A peek into the cigarette industry, from a marketing and distribution point of view. The challenges faced, taxation, etc.

1. Akshay Arya
Ameya Waghmare
Naveen Kumar
Siddhesh Brid

2. Cigarette Industry in India
• Cigarettes can be classified as Value-Routine
products
• The tobacco posted 24% growth in other-
than-cigarette division and only 5% growth
from cigarettes division. (Source: Moneycontrol)
• India is the second largest manufacturer of
cigarette products in the world after China (Source:
Tobacco Board)

3. Cigarette Industry in India
• In spite of being the second biggest
producer, India is only the ninth exporter of
tobacco (Source: Tobacco Board)
• The use of cigarettes in India is merely a tenth
of the world average. (Source: World Health Organization)
• India’s consumption per capita stands at 99th
place in the world (Source: World Health Organization)

4. Tobacco Consumption by Geography

5. Cigarette Market Share
ITC Godfrey Phillips Vazir Sultan Tobacco Company Others
8%
8%
12%
72%
Source: Businessworld

6. Major Companies in India

7. Trends in Cigarette Retailing
• Pictorial Warnings on packaging getting negative
response from manufacturers
• Ban on Advertising
• Ban on FDI in Indian Tobacco Industry
• Paan shops remain the most important
distribution channel

8. Distribution of Cigarettes
Dealers/
Factories C&F Agents Distributors Retailers
Wholesalers

9. Factories
• Bengaluru
• Kolkata
• Munger (Bihar)
ITC • Saharanpur
• Ghaziabad
• Andheri (Mumbai)
GPI • Baramati

10. Distributors
• No. of distributors depends on the demand
• They provide warehousing for the goods
• Handle volumes of up to Rs. 5-6 Crore/Month
• An Assistant Manager along with 1-2 sales
assistants on the payroll of ITC/GPI is present
• Sales teams are paid and managed by the
distributors
• All transactions are cash and carry

11. Dealers/Wholesalers
Distributors
Retailers

12. Dealers/Wholesalers
• Very important members of the distribution
channel
• Deal in Tobacco, not just cigarettes
• Drive large volumes of sale
• Inject credit into the system
• Have their own storage
• Supply to large/small retailers and paan shops
• Often buy large amounts based on speculation

13. Small Retailer (Pan Shop)
•Sells 15-20 packs a day
•Makes a margin of about Rs.10-20 per pack
•Procures cigarettes from a dealer on daily basis
Large Retailer
•Gets his goods from the company distributors directly
•The goods come to his shop via the sales team
•Cash and Carry
•Point of Purchase displays
Super stores and Hypermarts
• Sell larger packs (Bingos)

14. Transport for Distribution

15. Warehouse

16. Retail Margins
Margin /
Description Cost Rs. Taxes Rs. To
Cost of Manufacturing 0.59
Cost Including Excise and
VAT and State taxes 3.57 500.00% 2.97 Government
Cost to Distributor 4.75 25.00% 1.19 Company
Cost to Dealer/Wholesaler 4.80 1.00% 0.05 Distributor
Cost to Retailer 4.95 3.00% 0.15 Wholesaler
Cost to Consumer (Packet) 5.50 10.00% 0.55 Retailer
Cost to Consumer (Loose
stick) 7 29.29% 2.05 Retailer

17. Sales Promotions
• Various schemes are introduced for Dealers
and retailers
• Get 1 pack for 10 empty packs
• Cash Discounts
• Trip to Singapore/Malaysia on sale of Rs. 5-6
Lakhs
• In case of low sales from any area, the
marketing team may take appropriate actions

18. Advertising

19. Advertising
• Advertising of cigarettes is banned
• Sponsoring youth events is banned
• Surrogate advertising likely to be banned in near
future
• Advertising PoP (Point of Purchase) is the only
viable option

20. PoP Advertising
• The brand name of a cigarette in bright lights
along with the name of ‘paan shop’ at
prominent locations
• The key shelf space which is easily visible to
customers is used for displaying the brands

21. Red and White Bravery
PoP Advertising Awards, Surrogate Advertising

22. Damaged/Unsold Stock
• Cigarettes have a shelf life of 3-6 months as
they are highly hygroscopic
• All damaged or unsold goods are bought back
by the company and sent to the factories
• The tobacco is extracted and processed by
casing which enhances the flavor
• New cigarettes are now produced using the
tobacco