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Low-income consumers are trading up from hand-rolled bidis to cigarettes as incomes rise. Taxation and prices are rising rapidly, although prices remain low. Economy cigarettes are most dynamic due to attracting more low-income smokers, although average daily consumption is dropping due to higher tax. Women rarely smoke but may use chewing tobacco, where informal products are gaining share as taxes rise. Cigarettes will drive future growth, particularly as bidis see higher taxes and prices.
This report analyses the market for tobacco in Bangladesh. For the purposes of the study, the market has been defined as follows:
Cigars, Cigarillos and Smoking Tobacco
Smokeless Tobacco and Vapour Products
Explanations of terminology used in this report are as follows:
GBO refers to Global Brand Owner, which is the ultimate owner of a brand.
NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separate company.
Retail refers to sales of tobacco through retail outlets including supermarkets, hypermarkets, discounters, convenience stores, internet and other store and non-store channels, as well as sales of tobacco through bar-tobacconists and hotels/restaurants/bars.
Duty-paid retail sales are legitimate sales with tax applied to the final price.
Illicit trade refers to sales of duty-not-paid (or DNP) tobacco.
Market sizes are researched at category level, lower data levels are modelled.
Although cross-border and duty-free sales are considered legitimate, they are excluded from duty-paid sales.
Illicit trade (DNP) tobacco refers to contraband, counterfeit and unbranded tobacco, as well as illicit whites.
While many Muslims consider the use of tobacco to be haram under Islamic law, smoking is widespread in Bangladesh, particularly among men. Smoking prevalence rose during the review period due to rising disposable income levels and urbanisation, reaching an estimated 51% of adults aged over 15 years in 2016. Many view smoking cigarettes as a sign of status. Rising smoking prevalence is resulting in growing concern from society and the government, which is thus increasing tax levels. While the consumer base for tobacco is widening, many are thus reducing daily consumption as tax levels rise.
Cigarettes have the widest popularity, followed by Asian-style chewing tobacco and cigars. Cigarillos, smoking tobacco and vapour products are insignificant niches, although the latter is seeing strong growth from a low base. Vapour products benefit from a fashionable image, while seeing widening distribution in cities, mainly Dhaka, and thus attracting a growing number of young adults.
Men are considerably more likely to smoke cigarettes, with less than 2% of adult women believed to smoke at the end of the review period. However, women are more likely to consume smokeless tobacco, with an estimated 35% of over 15-year-old women using these products at the end of the review period. This share also rose during the review period. Smokeless tobacco has a strong tradition in the country, with variants including zarda and gul. Gul is a paste of tobacco powder, molasses and spices and is often used to clean the teeth or freshen the mouth. Zarda contains tobacco, lime, spices, colourants and areca nut. While offered in a packaged form, many producers and vendors operate informally, thus keeping prices low.
Many men are trading up from bidis to economy cigarettes, although bidis also remain widely popular and pose strong competition to cigarettes. These hand-rolled cigarettes are wrapped in leaves and see widespread production, with these excluded from the scope of this report. Taxation on bidis remains low, although it is rising rapidly, while minimum prices were introduced in 2017. Bidis are thus seeing their price advantage over cigarettes diminish, which will decrease these products' appeal.
There are strong anti-smoking groups in Bangladesh. These include the Anti-Tobacco Alliance, Tabinaj (Women's Alliance for Tobacco Control), government body National Tobacco Control Cell and non-profit organisation PROGGA. The National Tobacco Control Cell was brought under control of the Ministry of Health by an amendment to the Tobacco Control Law in 2015, with this amendment also mandating the government to formulate policies in order to discourage tobacco cultivation. Local organisations focused on health concerns also often lobby for stricter tobacco controls, such as Dhaka Heart Foundation, while international anti-tobacco groups have also focused on the country such as Campaign for Tobacco-Free Kids.
While most anti-tobacco groups are mainly focused on political lobbying, community-focused NGO UBINIG is also working with farmers and offering them support in replacing tobacco cultivation with other crops. This is reducing the area given over to tobacco cultivation in Bangladesh, forcing leading domestic producers such as British American Tobacco to shift to higher-yield variants as they seek to maintain supplies of low-cost domestic raw materials.
New product development is constrained by many smokers being highly loyal to their favourite brand and product. This is particularly true of smokers in their 40s and older, while university students and those aged 18-25-years tend to be more receptive to innovation. Many are more attracted by low prices than by innovations, which creates pricing pressure on players and further deters players from investing in new product development. While leading player British American Tobacco launches around four new products each year, these generally offer only slight changes to filters or packaging. Other players are considerably less active in new product development.
The most significant new product development in 2016 was British American Tobacco's launch of Derby Special in January. This economy cigarette directly sought to appeal to low-income workers loyal to Abul Khair Tobacco's Marise brand and focused distribution on regions where this brand is popular such as Sylhet, Brahmanbaria and Narsingdi. British American Tobacco promoted Derby Special by offering trade discounts and working with retailers, with outlets striving to convert two Marise customers to Derby Special in a month. This strategy proved very successful. British American Tobacco also launched Benson & Hedges Special Filter in premium cigarettes in March, offering an upgraded filter and pre-printed tips.
Tobacco is expected to see a much stronger value performance at constant 2016 prices in the forecast period, with 17% growth in comparison to the 2% decline seen during the review period. Growth will be driven by rising disposable income levels, with many smokers trading up from hand-rolled bidis as a result. Growth is also likely to be supported by the government imposing minimum prices and increasing taxation on bidis, with Finance Minister Abul Muhith stating in 2017 that he aimed for bidis to be eradicated in Bangladesh within two years. Growth will however also be due to further tax increases for cigarettes and an increase in legal minimum price levels.
Cigarettes will thus be by far the main growth driver in terms of value sales. Cigars are expected to see strong percentage growth, thanks to increasingly aspirational consumer attitudes, but will remain a niche that contributes little to overall sales growth. Asian-style chewing tobacco will see only sluggish growth, due to strong competition from informal producers. Vapour products could emerge in the forecast period, seeing soaring popularity from a low base among affluent young adults in major cities. However, demand is likely to remain limited to this group and vapour products are likely to remain a tiny niche.
Most consumers are in low-income groups, although economic growth is reducing poverty levels. 74% of consumers were below the international poverty line of USD2/day in 2016, down from a 77% share in 2011. There is a very large rural low-income group, with the rural population accounting for 65% of the total in 2016. Rural low-income consumers are more likely to opt for products excluded by the scope of this report, such as bidis (tobacco hand-rolled in leaves) or informally-produced smokeless tobacco. Low-income consumers in cities will use these products but are considerably more likely to buy cigarettes, although most opt for single stick purchases. Most low-income consumers can afford economy cigarettes due to taxation being based on price band and considerably lower for economy products. Higher taxation towards the end of the review period and the introduction of a higher minimum pack price resulted in many in this group slightly reducing the number of cigarettes smoked each day.
Mid- to high-income smokers are more likely to opt for mid-priced or premium cigarettes, with higher-priced brands such as Benson & Hedges and Marlboro often viewed as status symbols. Mid-priced brands are benefiting from an expanding mid-income group. Many mid-income smokers are also trading down from premium brands due to tax shifts, with premium and economy cigarettes seeing more marked tax increases in comparison to mid-priced variants during the review period.
Bangladesh has a very young population, with a median age of just 26 years in 2016, while the total population saw steady annual growth of around 1% over the review period. This demographic structure offers some advantages to tobacco, with those in their 20s generally being more open to innovation and interested in new products. However, these consumers are also more likely to face restricted budgets, with young adults often dependent on family allowances. Consequently, further tax increases could have a negative impact on demand among those in their 20s during the forecast period.
Tobacco has one of the most robust distribution networks within fast-moving consumer goods in Bangladesh, with domestically-produced goods widely available. An estimated 1.4 million outlets sell tobacco in the county, with around half of these closely managed by leading tobacco players British American Tobacco and Dhaka Tobacco Industries. According to British American Tobacco, the outlets that it manages are responsible for most of its revenue. Philip Morris benefits from using Dhaka Tobacco Industries to distribute its products in Bangladesh, with this considerably more effective and efficient in comparison to building up its own in-house distribution system.
The leading players continue to invest in improving logistical efficiency, with British American Tobacco and Dhaka Tobacco Industries investing in sales order automation and equipping representatives with smartphones to log outlet sales. British American Tobacco is also increasing the frequency of its representatives' visits to outlets from two to three times per week, with thrice-weekly visits to 70% of its outlets by early 2017. More frequent visits not only ensure stock is maintained but also enable better controls over illicit sales, with outlets caught selling such products facing the risk of having their contracts discontinued. The company is thus particularly focused on increasing visits in border regions and areas close to airports.
Independent small grocers remains the dominant distribution channel for cigarettes, accounting for close to 77% of retail volume in 2016. Street vendors and tobacco specialists are all also significant channels, with most vendors in all three distribution channels offering cigarettes by the stick. Cigarette vending was banned throughout the review period, with this ban introduced in 2005. Hotels/restaurants/bars are the dominant channel for cigars, cigarillos and smoking tobacco, with a 53% retail volume share, followed by bar-tobacconists. Cigars are often an impulse purchase for high-income men when out socialising, while cigarillos and smoking tobacco remain insignificant. Independent small grocers and street vendors are the main channels for smokeless tobacco, while vapour products are sold via a handful of specialist outlets in major cities. E-liquids are however increasingly offered by street vendors.
Illicit trade is not regarded as a major constraint in cigarettes, accounting for only around 3% of total sticks volumes at the end of the review period. Illicit volumes declined by 3% during the review period as a whole, due to stronger government border controls. However, there was an increase of 2% in 2016 over the previous year as smugglers and illicit producers sought to capitalise on higher taxation and increased prices for legal products.
Smuggling mainly impacts filtered cigarettes, with these smuggled from nearby countries with low tax rates such as Indonesia, the Philippines and Myanmar. Key smuggled brands include Dunhill, Djarum Black (Indonesian kretek cigarettes flavoured with cloves) and 555, with these lacking domestic production in Bangladesh. Smuggled cigarettes are generally priced at around half the level of legal packs but are typically more expensive in comparison to domestic economy cigarettes, which limits demand. Sales are mainly to mid- to high-income consumers with an established loyalty to specific brands. There is also a presence for illegally-produced domestic cigarettes, with British American Tobacco reporting that these account for around 90% of illicit volume. These products are sold at illegally low prices of BDT1.00-1.50/stick.
Illicit cigarettes are mainly sold via street vendors, with independent small grocers being reluctant to offer these products due to their strong relations with leading tobacco players. Street vendors in turn tend to buy illicit cigarettes from open markets. Chawk Bazar and New Market in Old Dhaka and Riazuddin Bazar in Chittagong are known to be significant hubs for illicit sales.
Cigarettes continue to account for the vast bulk of illicit tobacco, particularly in terms of smuggled products. Smokeless tobacco is also smuggled in small quantities, with pan masala and zarda mainly smuggled from India and Pakistan. Smokeless tobacco also sees widespread informal production, with many small-scale producers selling via local street vendors. Taxation collection rates are low for these products. Illicit sales also account for a significant share of cigar sales, although overall sales remain low for these products. The end of the review period also saw a rise in smuggling for e-liquids as vapour products continued to gain popularity, although volumes remain very low.
The minimum legal smoking age is set at 18 years, with no changes to this age limit towards the end of the review period. A 2013 amendment to the Tobacco Control Law however also banned sales to those below this age, with this coming into force in March 2015, while prohibiting those below this age from selling tobacco products.
Most do not start smoking until they have reached the legal smoking age, with most starting at around aged 19 years. Many do not start smoking until they reach their mid-20s, although the rate of underage smoking is increasing slightly in major cities.
There is no legal limit on tar levels and companies are not legally required to specify tar levels on packaging. From March 2015, the Tobacco Control Law banned the use of descriptors such as "light," "mild" and "low tar" however. The government did not announce plans to limit tar levels towards the end of the review period but such legislation is possible, given an increasing focus on reducing the negative health impact of smoking.
High tar cigarettes are most popular in Bangladesh and viewed as offering a richer flavour, with these accounting for 90-95% of volume sales. However, lower tar cigarettes gained share during the review period, while only being smoked by a small number of affluent urban consumers. Philip Morris is strong in lower tar cigarettes and mainly faces competition in this area from smuggled illicit cigarettes rather than other domestic producers.
Advertising for tobacco is restricted to trade marketing, with TV, cinema, print and radio advertising banned in 2005. From March 2015, the amendment to the Tobacco Control Law also banned point-of-sale advertising and restricted corporate social responsibility activities. This amendment also required anti-tobacco messages to be shown when tobacco use is featured in films. Companies thus mainly focus on close engagement with retailers, offering trade discounts and commission.
From 2007, a text warning covering 30% of the pack was made mandatory by the Tobacco Control Law. From March 2015, an amendment to this act made graphic warnings covering 50% of the pack mandatory and specified the wording of health warnings. For smoked tobacco, the four set warnings are "Smoking causes throat and lung cancer," "Smoking causes respiratory problems," "Smoking causes heart disease" and "Smoking causes harm to the foetus." For smokeless tobacco, the two set warnings are "Consumption of tobacco products causes mouth and throat cancer" and "Consumption of tobacco products causes harm to the foetus." The size of graphic health warnings on tobacco products is expected to increase further in the forecast period, with warnings covering 80% of the pack expected to become mandatory.
There is a longstanding public smoking ban in Bangladesh, with this introduced in 2005 and including schools, offices, hospitals and public transport. This ban was extended to restaurants and all indoor workplaces in the amendment to the Tobacco Control Law that came into force in March 2015, while the penalty for those caught flouting the ban was increased from BDT50 to BDT300 at this time. Many continue to smoke in enclosed public places however, with enforcement of this law remaining insufficient.
Taxation and duty levies
Tobacco taxation remains low in Bangladesh, resulting in very low prices. Taxation is also complex, being based on price band, with lower-priced cigarettes seeing considerably lower tax levels. Hand-rolled bidis see even lower taxation and did not carry minimum prices during the review period, with taxes based on a low set tariff value (TV) that is adjusted each year. This taxation system is designed to protect low-priced domestic brands and ensure affordability for the low-income smokers that consume these products.
The government is however keen to increase taxes, with Finance Minister Abul Muhith stating in 2016 that he wanted to move away from a system based on price band in order to make tobacco less affordable. This did not however happen in the 2016 or 2017 budgets. In the 2016 budget, the government removed the lowest price band from cigarettes and imposed a minimum price of BDT23/10-stick pack, with packs priced BDT23-44 seeing excise tax of 50%. Previously, packs were available for as little as BDT19, with these seeing just 48% excise tax. Some packs saw lower taxation as a result of this shift though, with packs priced at BDT20-39 facing a 60% excise duty in 2015. The 2016 budget did not increase minimum prices for mid-priced and premium cigarettes but did increase excise tax rates slightly to 64% and 62% of pack price. Excise tax also increased from 20% to 30% of tariff value on filtered bidis and 25% to 35% of tariff value on unfiltered bidis.
Smokeless tobacco saw a sharp increase in tax from 60% of ex-factory price to 100% in the 2016 budget, with this product seeing tax rates soar over the review period. Excise tax was set at just 10% at the start of 2011, rising to 20% in this year's budget and subsequently increasing rapidly. Higher taxation is however having little impact, due to the strength of the informal industry. Producers and vendors of smokeless tobacco tend to operate informally without paying taxes.
Taxes are set to rise further in the forecast period, with Finance Minister Muhith having the stated intention of eradicating bidis from the country. The June 2017 budget thus saw removal of the tariff value system for bidis, with the introduction of a BDT15 minimum price for a 25-stick pack of unfiltered bidis or 20-stick pack of filtered bidis. These moves did not however go unchallenged, with bidi factory workers protesting and demanding that no further tax increases be introduced.
The 2017 budget also imposed a sharp minimum price hike on cigarettes at BDT27/10-stick pack. The government is thus seeking to prevent sales of extremely low-priced tobacco products, with taxation likely to rise further on these products in the forecast period.
There is no excise tax on cigars, cigarillos and smoking tobacco, although these products, like all tobacco products, face VAT of 15% and import duty of 25%.
VAT will see the introduction of a consolidated rate in Bangladesh in July 2017, with this initially planned for July 2016 but delayed by implementation difficulties. Throughout the review period, a wide range of VAT rates were imposed on different products. However, VAT for tobacco products was already set at 15% during the review period, with this change thus set to have no impact on tobacco VAT levels in the forecast period.
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Chart 1 Tobacco in Bangladesh in 2016 Chart 2 Bangladesh Socioeconomic Trends
Taxation and duty levies
Summary 1 Taxation and Duty Levies 2011-2016
Table 1 Sales of Tobacco by Category: Volume 2011-2016 Table 2 Sales of Tobacco by Category: Value 2011-2016 Table 3 Sales of Tobacco by Category: % Volume Growth 2011-2016 Table 4 Sales of Tobacco by Category: % Value Growth 2011-2016 Table 5 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 6 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 7 Forecast Sales of Tobacco by Category: Value 2016-2021 Table 8 Forecast Sales of Tobacco by Category: % Volume Growth 2016-2021 Table 9 Forecast Sales of Tobacco by Category: % Value Growth 2016-2021
Chart 3 Cigarettes: Traditional Retailer
Table 10 Sales of Cigarettes: Volume 2011-2016 Table 11 Sales of Cigarettes by Category: Value 2011-2016 Table 12 Sales of Cigarettes: % Volume Growth 2011-2016 Table 13 Sales of Cigarettes by Category: % Value Growth 2011-2016 Table 14 Forecast Sales of Cigarettes: Volume 2016-2021 Table 15 Forecast Sales of Cigarettes by Category: Value 2016-2021 Table 16 Forecast Sales of Cigarettes: % Volume Growth 2016-2021 Table 17 Forecast Sales of Cigarettes by Category: % Value Growth 2016-2021 Table 18 NBO Company Shares of Cigarettes: % Volume 2012-2016 Table 19 LBN Brand Shares of Cigarettes: % Volume 2013-2016 Table 20 Sales of Cigarettes by Distribution Format: % Volume 2011-2016 Summary 2 Cigarettes Pricing
CIGARS, CIGARILLOS AND SMOKING TOBACCO
Table 21 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2011-2016 Table 22 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2011-2016 Table 23 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2011-2016 Table 24 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2011-2016 Table 25 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2016-2021 Table 26 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2016-2021 Table 27 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2016-2021 Table 28 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2016-2021 Table 29 NBO Company Shares of Cigars and Cigarillos: % Volume 2012-2016 Table 30 LBN Brand Shares of Cigars and Cigarillos: % Volume 2013-2016 Table 31 Distribution of Cigars and Cigarillos by Format: % Volume 2011-2016 Summary 3 Cigars, Cigarillos and Smoking Tobacco Pricing
SMOKELESS TOBACCO AND VAPOUR PRODUCTS
Chart 4 Vapour Products: Traditional Retailer Chart 5 Smokeless Tobacco: Traditional Retailer
Table 32 Sales of Smokeless Tobacco by Category: Volume 2011-2016 Table 33 Sales of Smokeless Tobacco by Category: Value 2011-2016 Table 34 Sales of Smokeless Tobacco by Category: % Volume Growth 2011-2016 Table 35 Sales of Smokeless Tobacco by Category: % Value Growth 2011-2016 Table 36 Forecast Sales of Smokeless Tobacco by Category: Volume 2016-2021 Table 37 Forecast Sales of Smokeless Tobacco by Category: Value 2016-2021 Table 38 Forecast Sales of Smokeless Tobacco by Category: % Volume Growth 2016-2021 Table 39 Forecast Sales of Smokeless Tobacco by Category: % Value Growth 2016-2021 Table 40 NBO Company Shares of Smokeless Tobacco: % Volume 2012-2016 Table 41 LBN Brand Shares of Smokeless Tobacco: % Volume 2013-2016 Table 42 Distribution of Smokeless Tobacco by Format: % Volume 2011-2016 Summary 4 Smokeless Tobacco and Vapour Products Pricing
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