Cigarettes in Peru

2020 IMPACT

Reoccurring tax hikes further negatively impacted cigarettes in 2020

Constant tax adjustments continued to negatively impact tobacco consumption in 2020. During 2020, the Peruvian government raised the per package tax on cigarettes by 7%, with a second raise already implemented at the beginning of 2021 as well.

Economic uncertainty led consumers to trade down

In light of the economic fallout of the pandemic, reduced spending power impacted demand in 2020 since many consumers were trading down to the cheaper alternatives or even illicit products. Indeed, there was a general consumer tendency to move towards lower-priced brands as a way to combat the successive price increases as well as the economic crisis.

Distribution through convenience stores increased

In light of COVID-19, convenience stores kept growing in presence in 2020, becoming a more and more important point of purchase for cigarettes. In this regard, Philip Morris Perú SA (PMI) is ahead of other players, being present in one of the most important convenience store chains in Peru, Tambo.

RECOVERY AND OPPORTUNITIES

Recovery will be slow in 2021 as economic factors continue forcing consumers to re-evaluate their purchasing decisions

2021 is set to be a slow year for cigarettes, with volume growth expected to remain negative and current value growth set to stagnate. Demand is set to rebound in 2022, before normalising through the remainder of the forecast period.

Trading down likely to continue into the forecast period

In the medium term, the most significant fallout from COVID-19 will come from the resultant severe economic downturn. Post 2008-2009’s Global Financial Crisis, the cigarettes category saw volumes decline as consumers moved towards cessation, or purchases of cheaper products, such as economy and illicit cigarettes.

Players will have to adapt to changing consumer mindsets

New social and health contexts may encourage players to shift their strategies in the forecast period. Indeed, consumers are growing more conscious of health issues, seeking out safer tobacco products.