Executive Summary

The UK cigarettes and tobacco market grew by 16.7% between 1992 and 1997 to reach an estimated value of £11.75bn. The total volume of products in the market continued to decline. However, price increases, including rising taxation on tobacco products, contributed to rising market value. In addition, the percentage of smokers within the population showed a slight increase between 1992 and 1996 which boosted sales.

There are four main segments within the market: cigarettes, cigars, hand-rolling tobacco and pipe tobacco. Cigarettes account for the greatest market share and with a high level of popularity among younger smokers this situation is unlikely to change. The cigar market has seen a slight shift towards premium brands as consumer spending has risen, but mass market brands still account for the bulk of sales. Hand-rolling tobacco sales have declined in recent years, with sales also suffering from the high level of smuggling in this product. Pipe tobacco sales have fallen in line with the decreased popularity of this type of smoking, particularly among younger age groups.

The UK cigarettes and tobacco market continues to be dominated by the four main groups: Gallaher, Imperial Tobacco, Rothmans and RJ Reynolds. These companies own the major mass-market brands with strong identities and distribution lines. Own-brand cigarettes sold by supermarket and cash and carry groups gained a minority foothold in the market, especially during the recession, due to the trading down of consumers from more expensive brands. However, more recently these sales have been targeted by the major suppliers, with cheaper brands and fighting brands retailing at competitive levels.

The health lobbies continue to bring pressure to bear in the market with some success. European Union (EU) legislation to be introduced over the next decade will effectively halt tobacco advertising, while smoking in public places is also likely to be further limited. As a result, the market values are likely to decline slightly in the short to medium term, although the major manufacturers will seek to gain sales in overseas markets.

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