Tobacco Asia

14 tobaccoasia / Issue 4, 2018 September / October By Jarred Neubronner, Research Analyst at Euromonitor International The cigarette industry in Southeast Asia contin- ues a decline in combined cigarette volumes sales from Indonesia, Philippines, Thailand, Vietnam, Malaysia, and Singapore going down by nearly 3% to 500 billion sticks in 2017. Strong government regulations contributed to this declining trend and is also a key reason for the reduced outlook of Southeast Asia's cigarette industry, with a fore- casted negative volume CAGR of 2% to 2023. Government taxation has led to shifting con- sumption patterns among cigarette smokers in the region towards premium and economy brands, while legislation on the legal smoking age and cigarette packaging has altered the landscape for cigarette sales. Here is a closer look at recent legislation as well as its impact on the cigarette industry in Southeast Asia. Excise tax increases create polarizing trend in cigarette bands Much of the excise tax increases have been passed on to consumers in the form of higher cigarette prices. This price increase surprisingly created di- vergent consumption trends of premiumization Southeast Asia Cigarette Market: Regulation vs Consumption Legislation • Malaysia: Increased excise taxes in late 2015 by more than 30% • Thailand: Cigarette excise tax was increased from 87% to 90% in the first half of 2016 • Vietnam: Special consumption tax on tobacco products was increased from 65% to 70% in 2016 • Philippines: December 2017 TRAIN bill will see annual increases in cigarette excise taxes • Singapore: Excise tax increase of 10% implemented with immediate effect in February 2018 • Philippines: Smoking ban extension implemented in 2017 banning smoking in enclosed public areas • Malaysia: Expanded smoke-free public areas in 2017 to include observation towers in national and state parks, public parks, national parks, state parks, camp site, canopy bridge, etc. • Singapore: Expanded smoke-free public areas in 2017 to notably include places frequented by the young, such as educational institutions, excursion buses, trishaws, and private-hire vehicles • Thailand: In July 2017, under the Tobacco Products Control Act, minimum legal smoking age was raised from 18- to 20-years-old • Singapore: To increase the minimum age from 18 currently to 21 progressively from 2019 to 2021 • Malaysia: Considering raising the minimum age limit for buying cigarettes to 21-years-old. • Thailand: Legislation implemented in 2014 required cigarette manufacturers to print mandatory health warning labels to cover 85% of both sides of the pack to be present on the bottom, front and back of the pack • Malaysia: Currently studying the feasibility of implementing plain packaging for tobacco products • Singapore: Reviewing a proposal to enlarge the graphic health warnings on tobacco packaging from 50% to 75%, also studying the feasibility of implementing plain packaging Regulation Category Excise tax Smoking bans in public places Minimum legal smoking age Cigarette packaging Summary of Recent Regulations Across Southeast Asia and downtrading taking place in different South- east Asian markets. Countries like Indonesia and the Philippines have seen a premiumization trend due to regula- tions and excise tax increases that have made the premium segment more lucrative to target. In Indo- nesia, the merging of excise tariff layers in 2019 is expected to hit economy and kretek cigarettes hard- est. This has led to companies focusing product development on premium kretek cigarettes (SKM) and white cigarettes (SPM). For example, Djarum introduced Forte, its first SPM portfolio in Indone- sia. HM Sampoerna Tbk PT launched Sampoerna A Platinum, rebranded Marlboro Ice Blast to Marlboro Ice Burst, and introduced a new packaging design for Marlboro Gold Lights. Meanwhile, Bentoel Inter- nasional Investama Tbk PT launched Dunhill Fine Cut Mild which comes with novel "reduced smell technology". These product launches focused on premium cigarettes allowed players in Indonesia to pre-emptively target the premium segment even be- fore the new tax structure is implemented in 2019. Similarly, in the Philippines, the implementation of a unitary tax for cigarettes in 2017 encouraged more consumers to trade up to premium brands

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