The volume decline in cigarettes continues, aggravated by rising taxation and growing illicit trade
Retail volume sales of cigarettes remained under pressure in 2012, due to the growth in illicit trade. Illicit cigarettes continued to gain a significant market share, with an estimated 8.4 billion sticks smuggled into South Africa in 2012. As a result, volume sales of legal cigarettes declined. In addition, escalating tobacco taxation, coupled with high levels of unemployment, slow income growth, increasing utility bills, rising debt and increases in cigarette unit prices, continued to put pressure on consumers’ disposable incomes. The average unit price of cigarettes increased marginally by 2% in current terms, which resulted in making some price segment of cigarettes more costly when compared to the preceding year; as a result consumers increasingly sought less expensive alternatives, such as illicit cigarettes. Consequently, value sales of cigarettes also declined in tandem with declining retail volume sales, as consumers traded premium brands for mid-priced and economy brands.
Point-of-sale display remains the key marketing medium for tobacco products, as advertising restrictions intensify
The proportion of cigarettes sold under point-of-sale display promotions increased notably over the review period. Players in the South African tobacco market rely on point-of-sale displays to promote products and increase volume sales. Given the restrictions on advertising to consumers through other platforms, point-of-sale display advertising is currently the core marketing and promotional medium for manufacturers of tobacco products in South Africa. As a result, partnerships with retailers and manufacturers are becoming increasingly important to facilitate volume and value growth. As part of these partnerships, players rely on retailers to promote their products at points of sale. Cigarette manufacturers assist these retailers in areas such as new product introductions, product quality, product returns and merchandising. Point-of-sale displays feature posters, banners, glowing sign boards and the colour and logo of cigarette brands to increase awareness. However, advertising and display at points of sale are legally required to be less than 1.5m away from the cash register.
Grocery retailers remains the leading distribution channel for tobacco products
The bulk of sales of tobacco products in South Africa continue to be through grocery retailers such as supermarkets and tobacco specialists, which accounted for the majority of volume share in 2012. The highest share of volume sales of tobacco products was derived from supermarkets in 2012, due to easy access and convenience: this applies predominantly to cigarettes, but not cigars and smoking tobacco – tobacco specialists leads in these categories. In addition, the high volume share of supermarkets can be attributed to these outlets offering relatively lower-priced products when compared with other retail channels, such as tobacco specialists. Despite supermarket popularity the distribution channel for tobacco is diversifying; tobacco products are increasingly being sold through other retail channels, such as kiosks, newsagents, street vendors and spaza shops.
Sales of tobacco are set to continue to decline during the forecast period
South Africa’s tobacco market is mature. Volume sales of cigarettes and cigars are expected to see declining growth rates. Taxation increases and the growth of illicit cigarettes are expected to be the key factors limiting the sustainability of South Africa’s tobacco market. In addition, stringent advertising and marketing restrictions which prohibit the advertising and promotion of tobacco products are expected to affect the marketing strategies of tobacco manufacturers and distributors during the forecast period.
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Discover the latest market trends and uncover sources of future market growth for the Tobacco industry in South Africa with research from Euromonitor's team of in-country analysts.
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The Tobacco in South Africa market research report includes:
- Analysis of key supply-side and demand trends
- Detailed segmentation of international and local products
- Historic volumes and values, company and brand market shares
- Five year forecasts of market trends and market growth
- Production, imports by origin, exports by destination
- Robust and transparent market research methodology, conducted in-country
Our market research reports answer questions such as:
- What is the market size of Tobacco in South Africa?
- What are the major brands in South Africa?
- Which sector of the tobacco products market is the largest by value sales in South Africa?
- Which sector of the tobacco products market has been growing the fastest, by volume and value, in South Africa?
- Which sector is the most heavily taxed in South Africa?
- Which companies dominate in the total tobacco market in South Africa in terms of market share?
- What is the distribution channel split for the tobacco products market in South Africa?
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This industry report originates from Passport, our Tobacco market research database.