Tobacco in New Zealand

COVID-19 impact on tobacco

Monetary concerns in response to COVID-19 during strict lockdown measures exacerbated lower-income smokers’ disposable incomes which had already come under pressure from another excise tax increase for tobacco at the beginning of 2020. This is set to have a particularly negative impact on demand for cigarettes and smoking tobacco with predicted ongoing declines for both in volume terms.

COVID-19 country impact

International borders have been closed since 15 March, with all residents facing a 14-day quarantine when re-entering the country. Stage 4 lockdown was announced on 25 March, with all businesses except essential services closed and stay-at-home orders in place except for exercising, shopping for groceries or going out for medical services.

Smoking prevalence continues to decrease in 2019 in line with further strong increases in the price of some tobacco products, while others turn to illicit trade

Further high increases in the average unit price of cigarettes and fine cut tobacco in particular, following another year of excise tax as part of the New Zealand government’s plan to reduce smoking prevalence in the country, continued to negatively impact demand for these categories in 2019. However, these traditional combustible tobacco products also tend to be purchased by lower-income consumers and therefore further downtrading was witnessed at the end of the review period as they looked to reduce expenditure on their habit.

Strong consolidation within tobacco in 2019, with restrictive operational measures leaving pricing strategies as the main differentiator for brands

All categories of tobacco in New Zealand are highly consolidated and led by multinationals which offer well-known global brands. The largest category of cigarettes continued to be led by the dominant British American Tobacco (New Zealand) Ltd in 2019, although it lost retail volume share to its closest competitors Imperial Tobacco New Zealand Ltd and Philip Morris (New Zealand) Ltd.

E-vapour products and heated tobacco products offer strongest potential for growth over the forecast period in New Zealand

Smoking prevalence amongst the adult population is set to further decline in New Zealand over the forecast period in line with ongoing decreasing demand for cigarettes, cigars and smoking tobacco. Despite the fact that the last tobacco excise rise will take place on 1 January 2020, the average unit price of these categories is set to continue increasing, making them increasingly unaffordable to the target audience of lower-income consumers for cigarettes and fine cut tobacco, while consumers of cheaper cigars are likely to switch to cigarillos; affluent consumers of premium cigars on the other hand, will remain less price-sensitive and are likely to continue to indulge in these occasional products, especially once lockdown measures are eased and some level of socialisation returns.

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