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CONFII)ENTIAL Marketing Research Report March 31, 1983 INCIDENCE AND RATE REPORT YEAR 1982 DISTRIBUTION: Mr. Mr. Ms. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Ms. Mr. Mr. MDIC L. E. E. J. J. A. J. R. G. R. W. L. P. W. S. K. C. _W. J. N. R. L. R. R. C. J. A. W. B. E. R. W. L. M. Hall, Jr. Fackelman Monahan Moore Gemma Cox Hribar Nordine Totterdale Davis Do.t en Smith ~ Galyan Eddins\_ Teague Verner Faino BY: Clayton C. Chinn PUBLISHED BY THE MARKETING DEVELOPMENT DEPARTMENT R.J. REYNOLDS TOBACCO COMPANY, WINSTON-SALEM, N.C. 27102 iJRT Form 6752 - 7/80

INCIDENCE & RATE REPORT ~ YEAR 1982 SUMMARY This reports the incidence and rate of cigarette smoking among adults (18+) during 1982, based on monthly telephone interviews conducted nationally by M/A/R/C. Results are shown on a quarterly and total year basis. INCIDENCE AND NUMBER OF SMOKERS Total adul-t smoking incidence declined 1.3 percentage points to 31.1% in 1982. Key factors in the overall incidence decline were: • Male incidence continued declining at about the same rate as it did in 1981, dropping 1.9 percentage points to 33.9% in 1982. The decline was caused by the 18-24 and 25-34 year old age groups. This suggests that continued growth of the Virile Segment will have to come from a combination of increasing usage and population growth among males under 35. • Total female incidence, in contrast, decreased by only .7 percentage points to 28.6% with the 18-24 age group having the largest decrease. • Incidence among younger adults continued to decline in 1982 -- down 2.3 percentage points to 29.4%, the largest reduction in incidence among the four age groups. The total number of adult smokers (52.7 million) fell by 1.3 million during the year, primarily due to the loss of male smokers under 35, and younger adult females. The total number of female smokers remained about even with 1981 at 25.3 million, and represents 48% of all smokers. RATE AND CONSUMPTION In 1982, the average adult smoker consumed 31.6 cigarettes per day -- up 0.7 cigarettes from the 1981 rate. The trend to a higher rate of smoking was found among both sexes and all age groups, with the exception of younger adults who remained about even with 1981. It is possible that the increase in usage is due to the less committed smokers dropping out as incidence declines -- leaving the heavy smokers. The increase in smoking rate was not enough, however, to offset the decline in incidence resulting in a 0.3% decline in consumption among total adult smokers. Total male consumption was down by 7.8 billion units, while total female consump- tion increased by 5.7 billion units. The increase in female consumption, while not enough to offset the male decline, holds promise for the continued growth of the predominately female Stylish Segment. Younger adult consumption was also down, and is unlikely to improve since the decrease in population is projected to accelerate for this group, while all other age categories will grow. This will probably have the most impact on the Virile, Coolness, and Stylish Segments.

INCIDENCE AND RATE REPORT YEAR 1982 CONTENTS PAGE METHODOLOGY & NOTES ON INTERPRETATION . . . . . . . . . . . . . . 1 TOTAL INCIDENCE, RATE, AND CONSUMPTION, 1965-1982 . . . . . . . . 2 INCIDENCE, RATE, AND CONSUMPTION BY SEX, 1965-1982 . . . . . . . 3 Male Incidence By Age, 1980-1982 (Graph) . . . . . . . . 4 Female Incidence By Age, 1980-1982 (Graph) . . . . . . . 4 INCIDENCE AND RATE BY AGE, 1980-1982 (SUMMARY) . . . . . . . . . 5 Incidence, Rate, and Consumption, 1965-1982, for: Ages 18-24 . . . . . . . . . . . . . Ages 25-34 . . . . . . . . . . . . . Ages 35-49 . . . . . . . . . . . . . Ages 50+ ... . . . . . . . . . . . . 6 7 8 9 INCIDENCE BY RJR SALES AREA, 1980-1982 . . . . . . . . . . . . . 10

METHODOLOGY AND NOTES ON INTERPRETATION OF DATA INCIDENCE: Smoking incidence figures for 1980-1982 are those reported in telephone interviews conducted by M/A/R/C Research among a national probability sample. Year 1980 is represented by data for only the first three quarters of the year; fourth quarter, 1980 figures are not available. HEW survey findings for 1965, 1970, and 1975 are presented for historical reference, but may not be strictly comparable due to differences in interviewing methods. Fourth quarter 1979 is shown for reference in the graphs, but since data for the rest of the year is unavailable, 1979 is not displayed in the tables. NUMBER OF ADULT SMOKERS are estimated using reported incidence (above) and Census Bureau population projections made in 1982. RATE: Smokers tend to under-report the number of cigarettes they smoke per day. Therefore, the rate figures in this report have been adjusted to reflect the total annual adult consumption of cigarettes, but retain the relative differences between rates which were reported for each age/sex subgroup. Rate Per Day = Annual Adult Consum tion Number o_ Smokers x 365 Days ANNUAL CONSUMPTION: Estimated annual adult consumption differs from the industry shipment total due to changes in wholesale/retail inventories and consumption by non-adults. *Please note that figures in this report may differ slightly from the 1981 Incidence and Rate Report due to the use of later government estimates of population. N O ..t CCC/dd 1° 01 3.14 - 1 - vCz 0 oD

INCIDENCE AND RATE OF SMOKING BY ADULTS (18 and 01der) HEW FINDINGS M/A/R/C FINDINGS 1965 1970 1975 1980 1981 1982 INCIDENCE OF SMOKING (% Pop. 18+) 42.6% 36.2% 33.9% , 33.1% 32.4% 31.1% Number of Smokers (MM) 53.0 49.0 50.4 54.3, 54.0 52.7 Populat ion 18+ (MM) 124.6 135.3 148.8 164.0 166.6 169.3 RATE (Cig ts. per smoker per day) 25.6 27.7 31.1 30.4 30.9 31.6 Annual (Bill Adult Consumption ions) 495.7 495.5 572.5 601.9 609.4 607.3 Annual (Bill Industry Shipments ions) 508.9 508.7 590.3 616.9 626.5 622.3 QUARTF.RLY INCIDENCE Ah10PaG ADt.LTS N -~ E 32 ~ E (. : : ) 30 ' , IV 19?9 I I , 1960 I KEY POINTS 1981 I II III IV 1982 • Total adult smoking incidence declined 1.3 percentage points to 31.1% in 1982. • In 1982, the average adult smoker consumed 31.6 cigarettes per day, a con- tinuation of the long term rise in usage. • The estimated total number of adult smokers fell to 52.7 million, a year-to-year loss of 1.3 million smokers. • Despite the long term rise in daily usage, total adult consumption declined by 0.3% due to the offsetting effect of lower incidence. The interaction and direction of incidence and rate will become even more critical to the industry in 1983 as the full impact of the FET increase takes place. CCC/dd 3.14 - 2 -

INCIDENCE AND RATE OF SMOKING BY SEX (Among Adults 18 and Older) HEW FINDINGS M/A/R/C FINDINGS 196&_ 1970 1975 1980 1981 1982 INCIDENCE ( % of Pop.) Males 51.4% 42.1% 38.9% 37.1% 35.8% 33.9% Females 34.3% 30.77: 29.2% 29.5% 29.3% 28.6% NO. OF SMOK ERS (MM) Males 30.9 27.3 27.7 29.0 28.5 27.4 Females 22.1 21.7 22.7 25.3 25.5 25.3 % OF SMOK ERS Males 58.3% 55.7% 54.9% 53.5% 52.8% 52.0% Females 41.7% 44.3% 45.1% 46.5% 47.2% 48.0% RATE (Cigts . per Day) Males 27.8 29.9 33.3 33.2 33.7 34.2 Females 22.6 25.0 28.5 27.2 27.9 28.7 ANNUAL CONS UMPTION Males 313.3 297.9 336.7 351.4 350.2 342.4 (Billions o f Cigts.) Females 182.4 197.6 235.8 250.5 259.2 264.9 % ADULT C ONSUMPTION Males 63.2% 60.1% 58.8% 58.4% 57.5% 56.4% Females 36.8% 39.9% 41.2% 41.6% 42.5% 43.6% QLPFTERL.Y INCIDENCE BY Mle I 39 ] N L I 35 D E N E 27 IV T 19?9 I ,- -~ , 1960 I I ~-~ 1981 KEY POINTS r I II III IV 1962 • Male incidence continued declining at about the same rate as it did in 1981, dropping 1.9 percentage points to 33.9% in 1982. A small .5 increase in rate per day was not enough to offset this drop in incidence, and as a result, consumption for males declined by 7.8 billion units. • Female incidence, in contrast, decreased by only .7 percentage points to 28.6%, and when combined with a .8 increase in rate, resulted in an increase in female consumption of 5.7 billion units. Although this increase was not enough to offset the decline in male consumption, the trend in female incidence and rate holds promise for the continued growth of the predominately female Stylish Segment. • Age detail by sex is graphed on the following page. CCC/dd 3.14 MALE TOTAL m v v 0 - 3 -

MAI.E INCIDENCE B'7' AGE (,XjARTF.1Fi.Y ) k., I N I , ~ D E 48 '~ N ~ E , f.%1 307 , T II III I'~ I , 1979 1960 r T r r II III IV I II III IV 1981 FE71R-E INCIDETiEF BY AGE (Q-9ARTE:::LY ) N ril , , , , T I r T TOTi-k- f TOTAL i Iv I II III Iv I II III Iv I II III Iv 1979 1960 1981 KEY POINTS 198c 1982 • Of significant note is the decline in male incidence caused by the 18-24 and 25-34 year old age groups. This means that continued growth of the Virile Segment will have to come from a combination of increasing usage and growth among males under 35. • The 1982 decrease in incidence among 35-49 year old females helped contribute ~ to a 1.0 share point decline in the Concerned Segment for 1982. ° m CCC/dd a' 3.14 ~ 40 - 4 - -A

SUMMARY OF INCIDENCE AND RATE OF SMOKING BY AGE INCIDENCE RATE OF SMOKING % OF POPULATION (CIGTS. PER DAY) AGE 1980 1981 •1982 1980 1981 1982 18-24 32.7% 31.7% 29.4% 25.8% 26.5% 26.4% 25-34 36.6% 36.4% 34.6% 30.0% 30.8% 31.1% - - - _~ 35-49 40.0% 38.7% 37.4% 33.7% 34.0% 34.7% 50+ 26.7% 26.2% 25.6% 30,5% 31.0% 32.0% QLVWTEJ:;t_Y INCIDE7NCE BY AUE I N C 40 J I . D E y N ~-~ C E , 35-49 25-34 58+ 20 IV I II III IV I II IIZ IV I II IIS IV 19?9 1968 1981 1982 KEY POINTS • Incidence was lower in 1982 than 1981 for all age groups. • Rate per day increased for all age groups except the 18-24 year olds which remained about the same. CCC/dd 3.14 5

INCIDENCE AND RATE OF SMOKING AMONG AGES 18-24 HEW FINDINGS M/A/R/C FINDINGS 1965 1970 1975 1980 1981 1982 INCIDENCE OF SMOKING (% Of Pop.) 47.2% 38.6% 36.0% 32.7% 31.7% 29.4% NUMBER OF SMOKERS (MM) 9.6 9.5 10.1 9.9 9.6 8.9 % OF SMOKERS 18.0% 19.5% 20.0% 18.3% 17.9% 16.9% RATE (Cigts. per Day) 20.7 22.8 25.6 25.8 26.5 26.4 ANNUAL CONSUMPTION (Billions) 72.4 79.3 94.1 93.2 93.2 86.1 % ADULT CONSUMPTION 14.6% 16.0% 16.4% 15.5% 15.3% 14.2% QUARTERLY INCIDE'NCE AM0PIG AGES 18-24 N 30 ~ E N (;:) 27 ' Iv 1979 T I 1960 T I KEY POINTS 19®1 I ~ T __-T , I 19e2 • Incidence among younger adults continued to decline in 1981 -- down 2.3 percentage points to 29.4%. • This decline in incidence, along with a drop in population, and leveling of usage, resulted in younger adults having the largest reduction in consumption among the four age groups. • The younger adult contribution to total consumption is unlikely to improve since population is projected to decrease at an increasing rate for this group, while all other age categories will grow. This will have the most impact on the Virile, Coolness, and Stylish Segments. CCC/dd 3.14 - 6 -

INCIDENCE AND RATE OF SMOKING AMONG AGES 25-34 HEW FINDINGS M/A/R/C FINDINGS 1965 1970 1975 1980 1981 1982 INCIDENCE (% Pop.) 51.2% 43.5% 39.7% 36.6% 36.4% 34.6% NUMBER OF SMOKERS (MM) 11.5 11.0 12.5 13.8 14.2 13.7 % ADULT SMOKERS 21.7% 22.5% 24.8% 25.4% 26.3% 26.0% RATE (Cigt. per Day) 24.1 27.1 31.5 30.0 30.8 31.1 ANNUAL CONSUMPTION (Billions) 101.0 108.8 143.9 151.1 159.2 155.2 % ADULT CONSUMPTION 20.4% 22.0% 25.1% * 25.1% 26.1% 25.5% OllARTERLY INCIDENa RMONG AGE5 25-34 I 39 ] IV 19T9 1 I ~ 1960 I I KEY POINTS 1981 I 1982 . Incidence for the 25-34 age group dropped 1.8 percentage points to 34.6%, while usage rose slightly to 31.1 cigarettes per day. IY • This is the first reporting period for which the 25-34 age group has decreased in importance relative to both percentage of smokers (26.0%) and percent of total adult consumption (25.5%). This comes about partially as a result of the fastest growing population group shifting from 25-34 to 35-49 in 1982.

INCIDENCE AND RATE OF SMOKING AMONG AGES 35-49 ~ HEW FINDINGS M/A/R/C FINDINGS 1965 1970 1975 1980 1981 1982 INCIDENCE (% Pop.) 49.5% 43.5% 41.6% 40.0% 38.7% 37.4% NUMBER OF SMOKERS (MM) 17.7 15.4 14.4 14.8 14.5 14.7 % OF ADULT SMOKERS 33.4% 31.4% 28.6% 27.2% 26.9% 27.8% RATE (Cigt. per Day) 29.3 31.2 34.7 33.7 34.0 34.7 ANNUAL CONSUMPTION (Billions) 189.4 175.1 182.3 181.6 180.0 185.8 % ADULT CONSUMPTION 38.2% 35.3% 31.8% 30.2% 29.5% 30.6% QIJAR'TERLY INCIDETICF Ah10NG AGES 35-49 1979 1960 KEY POINTS 1981 1982 • Smokers 35-49 are still more important than any other age group in terms of annual consumption, by a slimm margin over the 50+ group. • Incidence declined to 37.4% in 1982, but is still higher than in any other age group. • Rate per day is higher than any other age group. CCC/dd 3.14 - 8 -

INCIDENCE AND RATE AMONG AGES 50+ ` HEW FINDINGS M/A/R/C FINDINGS 1965 1970 1975 1980 1981 1982 -INCIDENCE (% Pop.) 30.9% 26.1% 24.5% 26.7% 26.2% 25.6% NUMBER OF SMOKERS (MM) 14.2 13.0 13.4 15.8 15.6 15.4 % OF ADULT SMOKERS 26.8% 26.6% 26.6% 29.1% 28.9% 29.3% RATE (Cigt. per Day) 25.6 27.8 31.1 30.5 31.0 32.0 ANNUAL CONSUMPTION (Billions) 132.9 132.3 152.2 176.0 177.0 180.2 % ADULT CONSUMPTION 26.8% 26.7% 26.6% 29.2% 29.1% 29.7% OIJARTEF3.Y INCIDENCE AMCW3 AGES 50+ 1979 1968 1981 1982 KEY POINTS • Although 50+ incidence is lowest of all age groups, the large population of older Americans gives this group the largest number of smokers. • A gain in usage of one cigarette per day contributed to an increase in total consumption among smokers 50+. The group's consumption (29.7% of total) is second largest among age groups, falling slightly below the 35-49 group (30.6% of total). ~ 0 ~ ~ rn co _j ~ CCC/dd v+ 3.14 9

INCIDENCE BY RJR SALES AREA NORTH ATLANTIC SOUTH ATLANTIC NORTH CENTRAL MID CONTINENT PACIFIC/MOUNTAIN TOTAL U.S. ci) 30 I INCIDENCE (% POP.) INDEXED TO U.S. AVERAGE 1980 1981 1982 1980 1981 1982 34.2% 33.8% 32.5% 103 34.7% 33.4% 31.8% 105 34.5% 33.9% 32.1% 104 32.3% 31.8% 30.5% 98 31.2% 29.3% 29.0% 94 33.1% 32.4% 31.1% 100 GUARTE"RLY INCIDETICE IN R,TR SALM *EA6 1980 II I KEY POINTS III IV 1981 I II III IV • Incidence declined in every Sales Area between 1981 and 1982. The falloff was most pronounced in the North Central, and South Atlantic Areas. CCC/dd 3.14 - 10 -