Industry Analysis

Tobacco Industry
Sub Industry: Cigarette
 Tobacco – An overview
• Chewing tobacco has been a tradition in India for
centuries
• Of total amount produced:48% is in the form of
chewing tobacco, 38% as bidis, and only 14% as
cigarettes
• Therefore, most of the tobacco produce is suitable
for the manufacture of chewing tobacco, bidis and
other cheap tobacco products, which have no
demand outside the country
 Tobacco – An overview
• India is the second largest producer of tobacco in the
world after China
• India is only the ninth largest exporter of tobacco
and tobacco products in the world
• India holds a meagre 0.7% share of the US$ 30 billion
global trade in tobacco, with cigarettes accounting
for 85% of the country's total tobacco exports
 Cigarette Industry Overview
• Out of the total tobacco produced in India, only one-
third is flue-cured tobacco suitable for cigarette
manufacturing
• The per capita consumption of cigarettes in India is
merely a tenth of the world average
• Consumption pattern is a combination of tradition
and more importantly the tax imposed on cigarettes
• Cigarette smokers pay almost 85% of the total tax
revenues generated from tobacco
 Major Market Players
• In India, three major cigarette players dominate the
market, primarily ITC with 72% market share,
Godfrey Phillips with 12% and VST and GTC with 8%
share each of the market
 Regulatory Body
• Recognizing the need to regulate production,
promotion of overseas marketing and to control
recurring instances of imbalances in supply and
demand, which lead to market problems, the
Government of India established the Tobacco Board
• The Board came into existence from 1-1-1976
• Its head quarters at Guntur in Andhra Pradesh, India
 Recent Developments
• The Budget 2010 announced;
17 % Excise duty
12.5% VAT
• Government is all set to ban foreign direct
investment (FDI) in cigarette manufacturing
 Burning issues for Cigarette
Manufacturers
• State wise entry taxes
• Luxury tax
• Excise duty instead of Sales tax and other
taxes
• Ban on promotions an advertising
• Display of graphic pictures to depicting effects
of smoking
 Godfrey Phillips (India) Ltd
• Manufacturing Unit - Guntur, AP
• Brands – Stellar, Igen, Four Square, Jaisalmer,
Red & White Flake, North Pole, Cavanders,
Tipper
• 2nd largest player
• Two major stakeholders – K.K. Modi Group
and Phillip Morris
 SWOT Analysis of Godfrey Phillips
Strength:
• 2nd largest company in India
• 1st and only company in India to organize the
fragmented cigar market
• Market leader in cigar distribution
• Partners with the top international players
Weakness:
• Low popularity of most of its brands
• No sole authority
 SWOT Analysis of Godfrey Phillips
Opportunities:
• Presence in the Middle East, West Africa, South East
Africa and South East Asia, hence it can enter new
markets
• Expand in Indian Tobacco market
• Reduction of agriculture subsidy and escalating cost
in traditional exporting countries like Brazil
 SWOT Analysis of Godfrey Phillips
Threats:
• ITC getting into Cigar market
• Smuggled foreign cigarettes
• NGO’s and Forums against use of cigarettes
• Burden of taxes
• Prohibition on advertising
 Porter’s Five Force for Godfrey
Phillips
Threats of New Entrants – LOW
• New product differentiation is difficult since already
available at different prices, flavors and brand image
• Access to distribution is tough
• Capital requirement is very high for pan India launch
• Local launch does not give Economies of scale
• Govt. policies – high taxes and no promotions
 Porter’s Five Force for Godfrey
Phillips
Bargaining Power of Suppliers – LOW
• Many inputs are required but in small quantities,
such as paper, tobacco, filters
• Many small scale and unorganized suppliers are
present
• Manufacturers have direct access to distributors and
addicted buyers, suppliers have no control
 Porter’s Five Force for Godfrey
Phillips

Bargaining Power of Buyers – LOW

• Addicted buyers, even after being aware of its effects,
can’t leave it
• Smoking has symbolic and emotional values attached to
it
• Product quality of not much importance to consumers,
cannot differentiate among brands in a blind test
• Low switching costs
 Porter’s Five Force for Godfrey
Phillips
Threats of Substitutes – LOW
• Herbal cigarettes were launched, but not popular
• Nicotine patches, no comparison with cigarettes in terms
of usage
 Porter’s Five Force for Godfrey
Phillips

Competitive Rivalry within Industry – HIGH

• Competing players – ITC, VST, GTC
• Price competition
• Replacement for Ads – Event sponsorships
 Ansoff’s Matrix for Godfrey Phillips
PRODUCTS
EXISTING PRODUCTS NEW PRODUCTS

Market Penetration Product

Development
•Increase popularity
EXISTING in existing markets by •Introduce flavored
MARKETS way of event cigarettes
sponsorships and
M
promotions
A
R
K
E Market Development Diversification
T
•Explore regions such •Enter into
S
as South America and manufacturing
NEW Eastern Europe, which nicotine gums, low
MARKETS
are traditionally heavy nicotine cigarettes
smokers and hooka flavors
 LAST BUT NOT THE LEAST

CIGARETTE SMOKING IS INJUROUS

TO HEALTH!!!