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Anti-smoking legislation is tightening and smoking is increasingly socially unacceptable. Affordability is benefiting from rising incomes but also impacted by sharp tax hikes, with cigarettes seeing only muted sales growth. Illicit sales are strong and outpacing retail volume growth, while unpackaged chewing tobacco and hand-rolled beedis pose strong competition. Cigarettes will see sluggish forecast period growth, while cigars and cigarillos will see stronger growth but remain a tiny niche.
This report analyses the market for tobacco in Cambodia. For the purposes of the study, the market has been defined as follows:
Cigars, Cigarillos and Smoking Tobacco
Smokeless Tobacco and Vapour Products
Explanations of terminology used in this report are as follows:
GBO refers to Global Brand Owner, which is the ultimate owner of a brand.
NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separate company.
Retail refers to sales of tobacco through retail outlets including supermarkets, hypermarkets, discounters, convenience stores, internet and other store and non-store channels, as well as sales of tobacco through bar-tobacconists and hotels/restaurants/bars.
Duty-paid retail sales are legitimate sales with tax applied to the final price.
Illicit trade refers to sales of duty-not-paid (or DNP) tobacco.
Market sizes are researched at category level, lower data levels are modelled.
Although cross-border and duty-free sales are considered legitimate, they are excluded from duty-paid sales.
Illicit trade (DNP) tobacco refers to contraband, counterfeit and unbranded tobacco, as well as illicit whites.
Attitudes to smoking differ between rural and urban consumers and between men and women. Urban consumers are increasingly aware of the health risks associated with smoking, with many cutting back or quitting altogether. In rural areas, smoking is considerably more popular, with such areas home to 79% of the population in 2016. Low-income groups and less educated consumers are a lot more likely to smoke in comparison to more affluent and educated consumers. Even in these groups, smoking is however often frowned upon by household members and is considerably more common among older men in their 40s and over. Younger men are becoming less likely to smoke. Smoking prevalence notably declined from 39% to 33% from 2011 to 2014, the year of the most recent National Adult Tobacco Survey of Cambodia.
Smoking prevalence is very low among women at less than 2%, with this reflecting social censure of female smoking. In contrast to men, few rural women smoke, particularly in older age groups. Smoking is slightly more common among young urban women, although there was no significant rise in smoking prevalence in this group during the review period. Smoking is not viewed as fashionable among women and is increasingly viewed in a negative light due to the impact of public health campaigns. Rural women are more likely to opt for unpackaged chewing tobacco, with a spiced mixture wrapped in a betel leaf being traditionally popular in the country. Many believe betel tobacco to have no negative impact on health and to offer health and relaxation benefits.
The most significant anti-tobacco organisation in Cambodia is Cambodia Movement for Health (CMH), with this NGO focusing mainly on tobacco control. Executive Director Mom King is particularly vocal and active in his campaigning and the organisation works closely with the Cambodian government and the Southeast Asia Tobacco Control Alliance. CMH also focuses on anti-smoking campaigns and direct help for smokers seeking to quit.
However, many smokers remain uninterested in quitting, while population growth resulted in the number of smokers increasing over the review period despite a decline in smoking prevalence. The ongoing popularity of smoking among men is linked by many to the low price and wide availability of cigarettes. The government thus increased tax rates in the latter half of the review period. Many view smoking as a social activity that is closely linked to drinking, with the public smoking ban enforced in September 2016 thus also expected to impact demand.
There is little new product development within cigarettes in Cambodia, with investment in this area deterred by a ban on advertising and restrictions on in-store product display. Japan Tobacco International launched Mevius Option Purple in March 2016, with this priced at KHR5,500 for 20 sticks and featuring a menthol flavour capsule. This brand has a premium positioning and a distinctive all-white paper and filter, targeting mainly high-income young consumers in major cities. New product development is more likely to target affluent consumers, as most low- to mid-income consumers tend to base purchasing decisions mainly on price and thus have little interest in innovation.
Domestic tobacco production declined rapidly in Cambodia towards the end of the review period, with this linked to declining demand for tobacco as a raw material. According to Ministry of Agriculture data, the area of cultivation fell to 10,000ha in 2016 from 14,000ha just one year earlier. November 2016 however saw Cambodia sign a new trade agreement with Vietnam, with preferential duty on the supply of 3,000 tonnes of dried tobacco in 2016 and 2017. If this agreement remains in place, the domestic supply of tobacco is expected to be maintained, due to farmers having new customers for their production. This will in turn enable British American Tobacco, the main buyer of tobacco in Cambodia, to source ongoing domestic supplies at low prices.
Tobacco will continue to see muted growth in the forecast period, with a 1% value CAGR at constant 2016 prices representing slightly slower growth in comparison to the review period. Growth is expected to benefit from rising disposable income levels, enabling more low-income consumers to trade up from beedis to packaged cigarettes. Cigarettes will account for the vast bulk of absolute value sales growth in the forecast period, although cigars and cigarillos are expected to see stronger percentage growth. While cigars and cigarillos will remain a tiny niche, sales are expected to benefit from increasingly aspirational attitudes among mid- to high-income men and cigars' luxury image.
However, sales growth for tobacco will also be hindered by a number of factors. Smoking is expected to become increasingly socially unacceptable, particularly among mid- to high-income consumers in major cities. This will be linked to the public smoking ban, introduction of graphic health warnings and ongoing anti-smoking campaigns. Smoking prevalence is likely to continue to decline, particularly in urban areas and among more affluent consumers. Smoking will remain particularly socially unacceptable for women, with few women thus smoking. Low-income and rural demand for cigarettes will in contrast be impacted by ongoing tax hikes, with these counterbalancing the impact of rising disposable income levels. Smuggled and counterfeit cigarettes will furthermore pose strong competition due to these products' low pricing, with illicit trade volume set to see stronger growth in comparison to retail volume in the forecast period at a 2% CAGR and a 1% CAGR respectively.
Smoking prevalence is closely correlated with income and education level in Cambodia. Low-income and rural men not only have lower average education levels but are considerably more likely to smoke. Low-income and rural women are similarly much more likely to use chewing tobacco in comparison to other women in the country. For low-income consumers, whether in urban or rural areas, price is the main factor influencing purchasing decisions. These consumers generally buy economy cigarettes and are considerably more likely to buy by the stick rather than buying a full pack. Low-income men are also most likely to buy illicit cigarettes, whether smuggled or domestically produced, and to use hand-rolled beedis (leaf-wrapped tobacco). Low-income women rarely smoke cigarettes or beedis but many chew tobacco mixtures wrapped in betel leaves, with these informal products and beedis both excluded from the scope of this report.
Mid- to high-income consumers mainly live in urban areas in Cambodia and tend to have considerably higher levels of education in comparison to low-income groups. These consumers are most likely to be concerned with health and wellness, with the introduction of graphic warnings on cigarette packs and intensifying anti-smoking campaigns resulting in many opting to quit smoking. Those among this group that do smoke generally opt for mid-priced or premium cigarettes, with little interest in informal or illicit cigarettes. Many of these consumers are indeed reluctant to buy from street vendors due to concerns over counterfeiting. Mid-income consumers tend to opt for affordable domestically-produced brands such as British American Tobacco's Ara, while high-income consumers are most likely to buy global brands offering value-added features such as Japan Tobacco's Mevius.
While few women smoke cigarettes, affluent young women in major cities are most likely to do so, with some keen to move beyond their parents' more conservative attitudes and enjoying socialising over beer and cigarettes. Even those young women that drink are however often unwilling to be seen smoking, which remains socially unacceptable. Enforcement of the public smoking ban could also result in diminishing demand from this group, as their smoking is generally associated with drinking. Smoking also does not have a fashionable image among most consumers and is viewed in a negative light. Tobacco products are rarely seen as status symbols, other than cigars, with the low price of cigarettes making these products accessible to all income groups. Interest in cigars is limited to upper-mid- to high-income, due to the high price of these products.
Cambodia had a median age of just 24 years at the end of the review period, with the country's population thus very young. With young consumers less likely to smoke than those in their 30s and older, this causes some constraints for tobacco. However, older age groups saw stronger growth in the review period, as the population continued to age, with growth in the number aged 30-60-years thus benefiting demand.
Cigarettes are widely accessible in Cambodia, being sold on virtually every street. Independent small grocers is the most significant distribution channel, due to their widespread presence, with these often the main retail channel used by consumers for the purchase of all fast-moving consumer goods. Independent small grocers accounted for a 31% share of retail volume sales of cigarettes in 2016. These are often the only accessible outlets in rural areas, which are home to the vast majority of the population. Street vendors are also significant, holding a 23% retail volume share of cigarettes, but they lost share slightly towards the end of the review period due to consumers' concerns over counterfeiting and smuggled cigarettes. Independent small grocers and street vendors continue to attract many due to their low prices, with these channels focusing on economy cigarettes and also often illegally selling cigarettes by the stick.
Supermarkets and convenience stores are gaining share, rising to 10% and 12% retail volume shares of cigarettes respectively in 2016, as these channels continue to expand their presence in urban areas. These channels primarily attract mid- to high-income consumers and offer cigarettes from all price bands, including premium options. Independent small grocers generally only offer economy cigarettes although many also offer beedis (hand-rolled cigarettes) and unpackaged chewing tobacco, with these products excluded from the scope of this report.
Tobacco specialists are only present in major cities and generally attract high-income consumers by offering a wide range of products. Cigars and cigarillos' retail distribution is limited to this channel, although bar-tobacconists and hotels/restaurants/bars are the most significant distribution channels for these products. This reflects the fact that cigars are often an impulse purchase for high-income men when socialising or meeting with business colleagues.
Cambodia is a major production hub for illicit and counterfeit cigarettes, with these accounting for 7% of total consumption at the end of the review period. The main brands impacted by counterfeiting are Vietnamese brands Hero and Jet, with these smuggled into Vietnam in large quantities of an estimated 850 packs per annum. The Vietnam Cigarette Association stated in 2016 that it believes these smuggled products account for the bulk of overall cigarettes smoked in Vietnam. However, iconic global brands are also targeted, with counterfeit Marlboro for example available at considerably lower prices in comparison to genuine products at the end of the review period.
Tax increases boosted Cambodian demand for illicit cigarettes during the review period, with these products seeing a strong increase at an 11% volume CAGR. The government is however increasingly clamping down on illicit cigarette production and smuggling, with two homes for example raided in November 2016 due to selling illicit cigarettes. This raid saw police seize 85 large boxes containing counterfeit or smuggled 555 brand cigarettes.
Smuggled and counterfeit cigarettes were also impacted by the mandatory introduction of graphic health warnings from July 2016, with the absence of these warnings offering a clear indication of these products' illicit nature. This resulted in a sharp drop in the number of consumers unknowingly buying illicit cigarettes, with many keen to avoid these products' due to their potentially hazardous contents and also being unwilling to break the law. Consequently, illicit trade volume growth slowed dramatically in 2016 to just 2%, despite a sharp tax increase for cigarettes in the year. Many consumers however continue to be attracted to illicit products by their considerably lower price.
Unpackaged alternatives also pose strong competition to cigarettes. Beedis and chewing tobacco mixes wrapped in betel leaves are legally permitted for sale in the country and see strong informal production. While beedis legally face the same excise duty as cigarettes, many informal producers do not pay this tax and prices are kept low, while chewing tobacco is generally sold in an unpackaged form and does not face excise duty. Beedis are generally sold by the stick or in plastic bags of 250 sticks. Beedis and chewing tobacco are mainly popular in rural areas and among older men and women respectively. Women however rarely smoke, with unpackaged chewing tobacco thus posing little real competition to cigarettes. The low price of economy cigarettes also limits competition from beedis.
Cigar smuggling is low in Cambodia, with overall sales of cigars being low. The duty free allowance for cigars was very generous for much of the review period however, at 100 cigars. Consequently, many bar-tobacconists, hotels/restaurants/bars and tobacco specialists bring in duty free cigars. This practice was curtailed to an extent in April 2015 by the Tobacco Control Law, which limited the duty free allowance to 50 cigars. This legislation also reduced the duty free allowance for cigarettes and smoking tobacco to 200 sticks and 250g respectively, with limits previously set at 400 cigarettes and 400g of smoking tobacco. This legislation thus dramatically reduced volumes of cross-border/private imports, although the country's duty free allowance remains generous.
There remains no legal smoking age in place. The Tobacco Control Law was passed in April 2015, with this banning sales of tobacco products to anyone below 18-years-old and also to visibly pregnant women. The law imposed heavy penalties for those caught making such illegal sales, including fines of KHR100,000-1,000,000 and jail terms from six days to one month in duration. This legislation also banned those below 18-years-old from bringing tobacco products into Cambodia. This legislation did not however set a minimum legal smoking age, merely a legal purchasing age, with police thus remaining unable to legally challenge underage smoking.
Underage smoking is not however a major problem in Cambodia. Indeed, consumers in their 30s and older are most likely to smoke, while young adults are less likely to smoke due to health concerns. Smoking is viewed in a negative light by the majority of the population, with underage smoking facing particular social censure.
The distribution of tobacco was also limited by the Tobacco Control Law of April 2015. This banned sales of tobacco in health and educational facilities, children's parks, religious places, cultural and historical sites, sports clubs and forecourt retailers. Vending was also banned by this legislation. Outlets close to forecourt retailers were also banned from selling tobacco products. Those caught flouting this ban faced a fine of KHR100,000-1,000,000.
The 2015 Tobacco Control Law also limited the display of tobacco products at vendors, with outlets only able to display one pack for each brand and also required to only offer packs with graphic and textual warnings from 23 July 2016, once they had used up old stock. Displays were also limited to 2 sq m. Furthermore, all retail outlets selling these products were required to clearly display no-smoking signs and were prohibited from offering ashtrays, with those caught breaking this law facing a KHR50,000 fine.
There is no legal limit on tar levels for tobacco in Cambodia. However, sales of packs containing less than 20 sticks are banned. Street vendors and some independent small grocers continue to illegally sell cigarettes by the stick however, in response to strong demand from low-income smokers. The Tobacco Control Law of 2015 also banned the use of misleading terms for tobacco products, with these specified as "including but not limited to light, mild, vitamins, caffeine..."
Older Cambodians tend to prefer higher tar cigarettes, due to these products' stronger flavour. However, young adults aged below 30 years are showing a marked preference for lower tar cigarettes, particularly Japan Tobacco's brands such as Mevius. Those smoking lower tar cigarettes however proved more likely to quit smoking towards the end of the review period, while lower tar cigarettes also tend to be premium products and were thus impacted heavily by tax hikes. Higher tar cigarettes are thus gaining share.
The 2015 Tobacco Control Law prohibited the advertising of tobacco via all mass media channels, including radio, TV, online and print adverts. Posters and billboard advertising was also prohibited, alongside promotion and sponsorship at music, cultural and sports events. This law also banned the use of promotional representatives, which was previously common.
The 2015 Tobacco Control Law made graphic health warnings mandatory for all tobacco products, with these required to cover at least 50% of packaging. A textual warning in the Khmer language is also required. Set warnings were subsequently determined by a sub-decree, with two graphic warnings specified featuring a lung cancer patient and a newborn baby ill due to passive smoking. New warnings will be approved on an annual basis. Fines for manufacturers and importers that offer packs without graphic health warnings were set at KHR4 million, while wholesalers face at KHR2 million fine.
Manufacturers were given nine months to comply with the requirement for graphic health warnings, which became mandatory on 23 July 2016. However, retailers were also permitted to sell off old stock, which created scope for smuggled and domestic illicit products to continue to be offered for sale without graphic health warnings. Japan Tobacco International notably complained to the government about the ongoing sale of packs without graphic health warnings in 2016. This company ended its affiliation with the Association of the Tobacco Industry of Cambodia (ATIC) in August 2016, due to this organisation's inaction regarding the continued sale of cigarette packaging without graphic health warnings. Many felt that a lack of graphic health warnings offered illicit products an advantage. However, illicit trade volume growth markedly slowed in 2016, suggesting that many consumers became unwilling to buy obviously illicit cigarettes that lacked graphic health warnings. Many are keen to avoid counterfeit cigarettes, due to these product's poor quality and flavour and potentially hazardous ingredients.
A public smoking ban was approved in March 2016 and began to be enforced from 16 September 2016. This ban prohibits smoking in workplaces and public areas including restaurants, hotels and public transport. The government publicly launched and promoted the ban in popular tourist destination Siem Reap City on 6 September 2016 in advance of the ban coming into force across the country, thus directly targeting tourists who may have been unaware of the ban. Those violating this ban face a fine of KHR20,000, while outlets face fines of KHR50,000 if they do not display no smoking signs or if they supply customers with ashtrays. At the end of the review period, this ban was however mainly enforced in healthcare, sports, government and educational facilities; children's playgrounds; cultural and historical sites and forecourt retailers. Compliance with the public smoking ban remained limited in other areas, including workplaces, retailers of tobacco, restaurants and bars. This is due to the onus of policing the ban being placed on the owners of outlets and also due to a limited enforcement budget, with few spot inspections thus being made.
Taxation and duty levies
The price of cigarettes remains very low in Cambodia due to low taxation levels. The government however increased excise duty on cigarettes in the latter half of the review period. Following slight increases in 2014 and 2015, excise duty was further increased from 15% to 20% for cigarettes in April 2016. Beedis/bidis (hand-rolled cigarettes wrapped in leaves) and clove cigarettes (kreteks) face the same excise duty as cigarettes, although these are often informally produced without paying tax, while chewing tobacco remains exempt from excise duty. Hand-rolled kreteks and bidis are excluded from the scope of this report, although machine-manufactured kreteks such as the 555 brand are included.
Cigars and cigarillos face a higher excise duty of 25%, while also facing considerably higher customs duty at 35%. These are viewed as luxury products and appeal mainly to high-income consumers, with the government thus taxing these products at a higher rate. Cigarettes, beedis, clove cigarettes and chewing tobacco face 7% customs duty.
All tobacco products also face the standard VAT rate of 10%. This rate remained unchanged throughout the review period.
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Chart 1 Tobacco in Cambodia in 2016 Chart 2 Cambodia Socioeconomic Trends
Taxation and duty levies
Chart 3 Cigarettes: Illicit Trade Chart 4 Tobacco: Traditional Retailer Chart 5 Tobacco: Traditional Retailer Chart 6 Tobacco: Traditional Retailer
Table 1 Sales of Tobacco by Category: Volume 2011-2016 Table 2 Sales of Tobacco by Category: Value 2011-2016 Table 3 Sales of Tobacco by Category: % Volume Growth 2011-2016 Table 4 Sales of Tobacco by Category: % Value Growth 2011-2016 Table 5 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 6 Forecast Sales of Tobacco by Category: Volume 2016-2021 Table 7 Forecast Sales of Tobacco by Category: Value 2016-2021 Table 8 Forecast Sales of Tobacco by Category: % Volume Growth 2016-2021 Table 9 Forecast Sales of Tobacco by Category: % Value Growth 2016-2021
Chart 7 Cigarettes: Traditional Retailer Chart 8 Cigarettes: Traditional Retailer Chart 9 Cigarettes: Modern Retailer: Convenience Store
Table 10 Sales of Cigarettes: Volume 2011-2016 Table 11 Sales of Cigarettes by Category: Value 2011-2016 Table 12 Sales of Cigarettes: % Volume Growth 2011-2016 Table 13 Sales of Cigarettes by Category: % Value Growth 2011-2016 Table 14 Forecast Sales of Cigarettes: Volume 2016-2021 Table 15 Forecast Sales of Cigarettes by Category: Value 2016-2021 Table 16 Forecast Sales of Cigarettes: % Volume Growth 2016-2021 Table 17 Forecast Sales of Cigarettes by Category: % Value Growth 2016-2021 Table 18 NBO Company Shares of Cigarettes: % Volume 2012-2016 Table 19 LBN Brand Shares of Cigarettes: % Volume 2013-2016 Table 20 Sales of Cigarettes by Distribution Format: % Volume 2011-2016 Summary 1 Cigarettes Pricing
CIGARS, CIGARILLOS AND SMOKING TOBACCO
Chart 10 Cigars: Modern Retailer Chart 11 Cigars: Traditional Retailer Chart 12 Cigars: Traditional Retailer
Table 21 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2011-2016 Table 22 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2011-2016 Table 23 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2011-2016 Table 24 Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2011-2016 Table 25 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Volume 2016-2021 Table 26 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: Value 2016-2021 Table 27 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Volume Growth 2016-2021 Table 28 Forecast Sales of Cigars, Cigarillos and Smoking Tobacco by Category: % Value Growth 2016-2021 Table 29 NBO Company Shares of Cigars and Cigarillos: % Volume 2012-2016 Table 30 LBN Brand Shares of Cigars and Cigarillos: % Volume 2013-2016 Table 31 Distribution of Cigars and Cigarillos by Format: % Volume 2011-2016 Table 32 Distribution of Smoking Tobacco by Format: % Volume 2011-2016 Summary 2 Cigars, Cigarillos and Smoking Tobacco Pricing
SMOKELESS TOBACCO AND VAPOUR PRODUCTS
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