Cigarettes in Germany

PROSPECTS

“Track and trace” system not expected to have a significant impact on illicit trade

The forthcoming EU-wide “track and trace” system aims to make every pack of cigarettes traceable within the EU, from production to final sale. This initiative is part of the EU and tobacco manufacturers’ commitment to reducing illicit trade.

Regulations unlikely to be tightened over forecast period

Although various new regulations came into force over the review period, these are not expected to be tightened significantly over the forecast period. Aromatised fine cut tobacco and cigarettes have been given a grace period until 2020, after which they will be completely banned.

Price per cigarette likely to rise further, even without tax increases

Philip Morris has recently announced price increases for all of its brands, including Marlboro and L&M, either through higher pack prices or fewer cigarettes per pack. This way, the manufacturer can offset declining demand and falling smoking prevalence over the forecast period.

COMPETITIVE LANDSCAPE

Small and medium-sized companies facing a tough business environment

Tobacco regulations over the review period proved challenging for smaller businesses as implementation usually involves heavy investment, while multinationals like Philip Morris and BAT tend to benefit from economies of scale. Small and medium-sized German companies faced high implementation costs for example in 2016 when the minimum pack size was changed to 20 sticks.

Further consolidation anticipated

Although advertising restrictions on cigarettes in Germany are less severe than in other EU countries, regulation has created an environment in which only already large manufacturers are likely to prosper. They benefit from established distribution networks and strong financial resources, enabling them to advertise at points of sale, thus adversely impacting smaller players and slowly pushing them out of the market as their competitiveness weakens.

Philip Morris remains the leading player

Philip Morris remained the leading player in cigarettes in Germany in 2017. This position can be attributed to well-known brands such as Marlboro, Chesterfield and L&M, although only Marlboro performed well, thus reflecting the premiumisation trend which is contributing to ongoing consolidation in the cigarette industry.

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