Demand for cigarettes in Mexico was already gradually declining towards the end of the review period in line with rising prices and a gradual drop in smoking prevalence amongst the local adult population. However, the beginning of 2020 saw a more significant increase in the average price of cigarettes due to a strong tax rise through the Special Tax on Production and Services (IEPS) for tobacco, increasing the price per cigarette stick from MXN0.
The distribution of cigarettes witnessed some shifts due to changing lifestyles of consumers as a result of the pandemic. Independent small grocers in local neighbourhoods retained its overall dominance, even gaining further retail volume share in 2020 from niche channels impacted by reduced footfall and the local lockdown, including street vendors, tobacco specialists, bar-tobacconists, and hotels/restaurants/bars due to closures of bars and nightclubs for part of the year, and restrictive opening hours for restaurants in addition to capacity in terms of customer numbers.
The competitive landscape of cigarettes in Mexico remained highly consolidated between international companies Philip Morris Productos y Servicios S de RL de CV and British American Tobacco México SA de CV. Japan Tobacco International Mexico S de RL de CV is also present in the country through the Camel and Winston brands, but has a much lower share, although like British American Tobacco, it continued to gain retail volume share from the dominant leader.
The tough economic outlook is likely to continue to have a negative impact on demand for cigarettes as consumers become increasingly cautious of their spending, with retail volume sales set to further decline, although the rate of the decline will not be as drastic compared to 2020. Trading down in terms of price bands is also set to continue, with premium cigarettes set to further lose share, although this will be more to the benefit of mid price brands, with this segment set to the see the most positive performance over the forecast period.
Health risks associated with smoking tobacco are expected to remain top of mind amongst many local consumers, restraining the growth of cigarettes in the mid-term. The smoking adoption ratio amongst younger adults is likely to slow down over the forecast period, as well as the smoking frequency of occasional smokers.
While standard cigarettes (non-capsule, non-menthol) is likely to remain the most popular type in Mexico, flavour capsule cigarettes are predicted to continue to gain retail volume share over the forecast period, resulting in positive sales growth. Launching new flavour mixes and attractive packaging designs are therefore, likely to be strategies employed by leading players to remain competitive, continuing their product innovation already seen towards the end of the review period.
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This report originates from Passport, our Cigarettes research and analysis database.
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