamic Industry.
Total Tobacco
These pressures notwithstanding, the total tobacco Industry continues
the some trends that we have seen throughout the recent post. Total tobacc6l
volume in 1992 was 54.4 billion cigarettes which represents a decline of 2.7*
from the adjusted 1991 level of 55.9 billion. This level of decline is consistent
with that seen over the last 10 years. During this period, the average rate of 1 1
decline has been about 3% annually. Also, during this period the levels of I 9
incidence and daily usage have exhibited consistent and very law levels of doo
1992 saw the market continue to splinter. Now categories emerged and
importance of some existing categories shifted significantly . In Quebec, a
cut market has been severely affected by the development of raw leaf as 9
tow priced alternative. In 1992. the raw leaf volume In Quebec was estimat to
be 900 million cigarettes (10% of total fine cut sold In Canada). In 1993, tl
option Is expected to be even more successful. representing 1.1 billl
equivalents.
On the tailor made side of the equation, cigarettes produced by RJR 0
and exported Illegally to Canada also appeared In 1992. In volume t
estimate that about 800 million of these cigarettes 0.3% of total to
made their way Into the Canadian market. -We expect this volume to expand lb
1993 to 900 million or 2.1 % of total tailor mods.
In addition to the" new entrants, the market was further complicated In 199R by
the growth of the black market cigarette trade. While 1991 did see activity lo this
arena, It exploded In 1992 after the export tax was rescinded. We estimate hat
5.1 billion cigarettes made their way Illegally to consumers In 1992 which I I
re presents I 1. 5 % of total TM sales. This looks to Increase In 1993 to S. 3 Won
cigarettes or 14.9% of total tailor made volume.
In shere terms, ITL finished the year with 52.2% of the total tobacco market i
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To summarize in term of total tailor made then, IM ended the year down 2.5
points versus I 99 I at 58.0%. This decline results from losses in Duty Free/Export
which were not fully compensated by our growth In domestic. RBH an the other I
hand grow as a result of Duty Free/Export sales which more than compensated fd@
their domestic declines. ROM ended the year at 23.8% of total tailor made, up i I
from 21.6% In 1.991. RJR's share performance followed the same pattern as oung,
however their losses were not as large because of their participation In the black
market. in total tailor made terms, 1992 saw RJR down 1.4 points from 1991,
finishing the year at 14.7%.
Competitively, the domestic tailor made market In 1992 proved to be quite
dynamic. The Importance of relevant trademarks was Illustrated clearly as M's
share grow a full 4.3 points In a single year. While we were successfully able to
maintain our position as Industry leader by offering the right products to the
consumer, the competition continued to suffsr. RJR, In spite of attempts to
revitalize their Export trademark. lost significant ground, failing 3.0 points from
their 1991 year and share of 12.13%. ROM hold to its long term trend of decline,
falling 1.3 points to end the year down at 20.8%.
Looking at brand activities occurring in the tailor made market. 1992 saw the
successful launch of rTL's now Player's Light Smooth. The brand curromly hT
2.8% share of total market (3 months December) vwsus a forecast of 1.3%.
level of sales Is being reflected In all region& and It looks like the brands share wit
stabilize well above the 2% level.
Additional brand activity In 1992 saw RJR re-position Its Export trademark.
Through a major packaging revision and new advertising materials, they tried to
move the trademark away from its traditional position of being strong, very
masculine and harsh or IrrfteUng. This attempt to bring the trademark closer to
more main stream positioning does not appear to have been successful as it
continued to lose share domestically throughout 1992. Rather then helping to
revive the trademark. It does In fact appear that the re-positioning exorcise has
alienated some of the franchise.
Roll-Your-Own
1992 saw intense, price driven activity in the RYO market In Canada. Throug
ho4
1991, RBH had a monopoly on the low weight (135 g) fine cut market: 1992 saw
competitive entries in this market from both ITL and RJR. As competition heated I
up, a second generation of low weight offerings emerged at I log. in total, 19921
raw 4.5% of the total tobacco market made up of low weight offerings. This Is up
from the 1991 level of 3.1 % and accounts for the lions share of the decline in
traditional fine cut. This decline, from 7.7% of total tobacco in 1991 to 6.0% Ini
1992 is also a result of the development of a growing market for raw leaf tobacco
in Cusbec. Ln
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SE,NT 3w,:PPERIAL TOBACCO L70 2-19-93 ; 9:2L SECRETARIAL- 071 222 8179;8 7
To Summarize
As a result of their strong presence In black market activities. R8H performed well
in 1992. Their duty free/export performance offset losses In the domestic mrkk
helping strengthen their overall position In 1992. Given the Irmlevome of RSHt
trademarks, their trump card has historically been price. This strength carried thm
through 1992. but as they face now competition In this arena their position Wilt
become Increasingly tenuous. This represents a potential threat that we will
continue to monitor carefully.
RJR continues to perform as It has historically, maintaining a consistent share
total tobacco throughout 1991-1992. Their woosMonino activities do not appear
to have- been successful in revitalizing the Export trademark. however, they still!
represent a threat which we will continue to watch.
BATCo document for Province of British Columbia 23 April 1999