INTRODUCTION TO TOBACCO INDUSTRY
Tobacco industry is one of the oldest industry in the country. Tobacco in India was introduced by the Portuguese in the 17th century. India has a very dominant and aggressive stand in the global tobacco industry. India is the third-largest tobacco producer in the world, with annual production of about 800 million kgs in the last fiscal year.
Raw tobacco and tobacco based products generate about the US$ 3.1 billion( Rs 20,000 Crore) in revenues by way of excise duty, and around US$ 768.69million (Rs. 5,000 crore) by way of foreign exchange every year to the national exchequer.
Though there are large number of varieties of tobacco grown in India the Flue-cured tobacco, Country tobacco, rustica, bidi, chewing tobacco and barley are considered very important because these are the varities through which major Tobacoo products such as cigarettes, bidis, chewing pan masala and different types of mouth fresheners are manufactured.
Major Facts of Tobacco Industry
· The Flu-cured tobacco also known as the FCV tobacco is the main variety of the tobacco that is grown in the India and more than 60% of it is exported while the rest is used for the domestic cigarette production.
· The Indian tobacco is exported to more than 90 countries.
· Export of tobacco products from India stood at 7,910 tonnes, which is valued at US$ 64.09million, during April-June 2017.
· During the period, export of Flue Cured Virginia (FCV) tobacco stood at 33,559 tonnes valued at US$ 121.82 million, while unmanufactured tobacco exports stood at 42,382 tonnes valued at US$ 141.05 million.
The Tobacco industry in the India provides employment to more than 60 lakh people directly and indirectly and contributes very high to the nation GDP
INTRODUCTION: ITC CIGARETTESThe ITC limited is an Indian conglomerate which is headquartered in Kolkata and is one of the oldest and largest conglomerate in India. The company was established in the year 1910 by the name of the Imperial Tobacco Company of India Limited, over the course of time and after the independence it changed its name to Indian Tobacco Company Limited in 1970 to and later it changed it to I.T.C. Limited in 1974. The company is over 118 year old as of now and employs over 25,000 people in more than 62 locations all over the India. ITC limited is the part of the famous Forbes 2000 list. Earlier ITC was limited to the Tobacco based products mainly cigarettes it began to diversify its portfolio into non-tobacco businesses. Now ITC is into Tobacco Based Products ,Fast Moving Consumer Goods (FMCG), Paperboards & Specialty Papers, Agri-Business, Information Technology, Hotels and Packaging businesses. ITC realized the sustainability of Tobacco based products and began to diversify its business for the future endeavors. Though the major chunk of the revenue of ITC comes from the Tobacco based products but its FMCG sector is also growing at very fast pace and giving tough competition to Unilever and P&G. ITC hotels are also performing very well in the hospitality industry and has hotels such as Grand Chola, ITC Maurya, ITC Kakatiya under its nameThe ITC is the largest player in the Indian cigarette industry and it accounts of more than 72% of cigarettes market share and has more than 15 cigarettes brand under its portfolio. Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal are it main premium brands. Market Size and Characteristics The Tobacco industry in India is one of the largest industry as tobacco is one of the important commercial crop. The tobacco industry in India is over 1 Lakh crore and brings a huge amount of revenue through the exercise duties. The market of Indian tobacco is
As you can see from the above distribution chart the Bidis consists of the highest share with 43% as it is used by the people who are in low income group and the market of Bidis is mainly targeted towards rural areas and sub-urban areas. · The chewing Tobacco mainly consists of Pan masala and it is also very common in India between the low and high income group· Cigarettes is one of the important products of Tobacco industry and contributes a major share in the excise revenue and in bringing of foreign exchequer. Cigarettes are the ones which bear the burnt of Taxation in India- Below is the tax collection from the cigarettes The FCV variety of the Indian tobacco continues to dominate the Indian tobacco exports and as you can see that the total exports till the month of October is around 1,50,000 lakh crore. FCV is the major contributor to the national exchequer. Though the exports has declined over the last fiscal year due to GST and demonetization but it is expected to pick up the pace again in the next fiscal year.The exports of the Tobacco products mainly consists of cigarettes, high end chewing tobacco,pan masala. According to the Tobacco board and current inferences from the exports data the exports has declined significantly majorily due to GST as there was no clarity how the tax slabs would be allocated to the tobacco industry as a result of it there was lower exports in the month of June.The exports of Un- manufactured tobacco remained low as compare to 2016-17 fiscal year as the factors such as demonetization and GST came into the picture.
Since Tobacco industry is largely driven by the Hard cash so unavailability of it during the month of December 2016 to March 2017 made the reatainment of labour forces difficult. Since it is a cash crop the large amount of pesticides, manure is required. So all these factors responsible for the decline of the tobacco products. The above Porter’s Five forces analysis and SWOT anlaysis gives us a clear picture how industry can perform better and what are the future scopes of it. Market Structure of Tobacco and Cigarette Industry The Tobacco industry is India is mainly dominated by bidis and chewing tobacco, but we have in earlier data that though they are contributing more to tobacco industry but the Cigarette unit is the major cash rich in the Tobacco industry.The first Indian cigarette firm was established in 1887 by the year 1930 it has spread across India. ITC which at that time was known as Imperial Tobacco company was established by the British Raj in the year 1910 and till today it is the major player with the Market size of 72%.As of Today 12 cigarettes manufactures are registered in India. The top manufactures of cigarettes in India are ITC, Godfrey Phillips, Vazir sultan Tobacco company.ITC is the market leader among these while Godfrey Philips is the second in this industry.As you can see from the above statistics chart Imperial Tobacco company of China is leading the worldwide sales with the net value of 39.1$ Billion. The ITC has the overall sales of over 6.3$ Billion which is way far from the global leader. ITC has still a long way to became a Global leader in cigarette industry. The main reasons behind this are-:* ITC cigarette division is more focused on Indian market so they do not exports the cigarettes aggressively.* The high trade tariffs on the Tobacco products is also one of the reasons why ITC has not expanded worldwide. * Diversification of ITC from core cigarette manufacturing to the Hotels, FMCG, packaging is also one of the reason that it has not easily expanded into the global market. * Though still after these ITC has successfully cemented its place in the middle East countries such as Bahrain & Qatar.
ITC cigarettes has a wide range of range of brands some of its premium brands are Insignia, India Kings, Classic, Gold Flake, American Club, Navy Cut, Players, Scissors, Capstan, Berkeley, Bristol, Flake, Silk Cut, Duke & Royal.Godfrey Philips India Ltd. Is a part of Modi group and it has the significance presence in the North and eastern states of countries such as Uttar Pradesh, Punjab, Rajasthan etc. They are also in the Tea business and pan masala. The major cigarette brands under it are Four square, Red, Marlboro and Cavenders. The Marlboro brand gives a tough competition to ITC Gold flake and they both fight for the market leader.The VST also known as Vazir sultan Tobacco company is based on the Hyderabad and has significance presence in southern states such as Telangana, Andhra Pradesh and Karnataka. The major brands under it are Charms, Charminar Gold and Moments.The above BCG matrix gives a fair idea that ITC is the star of this industry while the others players such as GPI and VST is still struggling to get the desired market share. Although GPI is Cash cow in the industry but the impact of it on ITC not effective.
Behavioral Traits of Competitors
Now let us see why the behavior traits of each of the major competitors and analyse which are the major things or parameters which helps to gain the market share.
The below table is the comparison between the different cigarettes manufactures in India with their major brands. The parameters for the comparison are the Price of the cigarette, length of the cigarette and the age group of the population which prefers it
From the above data can infer following points
· The majority of the population of smokers are from 25-35 years.
· Price of most of the brands of cigarettes varies between 100-150 range/10 cigarettes
· ITC is the market leader as it 3 brands featured in the top 5 while its GoldFlake brand remained the market leader with the market share of 17.9% all over India
· Marlboro commonly preferred by the older population and has the market share of little over 2 %
· The reason why Navy cut is one of the top seller is the price of the cigarette as due to its low price low incomed people prefers it though the filter quality is not so good as compared to Marlboro and Goldflake
RECENT TRENDS AND ROAD AHEAD
1) As the population of India will expand the number of active smoker is alos expected to grow as a result it.
2) The exports of Tobacco is expected to bounce back from the year 2019 as their would be clarity on the tax rates and companies will adjust themselves to it.
3) The Tobacco production is expected to touch around 1 billion kg in the year 2020 from the current 800 million kgs, which can bring another 8000 crore in the form of excise duty to the national exchequer.
4) India is expected to became 2nd largest producer of tobacco by beating USA in the year 2022 while Brazil will be the top producer.
5) The ban on the advertisement on Tobacco based products mainly cigarette and bidis will continue and no governement is interested in revoking the ban.
6) ITC seems to be clear winner and expected to dominant the Tobacco industry for another 5 to 7 years by the current trends, while Its Goldflake will remain the market leader during the same period.