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Key Tobacco Industry Trends in Southeast Asia

9/24/2019
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New product development and shifting consumer preference can be observed within the tobacco market in Southeast Asia, driven by initiatives from major international players, as well as the rising price of tobacco products and increasingly stringent regulations. This article will cover some of the key trends observed for tobacco in the region.

Heated tobacco products gradually gain popularity

Consumer awareness and product availability of heated tobacco products is gradually increasing in Southeast Asia, with devices and sticks for heated tobacco becoming introduced in markets such as Indonesia and Malaysia. In Malaysia, leading manufacturer Philip Morris officially launched its flagship heated tobacco device iQOS and heated tobacco sticks HEETS in 2018. In Indonesia, heated tobacco also started to take off in 2018, with heated tobacco devices and sticks imported from other markets becoming available mainly through major e-commerce platforms. As product availability increases, heated tobacco is expected to see strong volume growth in Malaysia and Indonesia, with a CAGR of 171% expected for Malaysia, and 42% expected for Indonesia within the forecast period of 2018-2023. Meanwhile, in other major markets such as Singapore and Thailand, products are yet to be legalised, and there is no indication of legalisation as of September 2019.

Economy brands gaining popularity in high priced markets

Consumers are increasingly trading down to economy cigarette brands in markets with tax hikes and high unit prices such as Malaysia, Thailand, and Singapore. In Malaysia, economy brands such as Rothmans and Chesterfield saw strong increases in retail volume sales in 2018, with the brand owners actively promoting the economy brands to prevent further losses of share to cheaper offerings by illicit products. In Singapore, L&M, an economy brand from Philip Morris International, showed the highest growth in 2018, given that the company consolidated its mid-priced brand Next with L&M in 2018. Economy brands are expected to show continuous growth in the above markets as seen in the example of Malaysia, in which the economy segment is expected to rise from 11% to 17% within the forecast period of 2018 to 2023, gaining share from both mid-price and premium segments.

Stricter regulation implemented for marketing and promotion

As with other regions, the regulation towards advertisement and promotion of tobacco products is becoming stricter in Southeast Asia. In Singapore, point-of-sales display bans were implemented in 2017, in which retailers in Singapore were banned from displaying any kind of tobacco products and required to use storage units to ensure that the products are not visible to customers. Otherwise, the tobacco products would need to be kept under the counter or in a separate room. This has limited the marketing and branding of tobacco brands, particularly for new market entrants, given that the brands will not be able to leverage the packaging to gain awareness from consumers. As in-store promotion has been one of the key touchpoints with consumers, stricter regulation will result in further limitation of the marketing and branding for industry players. Enforcement of increasingly stringent regulations for advertising and promotion is expected to impact lesser-known brands more than major brands, given that it will be increasingly challenging for niche brands to gain consumer awareness, compared to major brands which are widely known amongst consumers.

Although stricter regulations are being enforced, the increasing presence of emerging products such as heated tobacco will provide new opportunities for industry players. Succeeding in raising brand awareness for growing categories albeit the limitations for marketing and promotion, will be the key to market penetration within the Southeast Asia market.

Related Analysis

Tobacco in Malaysia, Tobacco in Singapore, Tobacco in Thailand, Tobacco in Indonesia

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