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Tobacco: Quarterly Statement Q4 2020

December 2020

At an overall level, the global tobacco industry has experienced relative stability so far in 2020 resulting in marginal downgrading of forecasts in the main category, cigarettes. However, this obscures variation across markets with some, such as the US, witnessing the strongest volumes for several years while others, suffered severe COVID-related disruption. In coming years, the economic impact of the pandemic will exert the most significant lingering impact as consumer increasingly trade down.

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Key Findings

Varying impact of COVID-19 on tobacco

While most tobacco markets experienced a measure of stability through 2020, driver mixes – consumer behaviour and perception, government reactions, immediacy of economic impact – have varied across markets. With notable exceptions, consumers and governments have broadly prioritised tobacco access through the year.

Overall global picture worse than at the start of the pandemic

While the largest cigarette market in the world, China, along with other major markets, like the US and South Korea, performed less poorly than expected in 2020, the overall global (excluding China) outlook has worsened from an expected 4% decline to what is now anticipated to be a 6% drop for the full year.

Lockdown climate weighs on 2020, and macroeconomic fallout will linger

It is clear that near-term responses to the crisis from consumers and governments have had a substantial impact on performance. Whether reliance on cigarettes as stress or boredom relievers, or authorities disrupting markets through supply restrictions or border closures, these drivers will unwind quickly, while the pressure on financial health and the downtrading and moderation it brings will persist.

Consumers will re-evaluate substances and formats

Looking forward, it will be important to discount the short-term pandemic drivers and consider the extent to which consumers will once again reflect on their tobacco and nicotine use. It may well be that the cigarette bull run continues into summer 2021 in some markets, as smokers “celebrate freedom”, but a longer term trend away from tobacco use is likely to strengthen further.

Natural actives, such as cannabis, set to partner consumers out of the pandemic

One of the prompters of this re-evaluation will be interest in and access to a wider range of natural functional actives which have the authenticity credentials and, in many cases, the flexibility to service specific consumer needs post-pandemic, such as anxiety and stress relief. This presents nicotine companies with the challenge of meeting their consumers along the post-COVID path they are travelling.

Introduction

Scope
Euromonitor International and COVID-19: forecasts and analysis
Tobacco COVID-19 data and reporting timeline
Key findings

Drivers

Drivers of tobacco market performance through COVID-19
The full economic impact of the pandemic may yet to be felt
COVID will amplify consumer price sensitivity and downtrading
Regulatory interference distorted markets throughout 2020
In the medium term, taxation will increase pressure
COVID-19 alters near term use of time and space, in favour of cigarettes
Travel restrictions return volumes to legal domestic markets
Regulatory scrutiny had weakened e-vapour pre-COVID-19
Future prospects for vapour remain uncertain

Economic Outlook

Summer was more optimistic, but the pandemic starts the second wave
In our baseline view, economies start rebounding in 2021
Three scenarios examining the impact of a more severe outbreak
Our view in short
Forecast real GDP growth in 2020 under different scenarios

Q4 Tobacco Update

Prospects for cigarettes weakened in 2020
US: red letter year for the cigarettes category
Russia: no end in sight for cigarette declines
South Africa: a live experiment in tobacco prohibition
Indonesia: excise increase and pandemic response sink cigarettes
South Korea: more private time and vapour doubts fuel cigarettes

Opportunities and Conclusion

What this means for tobacco and CPG company strategy post-COVID-19
The rising appeal of tobacco-derived nicotine pouches
The new world of benefit territories will impinge on tobacco
The rise and rise of legal cannabis offers an alternative avenue
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