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Low taxes result in affordable prices, with rising income levels boosting demand among low-income men. A growing number view smoking in a negative light, with female smoking rare and many urban smokers facing growing pressure to quit. Sales growth will continue to be driven by low-priced domestic cigarettes, with most focused mainly on price, so any tax hikes would have a heavy impact on demand. Unpackaged tobacco and smuggled cigarettes continue to pose strong competition.
This report analyses the market for tobacco in Laos. 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.
Many Laotians have an increasingly negative attitude towards smoking, due to growing government spending on anti-smoking campaigns and a general rise in health-consciousness. This is particularly true of urban consumers and those in mid- to high-income groups, with low-income men and rural men most likely to smoke. The government is keen to encourage families to prevent smoking by household members, with the Tobacco Control Act (2009) stipulating the responsibilities of society, community and family to discourage smoking and to act as non-smoking role models. This focus on acting as role models results in smoking being viewed as particularly unacceptable for teachers and Buddhist monks, who are increasingly expected to set a good example.
Smoking prevalence is considerably higher among men, with female smoking prevalence declining further towards the end of the review period. According to the 2016 ASEAN Tobacco Control Atlas survey, 51% of men aged 15 years and over smoked in 2015, in comparison to just 7% of women over this age. Overall smoking prevalence was 28% in this year. Smoking is becoming less socially acceptable for women, while female smoking prevalence is also dropping due to a growing focus on health, particularly among urban mid- to high-income women.
Low-income and rural women are however more likely to smoke, with pipe smoking traditional among some indigenous communities, while many rural women use traditional unpackaged chewing tobacco. The popularity of chewing tobacco is considerably higher among women than among men with the 2016 ASEAN Tobacco Control Atlas survey finding that 9% of over 15-year-old women used smokeless tobacco in 2015 in comparison to under 1% of men over this age.
While female smoking prevalence is declining, male smoking prevalence is rising. The introduction of the Tobacco Control Fund tax in 2013 severely impacted demand in this year but subsequently smoking rates began to climb once more among men. This was due to rising disposable income levels, particularly among low-income, rural and younger men, with these groups driving overall sales growth. Due to extensive tobacco cultivation in Laos, many rural men smoke unpackaged tobacco wrapped in leaves or paper. Rising income levels are however resulting in many of these men trading up to cigarettes, while higher incomes are also resulting in more low-income men in their 20s smoking. According to the 2016 ASEAN Tobacco Control Atlas survey, overall smokers smoked around 13 cigarettes per day in 2015.
The National Tobacco Control Committee was established by the government in 2009, with this working to reduce smoking prevalence in Laos. This organisation was strengthened by the creation of the Tobacco Control Fund in 2013, with this funded by special taxes on the domestic tobacco industry. SEATCA (Southeast Asia Tobacco Control Alliance) is also active in Laos, although anti-smoking campaigns in the country are mainly driven by the government.
There is little new product development in tobacco. Most smokers are strongly focused on price, while there is considerable loyalty towards the leading economy brands such as Lao Tobacco's A Deng and Lao-China Hongta Good Luck Tobacco's Dok Mai Daeng. While some international launches find their way into Laos for popular global brands such as Marlboro, there was little investment in new product development towards the end of the review period. Players instead focus on ensuring low prices and wide availability.
Tobacco is expected to see an improved value performance at constant 2016 prices in the forecast period at a 2% CAGR. The review period saw a sharp 31% value sales decline, with this due to the imposition of the Tobacco Control Fund tax at the start of the review period and a surge in illicit trade volume. However, the forecast period performance of tobacco is likely to depend on the government's taxation policy. The Investment License Agreement between the government and domestic tobacco producers is nominally set to continue to 2026, with this severely limiting tax rates. The government stated in mid-2015 that it aimed to increase excise duty on tobacco but, given this agreement, whether it will be able to do so remains to be seen. No tax increases had been introduced by mid-2017.
Cigarettes are expected to remain the main growth driver in the forecast period, also seeing a 2% value CAGR at constant 2016 prices, with these products continuing to account for the vast bulk of tobacco sales. Growth in cigarettes will be supported by rising income levels for low-income workers, with low-income men the main consumer group for these products. If higher tax rates are introduced, the performance of cigarettes could however be considerably poorer than forecast.
Cigars and cigarillos are likely to remain the only other significant product area in tobacco, with these products seeing fairly strong value growth at a 6% CAGR but accounting for just 1% of tobacco value sales in 2021. The widespread availability of unpackaged chewing tobacco and loose tobacco will continue to prevent demand for packaged smokeless tobacco and smoking tobacco, with the latter also constrained by the low price of domestically-produced cigarettes. Vapour products could see good growth in the forecast period but will remain a tiny niche, due to high prices and limited distribution. These products are likely to remain available only in major cities and overall consumer awareness will remain low.
There is a direct correlation between income level and smoking prevalence in Laos, with low-income men most likely to smoke. While many consumers have negative attitudes to smoking, smoking remains common and accepted among low-income male workers in both rural and urban areas. These smokers are generally focused on price and are attracted by economy domestic brands that offer low prices and a reliable quality level.
While few low-income women smoke cigarettes, these women are most likely to use unpackaged chewing tobacco. Low-income men unable to afford packaged cigarettes also often smoke unpackaged products, with these typically hand-rolled cigarettes wrapped in leaves or paper. Traditional bamboo water pipes are also used in some areas to smoke unpackaged tobacco. The extensive cultivation area given over to tobacco means that low-income workers can generally access unpackaged tobacco at low prices. Many low-income men are however trading up to economy cigarettes as disposable income levels rise.
Mid- to high-income consumers are becoming less likely to smoke. Most mid- to high-income consumers live in urban areas, with these groups having higher education levels in comparison to the low-income majority while they are also increasingly focused on health. Mid- to high-income women rarely smoke or use chewing tobacco and men in these income groups are facing growing pressure from family and friends to quit smoking. Those that do smoke generally opt for cigarettes, with mid-income smokers generally buying economy domestic brands such as A Deng. High-income smokers are most likely to buy imported premium brands such as Marlboro, although these are also smoked by some mid-income consumers.
High-income men are most likely to smoke cigars and cigarillos, which remain a tiny niche. These products are expensive, while being viewed as luxury treats for special occasions and seen as status symbols. Few smoke cigars regularly. The use of most tobacco products is not however viewed as aspirational. Domestic economy cigarettes and unpackaged tobacco are mainly linked to low-income rural consumers. Some global cigarette brands such as Marlboro enjoy a more prestigious image due to their high price, although the majority of Laotians are not only non-smokers but view smoking in a negative light.
Laos has a very young population, with a median age of just 22 years in 2016, while the total population grew by 9% during the review period. There was thus growth in the potential consumer base for cigarettes. Young men in their 20s are accounting for a rising share of sales, as disposable income levels rise for low-income workers in this age group.
Tobacco products are widely available across Laos. Cigarettes are sold by almost all independent small grocers, with these present across the country in both urban and rural areas. This is the leading channel, accounting for a 47% retail volume share, thanks to catering to the low-income majority that account for the bulk of cigarette sales. Street vendors are also strong, representing a 16% share. Both independent small grocers and street vendors attract many low-income smokers by continuing to offer cigarettes by the stick, despite this being illegal throughout the review period. The minimum legal pack size is set at 20 sticks.
Traditional grocery retailers are losing share slowly to modern grocery retailers, as the number of supermarkets and hypermarkets continues to expand across major cities. This trend is expected to continue into the forecast period. Mid- to high-income consumers remain most likely to shop in these channels, due to having sufficient funds to make larger weekly shops, while these groups are also least likely to smoke. However, low-income consumers are also increasingly shopping in supermarkets and hypermarkets as disposable income levels rise and urbanisation increases.
Non-retail channels remain significant, with sales via bar-tobacconists and hotels/restaurants/bars rising towards the end of the review period as disposable income levels rose. Bar-tobacconists accounted for 3% of volumes in 2016, while hotels/restaurants/bars accounted for a 6% share. These channels also benefited from rising tourist demand during the review period as a whole. Vending is banned for tobacco products.
Beyond cigarettes, tobacco products have more limited distribution. Cigars and cigarillos are mainly available via upmarket tobacco specialists in major cities and towns that attract large numbers of tourists. Unpackaged chewing tobacco and hand-rolled cigarettes are mainly sold via street vendors and open markets. Unpackaged products are however also offered by some independent small grocers, particularly in rural areas.
Illicit trade volume accounted for 8% of total consumption of cigarettes in 2016, down from a peak 15% share in 2013. At the start of the review period, there was a surge in illicit trade volume, with this partly due to the introduction of the Tobacco Control Fund tax in 2013. However, the last three years of the review period saw a sharp decline in illicit trade volume, with 2016 seeing a drop of 8%. This was due to the government improving border controls. Rising disposable income levels are also resulting in many consumers increasingly opting for legal purchases, due to concerns over buying low-quality and potentially hazardous counterfeits.
The main source countries for smuggled cigarettes in Laos are Cambodia, China and Vietnam, with the main smuggled brands including Vietnamese brand Jet and South Korean brand Esse. The majority of illicit cigarettes are branded. Smuggling also occurs from Laos, partly in the form of Cambodian counterfeits travelling through Laos en route to Vietnam.
In addition to smuggled cigarettes, hand-rolled cigarettes and unpackaged loose tobacco and chewing tobacco are available in Laos. Laos is a significant tobacco producer, with many rural consumers having access to unpackaged tobacco. This is typically smoked in traditional bamboo water pipes or hand-rolled in leaves or paper. Chewing tobacco takes the form of betel quids, with these being a betel leaf wrapped around part of an areca nut, a small piece of slaked lime, some astringent bark and tobacco.
There is also a minor presence for smuggled cigars and cigarillos, although sales of these products remain minimal. In addition, there is a generous duty free allowance of 50 cigars while these products are only smoked by affluent consumers, with these factors both reducing demand for smuggled products.
The government increasingly sought to reduce smoking prevalence in Laos during the review period, with legislation focused on this area thus becoming increasingly restrictive. The government strengthened the Tobacco Control Act (2009) with an amendment in May 2016, intensifying the use of health warnings, extending the public smoking ban and further restricting marketing for tobacco.
Legislation prohibits sales of cigarettes to or by those under the age of 18 years, while not specifying a legal minimum smoking age. There was no change in the legal purchasing age during the review period.
According to a 2015 survey by the ASEAN Tobacco Control Atlas, on average, most smokers in Laos begin to smoke at aged 17 years. Underage smoking is considerably more common among boys, while few teenage girls smoke due to general social censure of female smoking.
There is no legal limit for tar levels in cigarettes, with the most popular brands such as A Deng having high tar levels. While there continues to be no limit on tar levels, the 2016 amendment to the Tobacco Control Act banned the use of misleading terms such as "mild, medium, light, ultra-light, ultra mild or low tar."
There is a general preference for high tar options, with these viewed as offering a stronger flavour and offering more affordable prices. High tar cigarettes are also continuing to gain share. Lower tar cigarettes carry premium prices and are mainly popular among mid- to high-income urban consumers, while these consumers became less likely to smoke towards the end of the review period.
There was a ban on most forms of advertising for tobacco throughout the review period. The 2009 Tobacco Control Act banned TV, radio, print, billboard, outdoor and online advertising, while also banning sponsorship. The 2016 amendment to this legislation further restricted marketing, banning in-store advertising and marketing related to corporate social responsibility activities.
There was a requirement for textual health warnings on packaged tobacco products throughout the review period, with these made mandatory by the 2009 Tobacco Control Act. The May 2016 amendment also made graphic health warnings mandatory, with warnings required to cover 75% of packaging. This amendment was originally set to come into force in October 2016. However, enforcement was subsequently postponed to 1 May 2017, in order to enable producers to use up packaging stocks. The tobacco industry also requested a reduction in minimum warning size to 50% of packaging, although this request was refused by the government. The forecast period will thus see the introduction of graphic and textual health warnings covering 75% of packaging.
The 2009 Tobacco Control Act banned smoking in a number of places, including healthcare facilities, educational facilities, meeting rooms, public transportation and places with flammable materials including forecourt retailers. This legislation also required offices, department stores, shopping malls, hotels, restaurants, entertainment venues, markets, stadiums, clubs, temples and public parks to establish specific smoking areas. The 2016 amendment to this legislation furthermore specified that designated smoking areas must be outdoors and at least 10m away from the main building's doors and windows, with the interiors of these buildings being no-smoking areas. This legislation also required the use of no-smoking signs in all places where smoking is prohibited and extended the smoking ban to include vapour products and pipe tobacco. Enforcement of the smoking ban however remains variable, with a lack of official spot checks resulting in many workplaces, bars and restaurants continuing to permit smoking inside.
Taxation and duty levies
Excise duty on tobacco products remains low. While the Tax Law of 2005 stipulated a tobacco excise duty at 55% of retail price, a 25-year Investment License Agreement was signed in 2001 between the National Committee for Planning and Investment and local tobacco producers. This set excise duty at just 15% for cigarettes with a production cost of less than LAK1,500 and 30% for those with production costs over this level. With domestic brands focusing on economy products, these fall into the lower tax band. Domestic producers also pay the state 15% of production cost as a royalty fee.
In July 2015, the government announced plans to increase excise duty on tobacco from October 2016 onwards. This followed on from the World Health Organization urging the country to increase tobacco taxes in May 2014. However, the process of increasing tobacco taxes is complex, requiring approval from the Tax Department, Ministry of Finance, Ministry of Justice, the Prime Minister and the President. The planned tax increases had not been introduced by the end of the review period and it remains to be seen if they will be implemented in the forecast period. The government is likely to continue to be hindered by the Investment License Agreement and its cap on excise duty, with this agreement nominally in place until 2026.
The Tobacco Control Fund was created by government decree in May 2013 and resulted in an increase in tobacco taxes, with the money raised used to fund anti-smoking campaigns. This fund sources its income from the state budget but also from a special benefit tax imposed on cigarettes and tobacco producers. This benefit tax was set at 2% on tobacco industry profits and a further LAK200 (USD0.03) per cigarette pack.
Imported cigarettes do not face excise duty, with imports facing two separate tax bands. Famous international brands are taxed at USD119 for 500 packs, including brands such as Marlboro and Mild Seven. Other brands face an import duty of USD85/500 packs.
All tobacco products face VAT of 10%, with this remaining unchanged throughout the review period.
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Chart 1 Tobacco in Laos in 2016 Chart 2 Laos Socioeconomic Trends
Taxation and duty levies
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: Modern Retailer Chart 4 Cigarettes: Modern Retailer Chart 5 Cigarettes: Jonnee Greene
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 1 Cigarettes Pricing
CIGARS, CIGARILLOS AND SMOKING TOBACCO
Chart 6 Cigars
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 2 Cigars, Cigarillos and Smoking Tobacco Pricing
SMOKELESS TOBACCO AND VAPOUR PRODUCTS
Chart 7 Smokeless Tobacco and Vapour Products: Traditional Retailer Chart 8 Smokeless Tobacco and Vapour Products: Traditional Retailer Chart 9 Smokeless Tobacco and Vapour Products: Traditional Retailer Summary 3 Smokeless Tobacco and Vapour Products Pricing
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