Tobacco Documents Online

Canada Market Structure Cigarette tobacco comprises by far the largest segment, with 90.9% of vohume in 1993, up from 90.4% in 1988. The sector's share was as high as 95.5% of volume in 1990, although lower demand caused by smuggling and development of expanded products in recent years has seen its share fall back since 1990. Pipe tobacco accoun~ for just 3.9% of the market in 1993, little changed since 1988. Smokeless tobacco has tended to lose out to smoking tobacco since 1988, although sales axe estimated to have remained relatively flat since 1991 while smoking tobacco sales have fallen. Consumption of Smoking & Smokeless Tobacco by Type, 1988-1993 Tonnes 1988 1989 1990 1991 1992 1993 Ctgarecr, e Tobacco 8,027 7,749 6,658 6,360 6,593 5,026 Pipe Tobacco 345 320 290 270 244 216 Toutl Smoking Tobacco 8,372 8,069 6,948 6,630 6,837 5,242 Smoketess Tobacco 506 410 330 280 275 285 TOTAL 8,8"/"7 8,479 7,278 6.910 7,112 5,527 % Breakdown C~aretm Tobacco 90.4 91.4 95.5 92.0 92.7 90.9 Pipe Tobacco 3.9 3.8 4.0 3.9 3,4 3.9 ToCa] Smoking Tobacco 94.3 95,2 95.5 95.9 96.1 94.8 ......................... .. ............................................................. Smokeless Tobacco 5.2 4.8 4.5 4.1 3.9 5.2 TOTAL 100.0 100.0 i00.0 100.0 100.0 100.0 Source: CTMC, Statistics Canada, ERC. Smoking Tobacco Consumption of smoking tobacco fell by 37.4% between 1988 and 1993 to reach 5,242 tonnes, equivalent to 230 grammes per adult. Much of the decrease is attributable to long term decline in the pipe-tobacco market caused by a falling consumer base, with cigarette sales holding up relatively wetl in spite of the development of contraband sales. More recentJy, falls in volume in cigarette tobacco consumption reflect the development of lower priced expanded tobacco products which offer the consumer a lower weight product (for tax purposes) which makes the same amount of dgarettes as a higher weight regular fine- cut tobacco. cZ) CD r,o ¢ 1994 ERC Stall-tics luterDatiou~ plc - 5 - Cue Tobacco/94 O" ,.0 ,.D BATCo document for PFSFC 1 March 1999

Canada Market Structure Consumption of Smoking Tobacco, 1988-1993 Index Per Capita Tonnes 1988 • 100.0 Grammesu~ 1988 8,372 100.0 419 1989 8,069 96.4 397 1990 6,948 83.0 334 1991 6,630 79.2 308 1992 6,837 81.7 308 1993 5,2A2 62.6 230 SotLt'ce: Note: CMTC, Sr~=istics Canada. ~t, Adult popular.ion. Cigarette tobacco rerneins the dominant product in the market wit]: 95.9% of sales in 1993, unchanged on 1988. However, ac:ual consumption of cigarette tobacco is fax higher given the existence of a large smuggled ~obacco sec',or and the burgeoning presence of expanded Rne-cut tobacco with products sold weighing only 55% of the regular fine-cue tobacco although sufficient to make the same number of cigaxettes. As such, pipe tobacco's actual share is lower than the 4.1% listed in official 1993 data in terms of acZtml product consumption. 4 Consumption of Smoking Tobacco by Type, 1988-1993 Tonnes 1988 1989 1990 1991 1992 1993 Cigaxetr~ Tobacco 8.027 7,749 6,658 6,360 6,593 5,026 Pipe Tobacco 345 320 290 2;'0 244 216 TOTAL 8,372 8,069 6,948 6,630 6,837 5,242 % Breakdown Cigaxe~te Tobacco 95.9 96.0 95.8 95.9 96.4 95.9 Pipe Tobacco 4.1 4.0 4.2 4.1 3.6 4.1 TOTAL 100.O i00.0 I00,0 100.O I00.0 100,0 Source: ERC based on CTMC, Statistics Canada. O G r~ @ 1994 ERC Stat~t~¢= Internat~onaJ pie - 6 - Cut Toba~ CT~ ".0 r'~ C BATCo document for PFSFC 1 March 1999

Canada Market Structure Actual consumption of cigaretue tobacco remains extremely hard to quantify in ~ew of the existence of a large smuggled ~obacco sector. Official figures put consumption of cigarette tobacco at 5,026 tonnes in 1993, some 37.4% below 1988 levels and equivalent to 220 grammes per adult. However, trade figures show that the USA, not renowned for its fondness of Canadian smoking tobacco, imported some 564 tonnes of smoking ~obacco from Canada in 1990, increasing to 2,386 tonnes in 1991 and 2,449 tonnes in 1992. It is likely that over 80% of r2tis trade comes back across the border illegally for consumption by Canadians; cigarette tobacco comprises a marginal segment of the total US tobacco market, and is currently exempt from du~ at national level with some relauvely low taxes leaded at federal level. It is unlikely that this tobacco is consumed by US citizens (USDA adjusts its consumpuon ~n£res for smoking tobacco down to reflect; smuggled re-exporus to Canada), and the produCe presents the smuggler with an opporZun/ty to make subsrmntial rettu-ns, even higher than those for cigarettes. Consequently, il" it is assumed that a further 2,000 tonnes plus of cigarette tobacco (illicit trade in pipe tobacco is marginal) is sold illegally in Canada, actual consumption could be as high as 8,500 tonnes in 1992, ahead on 1988 levels, and equivalent to over 380g per capka. Consumption of Cigarette Tobacco, 1988-1993 Index Per Capita Tonnes 1988 ,, 100.0 GrammescD 1988 8,027 100.0 401 1989 7,749 96.5 382 1990 6,658 82.9 320 1991 6,360 79.2 296 1992 6,593 82.1 297 1993 5,026 62.6 220 Source: CTMC, ERC. Note: (x) Adult population. Moreover, within ",.he official cigarette tobacco market, expanded produC:s - tobacco produced by an extension process which increases volume of the product without effecting its weight - are gaining ground, with sources indicating these products accounted for around 50% of total sales by mid-1993. Pioneered by RJR Macdonald, expanded fine-cut tobacco is usually sold in kit form with a typical kit of 110g - taxed by weight - sufficient to produce 200 cigarettes, as opposed to 200g of fine-cut. These pmducUs have cut inr~ both sales of regular fine-cut and tobacco sticks - make-your-own cigarette tobacco kits. With expanded producus accounting for around 50% of sales, kits with sticks (usually taxed at a higher level) have seen sales suagnau~ at around 20% of volume, with fine-cut regular products holding the remaining 30% of sales. O ¢ 1994 ERC Staclabcs laternaHoa,n.l pic - 7 - Cut To baccx#94 0 ~0 BATCo document for PFSFC 1 March 1999

Canada Market Structure A fu.~her phenomenon of no~e is l~gh usage of raw or u.uprocessed tobacco leaf sold in hand format, main]y in Quebec Tax on the product was low as it was considered to be unmanafa~ured, and 2O-5g bags retailed at a fraction of~e cost of fine-cut RYO ~obacco. Consumers would then put the tobacco in a food processor or blender, and use the tobacco in RYO cigarettes. In Quebec, the product accounted for up ~o 20% of r.he fine-cut market, however, since early 1993, the raw tobacco has been taxed as fine-cut and has all but disappeared from the market. The pipe tobacco segment remains small, with per capita adult consumption low at 9 grammes in 1993, and continues to decline in line with fELling numbers of pipe smokers. Consumption reached 216 tonnes in 1993, some 37.4% lower than in 1988, and is set to fall further, Consumption of Pipe Tobacco, 1988-1993 Index Per Capita Tonnes 1988 = 100.0 Grammes(u 1988 345 100.0 17 1989 320 92.8 16 1990 290 84.1 14 1991 270 78.3 13 1992 244 70.7 11 1993 216 62.6 9 Source: CTMC, ERC estimates. Note: o) Adult population. ( Smokeless Tobacco Official and industry figures for smokeless r~bacco consumption remain unavailable. This is essentially a result of a low level of consumption - an es-dmated 13 grammes per adult in 1993 and the high incidence of imported products on the market. Imports account for over 99.5% of consumption. Total consumption of smokeless tobacco is estimated at 285 toanes in 1993, 43.6% below 1988 levels. The market has held up well since 1991 following years of decline. CD 1994 ERC Sta~tics l,~,ternaCiou,s/ plc - 8 - Cut Teh-c~o~4 CD ?O ,.O BATCo document for PFSFC 1 March 1999

Canada Market Structure il) Consumption of Smokeless Tobacco, 1988-1993 Index Per Capita Tonnes 1988 - 100,0 Grammesa~ 1988 505 100.0 25 1989 410 81.2 20 1990 330 65.3 16 1991 0,,80 55.4 13 1992 275 54.5 12 1993 285 56.4 13 ERC estimates based on trade d~r.a, ~ade sources. ~ Adult population. An esd.,nated 90-95% of the market is taken up by chewing tobaccos and oral snu_~fs, mostly imported from the US. The remainder is accounted for by nasal snu/Ts. Q;I 0 0 ¢ 199,4 ERC b-"tatl~d" l~ter'~stJooal pie - 9 - Cut Tobacco~4 ,,,D Po BATCo document for PFSFC 1 March 1999

i ~n o G r~ 19o~4 ~ SIC41~tlc8 In~eruatiom~l plc - 10 - Cut Tobscco/94 BATCo document for PFSFC 1 March 1999

Canada Manufacturers & Brands Three Canadian co=~rns dominate the large cigarette tobacco market; Imperial, RJR Macdonald and Ror~.-nans, Benson & Hedges. These companies hold a monopoly on sales of domestic produc:s, although more recently imported cigarette tobaccos have gained ground, increasing share from 2% of the market in 1990 to just under 24% in 1993. However, much of :he increase in imported product market share is due to Canadian concerns sourcing br~.nds from subsidiaries outside Canada. Cigarette Tobacco: Imports v Domestic Products, 1992 & 1993 % Volume 1992 1993 Domest/c Brands 77.1 76.2 Imported Brands 22.9 23.8 TOTAL 100.0 100.0 Source: ERC based on trade sources. Within the domes~£c product sector, Imperial led the market by Some distance in "~he 1980s, losing share to ius ma/n competitor R./R Macdonald in 19@1 through RJR's success in the make-your-own cigarette market (tobacco sticks), a sector which was 1:hen expanding rapidly. Imperial has since regained the initiar.ive in the market through dominating the expa=ded tobacco sector with its market share conriuuing to rise through 1992 and 1993 ~o sm.ud at 43.8% in the year m May 1993. RJR Macdonald's share fell back to 34.4% from as high as 37.3% in 1991, while Rnr.hxnans, Benson & Hedges also suffered from the rapid development of Imperial's expanded tobacco, and took she remaining 21.8% of sales in 1993 (.year to May). RJR Macdonald pioneered the expanded r~bacco marke~. in 1991 wir.h Exporl Special Blend, with Imperial quickly developing me- too products sold u.uder its flagship Peter Jackson and Player's Light brands, quickly corrdng to domin~ :he sector. = is~4 v_Rc sm~,.~c, latem=~on-' pie - 11 - Cut Tobacco/94 0 0 I"0 0", ,43 U-I BATCo document for PFSFC 1 March 1999

Canada Manufacturers & Brands Manufacturer Shares in Cigarette Tobacco, 1989-1993 Tonnel 1989~ 1990~ 1991 1992~ 1993~4: Imperial 47.0 46.5 39.2 41.5 43.8 RJR Macdonald 30.0 26.8 37.3 36.0 34.4 Ror.hmans, Benson & Hedges 23.0 26.6 23.5 22.5 21.8 Other Brands 0.I - TOTAL I00.0 100.0 100.0 I00.0 100.0 Sottrce: No~e: NB: ERC based on trade sources. a: Year to July 1989. ~-) Year to March 1990. ~: Year to September 1992. ~'~ Year to May 1993. Excludes imported brands. ( The pipe tobacco sector continues to be dominated by imported product.s, holding just under 97% of sales in 1993. Main imported brands include Niemeyer's Clan, Amphora from Douwe Egberts Van Nelle, Mae Baren from Halberg of Denmark and Borkum Rift from Svenska Tobaks. Pipe Tobacco: Imports v Domestic Products, 1992 & 1993 % Volume 1992 1993 Imported Brands 97.1 96.8 Domestic Brands 2.9 3.2 TOTAL 100.0 100.0 Source: ERC based on trade sources. Imperiai's main smoking tobacco brands include Alouette, Cameo Menthol, Comfort, Embassy, Old Chum. Old PorL Old Virginia, Peter Jackson, Picobac, Player's, Sir Walter Raleigh, Sweet Caporol, Turret and Vogue. RJR Macdonald markets British Consuls, Daily Mail, Export, Macdonald's, Sail and Zig Zag smoldng tobaccos, while Ro~mans, Benson & Hedges markets Belvedere, Craven A and Mark Ten tobaccos. O c:) $1994 ERC Sta~is~ca Interua~ional plc - 12 - Cut Tobacco~4 CF', ',,D BATCo document for PFSFC 1 March 1999

Canada Manufacturers & Brands The smokeless ~obacco sec-~or is dominated by imported produc~s, mainly chewing tobaccos and oral snuffs manufactured i~ r.he US by Pi~ker~on, Conwood and US Tobacco. Imperial also manufacruyes small quantir.ies of smokeless tobacco, although holds only around 0.5% of the maxket. ¢ I~ ERC ~s~cs ]a~r~adoaa~ plc - 1~ * Cut Tobacco/~ 0 0 BATCo document for PFSFC 1 March 1999

O O r~ 1994 ERC ~,aClstics Int, erna~.on,a,/plc - 14 - Cur, Tol~,~mqN. BATCo document for PFSFC 1 March 1999