Cigarettes in Brazil

PROSPECTS

Cigarettes retail volume sales under increasing pressure over next few years

Retail volume sales of cigarettes continued to fall in 2018, as a consequence of the unfavourable economic scenario and recent changes in consumers’ behaviour. Even though the business confidence index shows signs of recovery, this has not yet translated into consumer purchasing sentiment - Brazilians continue to spend as if unemployed, even if they are not.

Brazil could become the leading global country in illicit cigarettes penetration

More than half of cigarette total volume sales in Brazil is already accounted for by illicit brands - either imported from countries such as Paraguay, for example, or locally produced. Malaysia remains, in 2018, the global leading country in illicit cigarettes penetration.

Plain packaging is not foreseen, but increasing health warning messages are adopted

While the Brazilian regulatory bodies have only had initial discussions about tobacco products’ plain packaging adoption, no final decisions have been taken so far. By May 2018, however, all brands had to redesign their products’ packaging to display the new health warning messages on the side and the front of the packaging, as well as adopting the new range of images, considered to be more impactful.

COMPETITIVE LANDSCAPE

Souza Cruz bets on “collaborative logistics” to leverage business opportunities in a declining market

Even though the company still gained volume share in 2018, the overall cigarettes market continued to decline, posing a challenge for Souza Cruz in the future. To leverage business opportunities outside cigarettes, the company has been partnering with manufacturers of other products - such as soft drinks, blades and razors, among others - to distribute them nationwide.

Diversified production at Philip Morris plant project over the forecast period

Philip Morris has a major production plant in the state of Rio Grande do Sul, in the south region of the country, which received significant investments, in 2017, to improve operational efficiency. Most recently, however, the plant has diversified production lines to be able to pack fewer than 20 sticks per pack (mandatory for the Brazilian market), as long as these smaller packs are due for exportation.

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