Greece, price war between tobacco industries
As the dramatic economic crisis in Greece intensifies, a ferocious war has broken out on the Greek tobacco market, with producers and retailers reducing the prices of products for the first time. First blood at the start of the year went to the undisputed market champion, Philip Morris, which reduced the price of Marlboro cigarettes by 12.5% to 3.50 euros for a pack of twenty. The example was immediately followed by the company’s direct competitors (British American Tobacco and Japan Tobacco International), who carried out even greater price cuts. JTI, for instance, brought the price of a pack of Camel cigarettes down from 4 euros to 3.20 euros.
The price war is unprecedented on the Greek tobacco market. An expert on the sector, speaking to the Kathimerini newspaper, said: “If you exclude the introduction of cheap cigarettes, such as “Leaders”, in 2003, this is the first time that tobacco companies have reduced the prices of their most common brands”.
Such a strategy, the expert explains, is geared towards reaching a variety of targets, but the first and most important is for companies to keep their market share unchanged, just as significant increases are forcing consumers to seek cheaper alternatives such as rolling tobacco, a choice from which it is difficult to return. The price hike is also leading smokers to turn to substitutes such as electric cigarettes, while the drop in income has forced many into cheaper solutions such as smuggled cigarettes, a market that continues to blossom.
Official figures show that in the period between 2010 and 2011, sales of industrial and “legal” cigarettes dropped by 21.7% to 6.6 billion units, with a total of 23.8 billion cigarettes at the end of 2011. On the other hand, sales of smuggled cigarettes purchased over the same period in duty-frees or in neighbouring countries trebled from 0.9 billion to 3.1 billion.
The second aim for tobacco companies is to hit the Athens government, which has severely penalised them over the last two years by imposing consecutive duty rises without giving them time to respond to the price rise with new marketing strategies.
“Unfortunately, in its frantic rush to increase income, the government failed to listen to the experts,” says one industry official, with the result being an “excessive” rise in duty on tobacco, which rose from 73.5% in 2009 to 83.7% at the end of 2011. At one stage, the figure reached 85.7%, but the Finance Ministry decided to reduce it slightly after seeing that the successive rises had not produced the desired results. Meanwhile, the levy on rolling tobacco is at 93.4% on average. The drop in the price of cigarettes will be decisive in determining the proportional tax on income, which will reach an average of 52% for brands whose prices have been reduced. The fact that the price war means less revenue for the state has caused a number of sector experts to interpret this strategy by tobacco companies as a sort of vendetta against the government, whose fiscal policies are considered hostile.
In the meantime, though, sales of cigarettes and related products have fallen significantly. Many companies have seen their profits fall, but state revenue is also down. In 2010, the government was aiming to generate turnover of 4.3 billion euros with duty on tobacco, but the year only with only 3.7 billion euros brought in, while revenue for 2011 was similar to that of the previous year. Sector experts say that this suggests that state revenue, which is desperately needed to restore Greece’s financial health, will barely feel the effects of further rises in cigarette duty.
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