Cigarettes in Bosnia-Herzegovina

PROSPECTS

Recognising illicit trade is an urgent issue

At the end of 2017, the governments of two major entities in Bosnia-Herzegovina: Federation of Bosnia-Herzegovina and Republic of Srpska concluded that the excise hike policy in place was motivating growth in illicit trade, which was beginning to affect growth of tobacco excise revenues. In reaction, the governments agreed to instruct the Indirect Tax Authority to adjust the excise hike, lowering the pace of excise growth until illicit trade is placed under control.

Dominant mindset of consumers is to seek affordability

Illicit trade of cigarettes grew at a double-digit rate at the end of the review period. Furthermore, illicit sales of smoking tobacco, which is an even more popular alternative to cigarettes, soared throughout the review period.

Premium cigarettes grow increasingly affordable relative to economy alternatives

During the course of the review period, there was a clear trend of premium cigarettes more than doubling its share of total cigarettes, while economy products lost ground. At first glance, it makes little sense that consumers are buying more premium cigarettes despite not having to suffer constant price increases.

COMPETITIVE LANDSCAPE

British American Tobacco makes strong effort to consolidate regional tobacco processing potential

British American Tobacco focused on consolidating regional tobacco processing during the review period, starting by taking over the tobacco business from the largest regional manufacturer Adris Grupa and following through with the acquisition of Fabrika Duhana Sarajevo and a range of Bulgartabac’s brands including all those manufactured by Fabrika Duvana Banja Luka. The aftermath of the process is that several highly popular regional brands were withdrawn, or rather replaced by British American Tobacco’s international brands, but also specifically for Bosnia-Herzegovina that Fabrika Duvana Banja Luka is no longer manufacturing tobacco products.

Philip Morris adjusts strategy in reaction to British American Tobacco’s activity

While British American Tobacco focused on growth through acquisition of regional manufacturing capacities and brands, Philip Morris retained its overall leadership of cigarettes in Bosnia-Herzegovina, fine-tuning its product range throughout the review period to align it with key developing trends such as the shift towards premium products, legislative restrictions and changes in the distribution landscape. By acquiring regional and domestic players in cigarettes, British American Tobacco also bought into several of the largest kiosk chains in Bosnia-Herzegovina, including iNovine, Tobacco Press and Lafka.

Marlboro Red Upgrade soars to the top of brand rankings

In 2017, Marlboro Red Upgrade (Philip Morris) took over the leading brand ranking in cigarettes, after the most recognisable domestic brand Drina sa Denifine Filterom continued its decline following British American Tobacco’s takeover of Fabrika Duhana Sarajevo. The general model British American Tobacco is using in the region is to favour international brands over those domestic or regionally-recognisable.

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