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IMPERIAL TOBACCO LTD. - CAJWA
REVIEW OF T14E COMPEDTIVE ENVIRONMENT
TOTAL INDUSTRY PERFORMANCE
The Canadian Industry continues to evolve as smokers seek lower cost alternatives
to heavily taxed cornestic .atior-mace procucts. The result is a decline in the
contribution of domestic .sHor- made to the total tobacco industry. Currently,
domestic tailor-made now represent's 64% of the C7, MC reported Industry, a
decline ir. contribution of over seventeen percentage points since the beginning of
high taxation In 1 SSI.
The primary beneficiary of tno decline in do-mesft tailor-made has been the DFX
tailor-made industry. Litt by strong growt*i in smuggling, the DFX tailor-made
category now represents 22% of the total CTMC industry.
The increasingly wide accessibility of the smuggled tailor-made to Canadian
smokers is providing little ;ncentive for thenn. to adopt RYO alternatives as a means
za reduce cost. The resuit is that ,he camribution of total fine-cut to the total
industry has stabilized at 15% after several years of growth.
Total Industry Volume
As the Canadian industry continues to evolve, Its total volume in July (represented
within the CTMC Industry) on a three monin basis now stands at 13.1 billion
cigarettes. This represents a decline of 5.0% versus the same period lost year.
On a twelve month basis, total CTMC volume as of July is 50.5 billion cigarettes,
a decline of 4.7% versus July of 1992. This decline in CTMC volume 13 In fact
larger then that of trie total industry as a wnoie as non CTMC member producers
have increasingly capturec volume. The gornpiete Industry as of July is $4.3
billion cigarettes on a twelve monim Deals, a decline of approximately 3.0 % from
the previous year.
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IMPERTAT, TOBACcal L-LD. - CANADA
Outside the CTMC, srnali entreoreneurs have CapiIaliZed on increased cemana r
To
low cost alternatives. In Quebec, the sale of unprocessed raw leaf tobacco at
significantly lower prices by small em re allowed this category to grow to
900 min cigarettes in 1992; however, recent changes by the Quezec government
to increase the a L.: on raw leaf have haltea this growth of this product. For their
part, native indlans have captured approximately .2% ol the marke: using their tax
exempt status to sell black market imitations of major Canadian brands. As a
result outside the CTMC, member companies now represent approximately 94% of
total industry volume.
r-OMPEnTOR PERFORMANCE
Through a strategy of maintaining relevant Trademarks to consumers, ITL is
currently entering all major price sensitive areas of the market. This strategy Is
aimed at reganng share lost to com;stitors who have capitalized on growing
consumer demand for low cost alternatives.
TOTAL TOBACCO INDUSTRY (CTMC)
12 MTHS 12 MTHS % Ch.
JULY 92 JULY 93
TOTAL VOLUME 50.5 bln 53.0 bin - 4.7
ITL SHARE 58.0% 55.3% - 0.7
RSH SHARE 28.1 % 25.2% - 0.9
RJR SHARE 17.9% 19.5% -6 1.6
While the twelve month tebl* above coos not indicate growth, growth can be seen
on a short term oasis. On a three months basis, ITL share of total tobacco (CTMC)
has grown from a level of 52.0% during July of 1992 to a level of 57.3% during
July of 1993. This recant growth has been fuelled by launch" of major
trademarks in low weight roll-your-own and increased distribution in the general
trading component of the DFX market.
RSH, through a strategy aimed directy at price sensitive consumers, has attempted
to stabilize their declining share through introduction of low weight fine-cut
products and heavy participation in general trading. However, both ITL's and
RJR's more recent entry into these markets with stronger trademarks is weakening
this strategy. On a throe month basis, RBH's share in July is 24.5%, down from
the level of 29.3% during July of 1992.
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RJR, whCS2 fortunes are linked to the Export trademark, remains relatively staole
at a snare of 18.2%. Much of their aCtivily has contred around continued
repositioning of the Export trademark, and aggressive participation in general
trading. T,e laner strategy has proven to be a greater success for RJR.
Domestic Tailor-Made
As a resu'- of continued growth In DFX tailor-made markets, the decline in the
comestic tailor-made industry continues to exceed the cocilne within the industry
as a whoia. As of july, the annual domestic tailor-made Industry now stands at
32.1 billicn eigarenes, a decflne of 1 1.7% from July of 1992.
Within the domestic-tailor made industry, ITL performance continues to improve at
the exper-se of the oher two CTIVIC CO M.
DOMESTIC TAILOR MADE INDUSTRY (CTMC)
12 MTHS 12 MTHS % Ch.
JULY 92 JULY 93
TOTAL VOLUME 36.4 bin 32.2 bin I 1.6
ITL SHARE 64.6% 67.5% + 2.9
R3.H SHARE 21.5% 20.4%
RJR SHARE 13.9% 12.1 %
Much of I -,L's success in this market has been the company's strategy of both
providing Canadian smokers with meaningful trademarks, and satisfying
demonstrated consumer neleds, Since its launch, Player's Light Smooth, by
addressing a demonstrated need for less irritating products has captured 2.1 % of
the domes:lc market: seventeen percent of this being new business to ITL.
In spite of package design changes and now price value Innovations, ITL's CTMC
compinftors have faiied to regain share last To ITL trademarks. RJR's sole major
trademark, Export, continues to decline in market share while RSH's recent
price/value introduction, Oxford, did not generate sales despite high awareness in
test markets where it was launched. Oxford offered consumers a reusable filtered
cigarette which could be rellt and smoked.
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QfX Tailor-Made
In response to the weak dornestic performance of the Export trademark, RJR has
ar,ernp,ed to capitalize on the tremendous growth in smuggling by making their
procucts fully available in general trading at highly compet-ftive prices. As shown
beicw, tna result has been a significant increase on a twelve rnonth basis In FUR's
snare of te fas: growing DFX Tailor Made market.
DFX TAILOR MADE INDUSTRY (CTMC)
12 MTHS 12 MTHS % Ch.
JULY 92 JULY 93
TOTAL VOLUME 7.9 bin 1 1.2 bin + 41.6
ITL SHARE. 43.3% 34.3% - 9.0
-@tlllri SHARE 36.2% 34.3% - 1.9
:@JR SHARE 20.5% 31.4% .;.. .9
10
ITL's perormence has been hindered by the March 1992 decision to restrain
shiornan-m to the general trading portion of the DFX market. However, since IT L's
dec-s@an to reenter this market in March of 1993, ITL's three Month share of the
DFX market has increased by over 10 share points to a July level of 43.9%, while
RSH. anc RJR's share have declined by 3.3 and 7.4 share points respectively. On a
three mnth basis, RJR's July share stands at 25.7% whi'19 RBH now is at 30.3%.
As a means to help supply general trading markets, RJR, since mid 1992, has been
manufacturing product in Puerto Rico. Although not reported within the CTMC
industry, consumer tracking studies estimate this volume represents approximately
600 rnin cigarettes per year.
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Domr.stic Floe - Cut
As irie legitimate domestic low cost alternative -'Or Canadian smokers, the
domestic firis-cu: market continues to experience an extensive arnount of
competitive activity. Through reduc-zion in the per-cigarette weight of fine-cut
tobacco, ail major Canadian compet.tori in 1993 now have their major trademarks
fully competing in priceivalue portion of the RYO market.
As shown below, both ITL has regained market share in I S93 from both RSH and
RJR. This is mainly due to the national launch of the Player's trademark In the low
weignt RYO category, ano ITL's initial dornination of the newly emerging bonus
category. Both pricalvatue RYO 001ions, comprise over 50% of total domeslic fine-
cut incusz:v volurne.
DOMESTIC FINE CUT INDUSTRY (CTMC)
12 MTHS 12 MTHS % Ch.
JULY 92 JULY 93
-TOTAL VOLUME 5.7 bin 4.7 bin 17.2
IT L S14ARE 40.5% 43.7% 3.2
R311 SWAM- 35.8% 33.6% 2.2
RJR StiARE 23.7% 22.7% 1.0
During June of 1993, RJR launched a bonus version of the Export trademark.
Through a product which offers 26% more cigarettes from a 2OOg %in of RYO
tobacco. RJR hopes to compete against ITL's highly successful Player's Light
Special Cut. Since its national introduction in November, Player's Ught Special cut
has camured 9.2% of The domestic fine cut market. Through off-pricing at the
time of launch in June, Export Extra has generated good levels of awareness and
trail among RYO smokers.
Activity on the part of both ITL and RJR in 1992 and 1993 has been aimed at
ending R84's dominance of the low weight RYO category. In response. R&H has
re-launcried their Superon product to mow be the lowest oriced fine-cut product on
the marks,.. Although performing well, Much of the generated business has been a
cannibarization of the Suceroll I version. The total RBH Superoll family currently
holds 29.5% Of the dOM110C fine cuz.rnarkst.
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IMPERIAL TOBACCO LTD. CANADA
DFX Fint;0
Wi-n :he full availability of competitive priced DFX tailor-made available in
smuggiat Channels, DFX fine-cut has not experiences the same stellar growt.-i as
its miior made counterpart.
DFX FINE CUT INDUSTRY (CTMQ
12 MTHS 12 MTHS % Ch.
JULY 92 JULY 93
TOTAL VOLUME 2.2 bin 1.9 bin 15.4
ITL SHARE 19.6% 17.9% 1.7
FqB'H SHARE. I 51 % 16.2% + 1.1
RJR SHARE 65.3% 65.9% + 0.6
As sr%owr above, continued full distribution and competitive pricing, has allowed
RJR's domination ofthe DFX fine-cut Markel to continue in 1993.
However. in spite of tracitional weakness in OFX flne-cut, 17L's December
agreement witn Philip Morris to distribute the Player's trademark in the United
States combined with we company's commitment to full distribution In general
tracing is fa0itatinG growth in ITL's share. As a of luly, ITL's three month share
is 26.1 %, an increase of over twelve share points since March of :his year.
SUMMARY
In summary, the desire of Canadian consumers to seek low cost tobacco product's
cominues during 1993. Much of the competitor activity during that some period
has focused on sa-isfying the demand for reasonably priced tobacco products. The
entry of relevant trademarks into lower Priced categories have allowed those
companies who posses -..,%am to regain share lost to ilia original pioneem of t1he
categories who have less relevant trademark&. With this in mind, competlTive
activities will continue ,o be closely monitored to see if this trend continues ir.:O
the future.
September 3, 1993
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BAT Industries document for Province of British Columbia 23 April 1999