Brief Excerpt from Industry Overview Chapter:
Companies in this industry stem and redry tobacco and manufacture cigarettes and other tobacco products. Major companies include US-based Altria (owner of Philip Morris USA and UST), Philip Morris International, and Reynolds American (a subsidiary of British American Tobacco); China National Tobacco; UK-based British American Tobacco and Imperial Brands; and Japan Tobacco.
Demand is driven by discretionary consumer spending and mitigated by awareness of the health effects of smoking. The profitability of individual companies depends on effective marketing. Large companies enjoy economies of scale in manufacturing and in their ability to offer wider ranges of products. Small companies can compete effectively through heavy discounting, through clever branding and packaging, and by exploiting niche categories such as pipe tobacco and additive-free cigarettes. The US industry is highly concentrated: the eight largest companies generate about 95% of revenue.
PRODUCTS, OPERATIONS & TECHNOLOGY
Cigarettes account for about 80% of US industry revenue. Other forms of smokable tobacco (such as pipe tobacco) and chewing tobacco combine for about 10%, while cigars make up about 2%. Many companies in the industry also manufacture electronic cigarettes and similar products that vaporize nicotine without burning tobacco. Cigarettes also dominate the global market, accounting for more than 90% of worldwide tobacco product sales. Cigars have a global market share of about 3%, while smokeless tobacco accounts for about 2%.
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