Tobacco Asia

16 tobaccoasia / Issue 4, 2018 September / October 550 540 530 520 510 500 490 480 0.06 0.04 0.02 0 -0.02 -0.04 2013 2014 2015 2016 2017 a combination of both downtrading and premiumization due to increased taxes. In Thailand, the cigarettes tax hike in the first half of 2016 saw cigarettes price go up by an average of 20%. This resulted in some smokers from the price sensitive low- income segment trading down from mid-priced to economy brands. Furthermore, the more price-conscious ones cut down on smoking or even traded down to fine cut to- bacco or illicit cigarettes. Vietnam witnessed similar downtrading by its cost-conscious consumers towards more budget-friendly economy brands following the 2016 special consumption tax hike on tobacco products. Despite the downtrading, Thailand and Vietnam also experienced premiumization, as some consumers with increasing dispos- able income switched from mid-priced to premium brands. The consumer switch to premium and economy brands has led to a decline in the mid-priced cigarette segment for both countries. Minimum age regulations produce mixed results While most countries in Southeast Asia have 18 as the minimum age for cigarette purchase and consumption, Thailand increased its minimum age to 20 in 2017 while Singapore will progressively increase it to 21 by 2021. The increase of the minimum age "may" reduce the smoking rate in the young adult age group, contributing to both current and future decline in cigarette volume sales The full impact of the minimum legal smoking age increases is still considered low due to problems with enforcement. In countries like Vietnam, lax enforcement with cigarette retailers rarely validating the age of buyers makes it easy for underage smokers to buy cigarettes. However, enforce- ment on the minimum smoker age has proved to be a challenge even for countries like Singapore, which has a reputation for tough enforcement. Stringent enforcement leg- islation and implementation will see cigarette retailers lose their tobacco selling license if they are caught selling to underaged smokers. Nevertheless, underage smokers in Singapore managed to find ways to circumvent the measures through tactics like third party purchase. This is evident from results of a 2013 National Health Surveillance Survey, which showed that the average smoker in Singapore took their first puff at 16; way below the current legal age of 18. Outlook for the cigarette industry in Southeast Asia The frequent excise tax increases across most countries in Southeast Asia will continue influencing consumer preferences towards premiumization and/or downtrading. With few common trends among all countries in post-tax increase consumer behavior, this makes it even more vital for cigarette players to have in-depth understanding of the competitive environments in their respective local cigarette industries, since each coun- try reacts uniquely to tax changes. Nevertheless, a common similarity projected in most countries is the retreat of the mid-priced cigarette segment. Consumers have spoken through their shifting preferences, and this sends a strong message to cigarette players in terms of resource allocation and product development – focus on the premium and economy brands. With Singapore and Thailand taking the lead to increase minimum legal smok- ing ages to 21 and 20, respectively, will 21 be the new 18 for the rest of the region? Globally as well as in the rest of Asia, most countries still have 18 as the legal age. While the Malaysian government is considers raising the minimum age limit for buying cigarettes to 21, most other countries in Southeast Asia do not have explicit plans to increase the minimum legal smoking age. Enforcement on mini- mum smoking ages is known to be dif- ficult, as evidenced from underage smok- ers in Singapore having decent success in getting their hands on cigarettes despite strong enforcement. There is therefore only low chances of governments in the region raising the minimum smoking age, and even if done, would be done to com- plement other anti-smoking regulations rather than being the key legislation in itself for curbing smoking. Going forward, cigarette packaging will play a decreased role in product dif- ferentiation, as more stringent govern- ment legislation, such as larger graphic warnings and even plain packaging are implemented. Reduced differentia- tion in packaging will contribute to the downtrading trend, as premium brands find it tougher to justify their premium pricing, leading to value-conscious con- sumers turning to economy brands. The implications of tougher packaging regula- tions on cigarette companies will mean a shift from packaging to other forms of product differentiation such as flavoring, cigarette lengths and pack sizes. Strength- ening outreach and shelf space at retail channels will also take on a more promi- nent role, as players strive to maintain brand credibility and customer loyalty amidst the regulations. However, at the end of the day, cigarette players in South- east Asia remain at the mercy of govern- ments, as no cigarette product, packaging or retail channel is immune to increas- ingly stringent government regulations. For queries relating to the tobacco in- dustry in Asia, feel free to contact Jarred at jarred.neubronner@euromonitor.com * Indonesia, Philippines, Thailand, Vietnam, Malaysia, Singapore Source: Euromonitor International Cigarette Sales Volume in Selected SE Asia markets*, 2013-2017 Volume Sales (Billion sticks) Volume Growth %

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