Tobacco Market Report of Thailand And Vietnam

Source from:  Tobacco Asia  10/30/2014

Despite higher taxes and strict regulations on packaging and marketing as well as political instability (in the case of Thailand),Thailand and Vietnam's tobacco industries saw positive results in 2013 and are determined to continue this winning streak in 2014.

Thailand

Thailand's sole manufacturer and distributor of tobacco, the Thailand Tobacco Monopoly (TTM), reported an outstanding performance in the 2013 fiscal year with net revenue of THB 70.18 billion (US$ 2.19 billion), 11.33% higher than 2012's net revenue of THB 63.04 billion(US$ 1.97 billion), and net profit of THB 7.48 billion, 12.31% higher than 2012's net profit of THB 6.66 billion.A state enterprise under the Ministry of Finance, TTM redistributes its revenue in the form of taxes paid to the government. In 2013, TTM's tax contribution was at THB 61.75 billion.

Cigarette production by TTM in 2013 was at 33.88 billion sticks. This number comprised both filter and non-filter cigarettes. TTM produced 20 brands of filter cigarettes, which accounted for 32.86 billion sticks. These 20 brands were:

(1) KRONGTHIP 90; (2)KRONGTHIP CHANGE; (3) KRONGTHIP 90 (SOFT PACK) Export; (4) KRONGTHIP 90 (HARD PACK) Export; (5)FALLING RAIN 90; (6) FALLING RAIN 90 (SOFT PACK) Export; (7) FALLING RAIN 90 (HARD PACK) Export; (8)GOLD CITY 90; (9) GOLD CITY 90 (HARD PACK) Export; (10) SAMIT 90; (11) ROYAL STANDARD 90; (12) ROYAL STANDARD 90 DELUXE;

(13) WONDER AMERICAN; (14)WONDER MENTHOL; (15) SMS (RED); (16) SMS (GREEN); (17) CONNEX (RED); (18) CONNEX (GREEN); (19) GOAL (RED); (20) GOAL (GREEN)

TTM's three brands of non-filter cigarettes, which accounted for 11.42 million sticks, were:

(1) KLED THONG 33; (2) THE MOON 33; and (3) GOLD CITY 33

Domestically, TTM sold 18 brands of cigarettes, totaling 33.07 billion sticks or THB 77.66 billion, an increase in sales volume and value of1.44% and 10.43% respectively from 2012. TTM's best-sellers were KRONGTHIP 90, SMS(RED), WONDER AMERICAN, WONDER MENTHOL, andSMS (GREEN). Sales of SMS (RED), WONDER AMERICAN,WONDER MENTHOL, and SMS (GREEN) increased by31.42%, 1.35%, 0.48%, and 29.43% respectively from 2012 while the sales of KRONGTHIP 90 decreased by11.51%.

"Our sales volume has grown consistently largely due to the loyalty domestic consumers have for our brands," said Dr. DaonoiSuttiniphapunt, acting managing director of TTM. "We give great importance to this market segment and continue to identify other potential segments in efforts to further increase our sales volume."

"Previously our main market was the domestic market, but we are planning to increase our overseas markets as well, starting from the countries of the ASEAN,before expanding to other regions of the world."

In 2013, TTM exported five brands of cigarettes, totaling 35.64 million sticks or THB 32.18 million. This was an increase in sales volume and value of 44% and116.84% respectively from 2012's numbers of 24.07 million sticks and THB 14.84 million.

"Cigarettes meant for export are not like most other goods," said Dr. Suttiniphapunt. "Even the production process for cigarettes meant to be exported is different from the process for cigarettes, which will be sold domestically,as different countries have different regulations and standards. We need to fully understand these regulations before trying to enter each market. Thus, while we plan on increasing our international markets, we will start with those countries whose regulations are not too complicated."

Even though its performance has remained consistently good, TTM is actively strategizing for future growth. In addition to increasing international markets, TTM also has plans to increase its loose tobacco production and is looking at new products such as the slim or superslim cigarettes with women smokers in mind, and is continuously researching new technologies that could be implemented in its cigarette production.
While the word 'monopoly' in its name might lead to the assumption that TTM has no competitors, in reality that is not the case. Dr. Suttiniphapunt said, "We actually have quite a few competitors, such as imported cigarettes like Marlboro from PMI and Winston from JTI." According to Dr. Suttiniphapunt, foreign-brand imported cigarettes count for 20-30% of the market in Thailand. Imported cigarettes are not limited to well-known international names only but also from other Asian countries such as Indonesia, the Philippines, and Malaysia.These cigarettes are imported into the country legally, but do not pay the provincial taxes that TTM is required to pay for its cigarettes to be allowed to be sold in the country's provinces. No provincial tax means lower costs, which means lower sales prices to the consumer, which, in turn, means market dilution for TTM.

"Also considered as competitionare producers of rolling tobacco," said Dr. Suttiniphapunt. "Our consumers are mainly in the middle to grassroots markets. During times of a bad economy or during the recent political turmoil, our consumers turn to more affordable options such as rolling tobacco. We cannot compete with the rolling tobacco currently available in the market as our tobacco has higher costs, due to the fact that we offer extra incentives to the tobacco farmers who grow high-quality tobacco that meets our standards," she said.

The biggest challenge for TTM, though, seems to be Thailand's strict regulations on advertising and marketing tobacco products, basically banning any advertising and overt marketing of tobacco products, and the new law on packaging that came into effect in June 2014. Under the new law, cigarette packs in Thailand will be 85% covered with graphic health warnings and a quit smoking hotline telephone number. A transition grace period was allowed when the law first came into effect, but from September 22 onwards, the law will be strictly enforced. The implementation of this new law has caused TTM's distributors to hold-off new orders as any distributor caught selling cigarette packs without the 85% graphic warning on or after September 22 will be persecuted. This has affected TTM's inventory and production process.

Vietnam

Ranked in the world's 15 top consumers of tobacco with more than 15 million smokers, Vietnam is one of the more smoker-friendly countries out there. Vietnam's Health Strategy and Policy Institute recently conducted a survey and found that Vietnamese people spend about VND 22 trillion (US$1,038 billion) a year on tobacco. Smoking has been estimated to cost Vietnam VND 23 trillion annually in health treatment and lower labor capacity.

In an effort to address these issues, the Vietnamese government passed the Law on Prevention and Control of Tobacco Harms, which came into effect on May 1, 2013. Among other regulations, the law bans smoking in certain public places, the sale of cigarettes to minors, and any advertising of tobacco products. It also requires all cigarette packs to feature graphic health warnings on half the surface of the pack.
Compliance deadlines were November 2013 for soft packs and March 2014 for hard packs.Similar to Thailand, these new regulations have hit Vietnam's tobacco industry hard. Aside from the obvious complications, it would seem that Vietnam's tobacco industry is struggling with dealers violating the law and selling cigarette packs that were manufactured earlier without warnings or just with warning slogans. Consumers are evading buying the new packs and are willing to pay more for older cigarettes without the graphic warnings. Tobacco production has also seen a drop due to the circulation of these older cigarette packs.In the first three months of this year, tobacco production dropped by 9%, compared to the same period last year, resulting in a reduction of VND 2 trillion in tax revenue.

In addition, Vietnam's Ministry of Finance has proposed to increase tobacco tax from the current 65% to 75% in 2015, and 85% in 2018, in hopes that this will help reduce the number of smokers. The Ministry of Health has taken the matter even further, proposing a stronger tax increase plan on tobacco in which the excise tax for tobacco should be increased to 105% in 2015, and to 145% in 2018. Taxes are expected to be adjusted again in 2020. The Ministry of Health has projected that, if the stronger tax increases come into effect, the number of smokers in Vietnam will drop from 47.4% (recorded in 2011) to 39% in 2020. Tobacco taxes are expected to increase to VND 9 trillion in 2015 and VND 24.1 by 2018.

Another challenge Vietnam's tobacco industry is facing is cigarette smuggling, which has increased even more since the new regulations came into effect last year. According to the Vietnam National Tobacco Corporation (Vinataba), the country's leading tobacco manufacturer with more than 50% of the market share, smuggled cigarettes now account for more than 20% of the market. In the first five months of this year, officials prevented 1,700 violations of smuggled and fake tobacco and seized nearly 600,000 cigarette packs. Vietnam's Ministry of Industry and Trade's Market Watch Department revealed that over 6.8 million packs of illegally imported tobacco were seized during 2013 and in the first quarter of 2014 combined.

However, despite the challenges encountered with the new regulations coming into effect and the possibility of a future tax hike, Vietnam's tobacco industry seems to still be in good health. Figures obtained from Vinataba show that in 2013, sales volume was at 112 billion sticks, 6.8 % higher than the previous year. Export volume increasedby nearly 14%, compared to 2012, at 24.5 billion sticks. While current figures for 2014 have shown a slight decrease in sales volume, Vinataba expects that it will meet this year's projection figures. Enditem