New opportunities for tobacco giants — holy mission or evil investment? -1

Tobacco industry is always a mystery industry in Taiwan. To attract potential talents to join this seemingly evil industry, tobacco companies always provide better salary and tons of attractive working benefits towards their employees. As a newbie in tobacco industry, I’d like to share some of my observations in this industry and shed light on the new goal of these companies. Today we will realize the basic info in this industry first.

Quick intro of tobacco history

Tobacco product has a very long history and its first appearance can date back to 6,000 BC. In 14th centuries, Columbus set foot on the continent of North America and first saw native American smoked tobacco leaves for religious and medicinal purpose. He realized these dried tobacco leaves were regarded as valuable possessions and were usually bestowed to each other in this new continent.

Thanks to Spain & Portugal’s dominant influence over the world in 15th centuries, tobacco product was introduced to Europe and quickly gained the popularity across the port in each European country. Smoking gradually became a habit in the following centuries and someone even wrote books depicting the tobacco’s special cure for specific alignments (which is not correct…)

Fast forward to 1920s, tobacco manufactures further pulled off another unprecedented victory in terms of sales volume during WW1 & WW2. They sold tons of tobacco products to the army frontline and cultivated countless addictive smokers. Besides, tobacco manufactures also mainly marketed tobacco product to female in 1930s in a bid to create another gold mine. They tried to reshape the image of smoking women from louche women, prostitution to independent & glamorous. In 1950s, women’s cigarette sales tripled.

However, with the huge sales growth in tobacco industry, more and more people openly condemned the use of tobacco and claimed its severe addiction and correlation with lung diseases. In the following five decades, more and more scientific report proved there’s a significant correlation between lung cancer and smoking. Therefore, governments imposed stricter control on tobacco industry all over the world and led to a decline of total tobacco sales.

Current Tobacco Industry Snapshot

International market:

Although tobacco product sales gradually decrease all over the world, its market cap is still up to $456 billion (exclude China market). The total market capitalization centralized in 4 major players: Philip Morris (32%), British American Tobacco (21%), Japan Tobacco (7%) and Imperial Brands (5%).

Without a doubt, PMI has the highest of the market cap and it even not includes Altria Group’s number (Altria Group was split from PMI in 2007 and now own the Philip Morris business in the US market).

Domestic Industry (Taiwan):

Taiwan’s tobacco market dynamic is totally different from international market. The top 5 tobacco company is 4 foreign tobacco giants we mentioned above and TTL (Taiwan tobacco and liquor corporation). The ranking is as below:

About 1.9 billion packs of cigarettes are sold in Taiwan every year. If each pack is calculated at NTD 100 on average, the cigarette market cap is approaching NTD 200 billion in Taiwan. If we want to know how much money a tobacco company make, we can assume the average gross profit margin in tobacco industry is 10%. (60% taken by government, 10% taken by retailer and 10% is manufacturing cost). Therefore, we can see JTI’s margin is about NTD 8.5 billion according to table and formula above. It’s 8.5 billion! Gross profit! No wonder tobacco company employee’s welfare and package is much better than the rest of FMCG company.

In the next article, we will realize what is the new opportunity for tobacco giants. It’s a holy mission or evil investment? Stay tuned!

Reference:
History of tobacco
Insider
Wikipedia

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Jimmy Hsu

Marketer who likes to understand the world better by reading.