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In Depth Study of Tobacco Industry In India with Specific Focus On Cigarette

SECTION 1

RESEARCH METHODOLOGY

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1. Research Methodology

Project title

In Depth Study of Tobacco Industry in India with Specific Focus on Cigarette

1.1 Objectives

To Study the Global Scenario of cigarette Industry

To Study the Indian Scenario of cigarette Industry

To Study the Trends in cigarette in India

To Understand the key drivers cigarette industry

To Study various formats under the organized cigarette industry

To Study the effect of Political, Economical, Socio-Cultural and Technological

factors on the organized cigarette industry.

To implement an Opportunities and Threat analysis to critically analyze cigarette

industry within India

1.2 Information needed

Statistics of Global Organized cigarette Industry

Indian Scenario of Organized cigarette Market

Profiles of Major Industry Players indulged in organized cigarette Business.

All India, region wise market situation in cigarette Businesses.

Factors affecting to cigarette business in India.

Future prospects of Indian organized cigarette industry.

Government Policy on Organized cigarette Business.

Indian cigarette Industry Structure

Major Trends observed in Indian cigarette Industry.

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1.3 Data collection source

For the purpose of the study we have collected the secondary data.

Secondary Data:-

Journals

Newspaper

Magazines

Reference books

Web sites Research papers

1.4 Limitation of Study

Only limitation is the research is based on the secondary information and data but

all the included aspect are correct and relevant as per our best knowledge and study.

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2. TOBBACCO- INTRODUCTION

2.1 Introduction

This is not just about any crop. Tobacco is an agricultural product processed from the

leaves of plants in the genus nicotine. It can be consumed, used as an organic pesticide

it is used in some medicines. In consumption it most commonly appears in the forms of

smoking, chewing, snuffing, ordipping tobacco. Tobacco business is a centuries old

business. It has a very high growth rate and has seen many ups and downs. It has also

been controversial over the period of time and has been subject to many types of

criticisms. But apart from all these things people do smoke and people want to keep on

smoking.

2.2 History of Tobacco1

EARLY TOBACCO USE

1,000 BC Ancient temple carvings depict Mayan priests in Central America

smoking tobacco through a pipe. Tobacco leaves become widespread in medicine

for use on wounds as a means of reducing pain. Later the Aztecs incorporate smoke

inhalation into religious rituals. Two castes of smokers emerge: the pipe smokers at

the court of Montezuma and lesser Aztecs who roll the leaves into crude cigars.

470 - 630AD Mayan tribes begin to scatter - and tobacco travels with them. The

leaf moves southwards to South America where it is wrapped in maize and palm

leaves and smoked - and north where it is introduced to the native Americans in the

Mississippi area. In North America pipes are made from clay, marble or lobster

claws. Some pipes, with two stems, are used for inhaling through the nostrils.

Tobacco chewing is common, especially in South America where the leaf is mixed

with lime.

1 http://en.wikipedia.org/wiki/Tobacco

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1492 Arawak people in the Bahamas, on an island Christopher Columbus christens

San Salvador, offer the explorer-dried leaves. Not understanding their significance,

Columbus discards them. A month later Rodrigo de Jerez and Luis Torres

returning from a trip into the interior of Cuba - stumble on villagers inhaling the

smoke from burning dried tobacco leaves through a hollow Y-shaped piece of cane

called a tobago or tobaca. Jerez is thought to be the first smoker outside the

Americas. When Jerez returns to his home town of Ayamonte, during the Spanish

Inquisition, the holy inquisitors accuse him of "consorting with the devil" when

they see smoke coming from his mouth. He is imprisoned for seven years. By the

time he is released, smoking is a custom in Spain. Jerez perhaps sets a precedent for

the plant's controversial future.

1492: Arawak people in the Bahamans North America give Christopher Columbus

burning leaves, pipes are made from clay, marble or lobster claws.

USE OF TOBACCO IN 20th CENTURY2

1900 The Anti Cigarette League publishes a pamphlet claiming links between

cigarette smoking and brain disease.

1902 The Imperial Tobacco Company of the United Kingdom and The American

Tobacco Company of the United States agree to end a trade war by forming a joint

venture, the 'British-American Tobacco Company LTD'. James B. Duke, becomes

the venture's first chairman.

1908 The New York City authority bans women from smoking in public. Two

weeks later Katie Mulcahey is arrested for violating the rule. As she is led away she

declares, "No man shall dictate to me". Cigarette smoking was often seen as a

symbol of women's emancipation.

1914 Outbreak of World War I. General John J. Pershing, commander-in-chief of

the American forces in France in 1917 calls tobacco "indispensable to the daily

ration". In Europe troops use cigarettes to pass time and to try to calm their nerves.

The popularity of cigarettes in the armed forces associates tobacco with patriotism.

2 k.srinath reddy & prakash c. gupta, tobacco control in India, Ministry of Health & Family Welfare, Government

of India

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1925 Despite the bans, cigarette sales continue to increase. The American Mercury

reports, "The more violently it has been banned, the more popular it has become."

1941 Roosevelt makes tobacco a protected crop as part of the World War II war

effort. His wife Eleanor was dubbed "the first lady to smoke in public".

1945 During World War II, smoking increases. By the middle of the next decade,

more than a quarter of American women and more than half of American men

smoked cigarettes.

1952 Two British researchers, Richard Doll and A. Bradford Hill report the results

of a four-year study comparing 1,465 lung cancer patients to an equal number of

patients with other diseases, matched for age, sex and region. They conclude that

lung cancer patients are considerably more likely to be smokers and much more

likely to be heavy smokers.

1960s Public health warnings emerge.

1964The American Surgeon General publishes a 387-page report stating, "Cigarette

smoking is a health hazard of sufficient importance in the United States to warrant

appropriate remedial action." For the first time smoking is banned in the State

Department auditorium

1980s The tobacco industry sees substantial annual duty increases which result in

cigarette taxation increasing by 85 per cent or more in several countries including

the UK.

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2.3 Types of Tobacco3

1. Smokeless tobacco

Smokeless tobacco is usually consumed orally or nasally, without burning orcombustion. There are two main types of smokeless tobacco: snuff and chewing

tobacco.

DRY SNUFF

Dry snuff is powdered tobacco that is

inhaled through the nose and absorbed

through the nasal mucosa or taken orally.

Once widespread, particularly in Europe,

the use of dry snuff is in decline.

Most Prevalent: Europe

MOIST SNUFF

Moist snuff is a small amount of ground

tobacco held in the mouth between the

cheek and gum. Manufacturers are

increasingly prepackaging moist snuff

into small paper or cloth packets to make

the product more convenient. Other moist

snuff products are known as khaini, snus,shammaah, nass, or naswa .

Most

Prevalent: Worldwide

3 http://tobaccoatlas.org/tobaccoatlas/data.html

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CHEWING TOBACCO

Oral smokeless tobacco products are

placed in the mouth, cheek, or inner lip

and sucked (dipped) or chewed. Tobacco

pastes or powders are similarly used,

placed on the gums or teeth. Sometimes

referred to as spit tobacco because

users spit out the built-up tobacco juices and saliva, this mode of tobacco consumption

became associated with American baseball players during the twentieth century. The

tobacco industry exploited these sports heroes to market their tobacco products to

youth. Smokeless tobacco causes cancer in humans and leads to nicotine addiction

similar to that produced by cigarette smoking. There are many varieties of smokeless

tobacco, including plug, loose-leaf, chimo, toombak, gutkha, and twist. Pan masala or

betel quid consists of tobacco, areca nuts (Areca catechu), slaked lime (calcium

hydroxide), sweeteners, and flavoring agents wrapped in a betel leaf (Piper betel).

There are endless varieties of pan masala, including kaddipudi, hogesoppu, gundi,

kadapam, zarda, pattiwala, kiwam, and mishri.

Most Prevalent: India

2. Smoking tobacco

Tobacco smoking is the act of burning dried or cured leaves of the tobacco plant and

inhaling the smoke. Combustion releases biochemicaly active compounds in tobacco,

such as nicotine and allows them to be absorbed through the lungs.

ROLL-YOUR-OWN

Roll-your-own (RYO) cigarettes are

cigarettes hand-filled by the smoker from

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fine-cut, loose tobacco rolled in a cigarette paper. RYO cigarette smokers are exposed

to high concentrations of tobacco particulates, tar, nicotine, and tobacco-specific

nitrosamines and are at increased risk for developing cancers of the mouth, pharynx,

larynx, lung, and esophagus. Most Prevalent: Europe and New Zealand

MANUFACTURED CIGARETTES

Manufactured cigarettes are the most

commonly consumed tobacco products

worldwide. They consist of shredded or

reconstituted tobacco, processed with

hundreds of chemicals and rolled into a

paper-wrapped cylinder. Usually tipped

with a cellulose acetate filter, they are lit at

one end and inhaled through the other.

Most Prevalent: Worldwide

2.4 Tobacco Leaf Production 4

Tobacco Leaf

Production ( '000

tones)

Actual

2000

Projected

2010

World 6137.7 7160

China 2298.7 2972.5

India 595.4 685.4

Brazil 520.7 584.7USA 408.2 526.8

EU (15) 314.5 300.9

Zimbabwe 204.9 232.8

Turkey 193.9 268.8

Indonesia 166.6 119.6

USSR( Former Area) 116.8 70

Malawi 108 137.9

4http://www.tobaccoatlas.org/comparecountries.html?countries=india#

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2.5 Tobacco export

101

2.6 Tobacco market size in India5

2.7 Major players in tobacco markets

1. ITC (Indian tobacco Company)

2. Goldfrey Philips India Ltd

3. GTC Industries

4. VST Industries Ltd.

5. Dalmia Consumer Care

6. Kothari product Ltd.

5 Tobacco board of india

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SECTION 3

CIGARETTE- INTRODUCTION

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3. CIGARETTE- INTRODUCTION

3.1 The product

A cigarette is a product consumed through smoking and

manufactured out of cured and finely cut tobacco leaves

and reconstituted tobacco, often combined with other

additives, then rolled or stuffed into a paper-wrapped

cylinder(generally less than 120 mm in length and 10 mm

in diameter). The cigarette is ignited at one end and allowed to smoulder for the

purpose of inhalation of its smoke from the other (usually filtered) end, which is

inserted in the mouth. They are sometimes smoked with a cigarette holder.6

Rates of cigarette smoking vary widely. While rates of smoking have leveled off or

declined in the developed world, they continue to rise in developing nations.

A cigarette is distinguished from a cigar by its smaller size, use of processed leaf, and

paper wrapping, which is usually white, though other colors are available. Cigars are

typically composed entirely of whole-leaf tobacco.

3.2 History of product

The earliest forms of cigarettes have been attested in

Central America around the 9th century in the form

of reeds and smoking tubes. The Maya and later the

Aztecs smoked tobacco and various psychoactive

drugs in religious rituals and frequently depicted

priests and deities smoking on pottery and temple

engravings. The cigarette and the cigar were the most

6http://www.wpro.who.int/media_centre/fact_sheets/fs_20020528.htm. Retrieved 13/11/2009.

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http://en.wikipedia.org/wiki/Smokinghttp://en.wikipedia.org/wiki/Curinghttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/List_of_additives_in_cigaretteshttp://en.wikipedia.org/wiki/Cylinder_(geometry)http://en.wikipedia.org/wiki/Smoulderhttp://en.wikipedia.org/wiki/Inhalationhttp://en.wikipedia.org/wiki/Cigarette_filterhttp://en.wikipedia.org/wiki/Cigarette_holderhttp://en.wikipedia.org/wiki/Developed_Worldhttp://en.wikipedia.org/wiki/Developing_Worldhttp://en.wikipedia.org/wiki/Maya_civilizationhttp://en.wikipedia.org/wiki/Aztechttp://www.wpro.who.int/media_centre/fact_sheets/fs_20020528.htmhttp://www.wpro.who.int/media_centre/fact_sheets/fs_20020528.htmhttp://en.wikipedia.org/wiki/Smokinghttp://en.wikipedia.org/wiki/Curinghttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/List_of_additives_in_cigaretteshttp://en.wikipedia.org/wiki/Cylinder_(geometry)http://en.wikipedia.org/wiki/Smoulderhttp://en.wikipedia.org/wiki/Inhalationhttp://en.wikipedia.org/wiki/Cigarette_filterhttp://en.wikipedia.org/wiki/Cigarette_holderhttp://en.wikipedia.org/wiki/Developed_Worldhttp://en.wikipedia.org/wiki/Developing_Worldhttp://en.wikipedia.org/wiki/Maya_civilizationhttp://en.wikipedia.org/wiki/Aztec

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common method of smoking in the Caribbean, Mexico and Central and South America

until recent times. 7

By 1830, the cigarette had crossed into France, where it received the name cigarette;

and in 1845, the French state tobacco monopoly began manufacturing them.

In the George Bizet opera Carmen, which was set in Spain in the 1830s, the title

character Carmen was at first a worker in a cigarette factory.

In the English-speaking world, the use of tobacco in cigarette form became increasingly

popular during and after the Crimean War, when British soldiers began emulating their

Ottoman Turkish and Russian comrades. This was helped by the development of

tobaccos that are suitable for cigarette use, and by the development of the Egyptian

cigarette export industry.

During World War I and World War II, cigarettes were rationed to soldiers. The

widespread smoking of cigarettes in the Western world is largely a 20th century

phenomenon at the start of the century the per capita annual consumption in the USA

was 54 cigarettes (equivalent to less than 0.5% of the population smoking more than

100 cigarettes per year), and consumption there peaked at 4,259 per capita in 1965. At

that time about 50% of men and 33% of women smoked (defined as smoking more than

100 cigarettes per year). By 2000, consumption had fallen to 2,092 per capita,

corresponding to about 30% of men and 22% of women smoking more than 100

cigarettes per year, and by 2006 per capita consumption had declined to 1,691;

implying that about 21% of the population smoked 100 cigarettes or more per year.

3.3 Seed to stick journey

Seed

The tobacco plant is a member of the same botanical family as tomatoes, potatoes,

peppers or eggplants. An adaptive species, it can be grown economically from 50

Northern to 40 Southern latitude. More than 100 countries grow tobacco. China is the

largest producer, followed by the United States, Brazil, India, Zimbabwe and Turkey.

7 Robicsek, Francis Smoke Ritual Smoking in Central America pp. 3037 bmj article press

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Tobacco thrives in poorer soils, providing farmers with a welcome alternative crop. In

many cases, it provides a higher income than any other smallholder crop. As a crop, it

integrates well into environmentally friendly rotations, and its inclusion benefits

subsequent crops like maize. A typical farmer in rural Uganda, for example, with two

to three hectares of land can earn a good income from only a small part of that land

being planted with tobacco. British American Tobacco can help the farmer by

providing seeds and fertilizer and by giving advice on planting, growing, harvesting

and curing tobacco and other crops.

There are some 13,000 seeds in a gram -looking rather like powdery instant

coffee. The seeds are so small that they must be nurtured in specially prepared and

protected seedbeds for 60 days before transplanting to the field. After a couple of

weeks, soil is banked up around the seedlings to protect them and to allow them to

develop a good root system. Two months later, the plants' flowers and some of the

upper leaves are 'topped' in order to concentrate growth in the remaining leaves (in the

same way that tomato are 'pinched out'). All the time, the farmer needs to provide the

appropriate nutrition for the plant and watch out for pests as the crop grows towards the

harvesting stage.

Harvest

With the exception of some countries such as the United States (where the crop is

mechanically harvested), the farmer will typically harvest by hand, sequentially taking

off 2-4 leaves per plant as the leaves ripen from bottom to top, which stretches the

harvesting period from over 2 to 4 months. The typical Ugandan farmer will harvest

about 15,000 plants, each with 22 leaves.

Processing

The cured leaf is then processed through a Green Leaf Threshing Plant. The main

purpose of the processing is to remove sand, dust, scraps and foreign matter. Separate

the lamina from the stem (threshing). Drive down the tobacco to a safe keeping

moisture' content. Processed tobacco is packed into 200kg cardboard boxes, for

shipping to manufacturing sites.

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Manufacturing

At the factory, the matured tobacco is checked for quality and then carefully blended

with other ingredients which the brand recipe may call for, such as flavorings or pre-

processed tobacco. Keeping track of the various types of tobacco and blend

components is key and computers are increasingly used to track production runs.

Moisture content is crucial. Too dry and the tobacco leaf will crumble; too moist and it

may spoil during storage. The blended tobacco is treated with just the right amount of

steam and water to make it supple, and then cut into the form in which it appears in the

cigarette. Excess moisture is then removed so that the cut tobacco can be given a final

blending and quality check.

Cigarette making, once done entirely by hand, is today almost fully automated

with the cut tobacco, cigarette paper and filters continuously fed into the cigarette-

making machines. The technology has advanced dramatically over the years, but

quality is not forgotten; each cigarette is automatically quality controlled to ensure that

it meets every aspect of its specification. As packing machines put them into the

familiar brand packs, wrap the packs in protective film, and group them into cartons

and cases, further testing takes place at each stage to make sure the cigarettes are

properly protected. The completed cases, time-dated to ensure the freshest product

possible, are then ready for distribution.

3.4 Cigarette Components and Their Functions

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1. TOBACCO BLEND

Purpose

Delivering taste

Delivering psychological satisfaction

Composition

Fuel cured tobacco

Air cured tobacco

Burley tobacco

Stem

Top flavors

2. CIGARETTE PAPER

Purpose

To contain tobacco blend

To control air dilution

To control burning rate

Composition

Largely cellulose

Contain fiber such as calcium carbonate

3. FILTER

Purpose

Cigarette filter reduce tar/nicotine

Act as a mouth pipe keeping tobacco away from smokers mouth.

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Composition

Mostly cellulose acetate

4. PLUG WRAP

Porous and non porous

5 TIPPING PAPER

Ventilated and none ventilated.

3.5 Cigarette Parameters That Can Affect Quality

1) Length

2) Circumferences3) Moisture

4) Cigarette paper

5) Pressure drop

6) Tip leakage

7) End loss

8) Firmness

9) Blend chemistry

3.6 CLASSIFICATION OF CIGARETTES

Some brands are classified according to length and sizes. Brands of LTC classified

according to size and length are as follows;

KSFT King size filter

RSFT Regular Size Filter

LSFT Long size filter

The Packing is also given different names according to their classification and their

variety.

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3.7Comparison of Countries in terms of cigarette consumption8

Country

Cigarettes

Consumed

(millions)

2007 Population

(15 and older)

Per Capita

ConsumptionINDIA 108000 1095351964 99

AUSTRALIA 22900 20264062.4 1130

BANGLADESH 25380 147365319 172

BRAZIL 109000 188078201 580

CANADA 29695 33098914.4 897

CHINA 2162800 1313973692 1646

INDONESIA 239000 245452710 974

JAPAN 258500 127463597 2028

PAKISTAN 64830 165803521 391SRI LANKA 4150 20222215.9 205

UNITED STATES OFAMERICA 357000 298444195 1196

UNITED KINGDOM 47900 60609135.5 790

3.8 Product substitute

1. Beedi

A beedi is a thin, Indian cigarette made

of 0.2-0.3 grams of tobacco flake

wrapped in a tendu (or temburini;

Diospyros melonoxylon) leaf and secured

with colored thread at both ends. The

beedi accounted for over 30% of Indian

tobacco consumption and were more

popular than cigarettes, although they

deliver more nicotine, carbon monoxide,

and tarthan conventional cigarettes. 9

8Cigarette consumption: ERC. (2007).

World Cigarettes the 2007 Report. ERC Statistics Intl PIc.Population: Central Intelligence Agency. (2007).9 http://en.wikipedia.org/wiki/Bedi

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Beedi-rolling is a cottage industry in India and is typically done by women in their

homes. Due to the relatively low cost of beedies compared with regular cigarettes, they

have long been popular among the poor in India, Bangladesh, Pakistan, Sri Lanka,

Cambodia and are called the "poor man's cigarette".

Beedi production encompasses a number of distinct activities. Before the beedi-rolling

can commence, the tendu leaves must be prepared by cleaning, cutting and soaking,

then the beedies themselves are rolled, and the ends tucked in and secured by thread.

The finished beedies are bundled and checked for quality before being roasted in

furnaces and then packed for sale.

Beginning in the 1900s the Indian beedi industry saw rapid growth during the 1930s

probably driven by the expansion of tobacco cultivation during the same time.

Increased demand saw the creation of a number of new beedi manufacturing companies

as well as beedi factories employing upwards of one hundred beedi rollers. The beedi-

rolling workforce was predominately male, but with the promulgation of the Factories

Act, 1948, and Beedi and Cigar Act, 1961 & 1966 etc. factory-based beedi production

declined and the mode of work shifted to a putting-out system, with a home-based

women workforce, which are predominantly employed only in the beedi-rolling. In

contrast, males continue to be employed in all aspects of beedi production. Today the

production of beedies is "unorganized" and employers take "devious means" to

"disguise employer-employee relationships", probably in order to deny benefits that

workers, by law, are to be afford

2. Electronic cigarette

An electronic cigarette, otherwise known as a personal

vaporizer, is abattery-powered device that provides inhaled

doses of nicotine by way of a vaporized solution. It is an

alternative to smoked tobacco products, such as cigarettes,

cigars, orpipes. In addition to nicotine delivery, this vapor also provides a flavorand

physical sensation similar to that of inhaled tobacco smoke, while no tobacco, smoke,

orcombustion is actually involved in its operation.

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An electronic cigarette usually takes the form of some manner of elongated tube,

though many are designed to resemble the outward appearance of real smoking

products, like cigarettes, cigars, and pipes. A common design is also the "pen-style", so

named for its visual resemblance to a ballpoint pen. Most electronic cigarettes are

reusable devices with replaceable and refillable parts. A number of disposable

electronic cigarettes have also been developed.

The electronic cigarette was first developed in Beijing, China, by SBT Co. in 2003, a

company now controlled by the Ruyan Group Ltd. (formerly Golden Dragon Group

Ltd.)10

The health effects of using electronic cigarettes are currently unknown. Some electronic

cigarette companies claim that the harmful material produced by the combustion of

tobacco in traditional cigarettes is not present in the atomized liquid of electronic

cigarettes. Some have also marketed electronic cigarettes as a way to curtail an

addiction to nicotine, although international health organizations have stated they may

not be marketed as a cessation device.

3. Herbal cigarette

Herbal cigarettes (also called tobacco-free cigarettes or

nicotine-free cigarettes) are cigarettes that do not contain any

tobacco or nicotine. There are several popular brands of such

cigarettes, usually containing a mixture of different herbs and/or

other plant material. Like herbal smokeless tobacco, they are

often used as a substitute for standard tobacco products (primarily cigarettes), and

many times as a tobacco cessation aid. They are also used in acting scenes by non-

smokers.

Herbal cigarettes are most often made using standard-issue rolling papers and filters.

Instead of tobacco as a filling, however, a wide range of consumable products may be

10 http://www.reuters.com/article/idUSSP23039020070509

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http://en.wikipedia.org/wiki/Ballpoint_penhttp://en.wikipedia.org/wiki/Beijing,_Chinahttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Atomizationhttp://en.wikipedia.org/wiki/Cigarettehttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Nicotinehttp://en.wikipedia.org/wiki/Herbhttp://en.wikipedia.org/wiki/Herbal_smokeless_tobaccohttp://en.wikipedia.org/wiki/Herbal_tobacco_alternativehttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Tobacco_cessationhttp://en.wikipedia.org/wiki/Ballpoint_penhttp://en.wikipedia.org/wiki/Beijing,_Chinahttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Atomizationhttp://en.wikipedia.org/wiki/Cigarettehttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Nicotinehttp://en.wikipedia.org/wiki/Herbhttp://en.wikipedia.org/wiki/Herbal_smokeless_tobaccohttp://en.wikipedia.org/wiki/Herbal_tobacco_alternativehttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Tobacco_cessation

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used. Cornsilk as well as a number of flavorful herbs such as mint, cinnamon or

lemongrass have been utilized by a wide number of herbal cigarette producers.

Herbal cigarettes are sometimes perceived as safer than regular cigarettes. Tobacco-free

herbal cigarettes will not produce nicotine dependence; however, inhaled smoke of any

kind is dangerous. Carbon monoxide, carbon dioxide and tarenter the mouth and/or

lungs with the inhalation of all smoke, and are absorbed into the body. These

substances are all harmful and considered toxic to humans. Arkopharma ,

Benjamins ,Ecstasy (Melrose) ,Guocao ,Herbal Gold ,Herbala (Carica) ,Honey rose,

Honeysuckle ,Jambi ,Jieyanling ,Magic ,Nirdosh are the popular brands of herbal

cigarettes.11

4. Hookah or water pipe

A hookah or water pipe is a single or multi-

stemmed (often glass-based) instrument

forsmokingtobaccoin which the smoke

is cooled and filtered by passing throughwater. Originally from India, hookah has

gained popularity, especially in the

Middle East and is gaining popularity in

North America,Europe andAustralia.

The Hookah was invented in India in the court of the Mughal emperorAkbar (1542 -

1605 AD) Following the European introduction of tobacco to India, Hakim Abul

Fateh Gilani a descendant of Abdul Qadir Al-Gilani came from Baghdad to India

who was later a physician in the court of Mughal raised concerns after smoking

tobacco became popular among Indian noblemen, and subsequently envisaged a

system which allowed smoke to be passed through water in order to be 'purified'.

Gilani introduced the hookah after Asad Beg, then ambassador ofBijapur,

encouraged Akbar to take up smoking. Following popularity among noblemen,

11 http://www.hc-sc.gc.ca/hl-vs/tobac-tabac/res/news-nouvelles/herb-eng.php

SVIM, KADI (2008-10) 22
http://en.wikipedia.org/wiki/Cornsilkhttp://en.wikipedia.org/wiki/Menthahttp://en.wikipedia.org/wiki/Cinnamonhttp://en.wikipedia.org/wiki/Lemongrasshttp://en.wikipedia.org/wiki/Carbon_monoxidehttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Tarhttp://en.wikipedia.org/wiki/Smokinghttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Akbarhttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Adil_Shahihttp://en.wikipedia.org/wiki/Adil_Shahihttp://en.wikipedia.org/wiki/Cornsilkhttp://en.wikipedia.org/wiki/Menthahttp://en.wikipedia.org/wiki/Cinnamonhttp://en.wikipedia.org/wiki/Lemongrasshttp://en.wikipedia.org/wiki/Carbon_monoxidehttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Tarhttp://en.wikipedia.org/wiki/Smokinghttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Middle_Easthttp://en.wikipedia.org/wiki/North_Americahttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Akbarhttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Adil_Shahi

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this new device for smoking soon became a status symbol for the Indian

aristocracy and gentry.

The jar at the bottom of the hookah is filled with water sufficient to submerge a few

centimeters of the body tube, which is sealed tightly to it. Deeper water will only

increase the inhalation force needed to use it. Tobacco is placed inside the bowl at the

top of the hookah and a burning charcoal is placed on top of the tobacco. Some cultures

cover the bowl with perforated tin foil or a metal screen to separate the coal and the

tobacco, which minimizes inhalation of coal ash with the smoke. This may also reduce

the temperature the tobacco is exposed to, in order to prevent burning the tobacco

directly.

When one inhales via the hose, air is pulled through the charcoal and into the bowl

holding the tobacco. The hot air, heated by the charcoal evaporates (not burns) the

tobacco, thus producing smoke, which is passed down through the body tube that

extends into the water in the jar. It bubbles up through the water, losing heat, and fills

the top part of the jar, to which the hose is attached. When a smoker inhales from the

hose, smoke passes into the lungs, and the change in pressure in the jar pulls more air

through the charcoal, continuing the process.

If the hookah has been lit and smoked but has not been inhaled for an extended period,

the smoke inside the water jar may be regarded as "stale" and undesirable. Stale smoke

may be exhausted through the purge valve, if present. This one-way valve is opened by

the positive pressure created from gently blowing into the hose. It will not function on a

multiple-hose hookah unless all other hoses are plugged. Sometimes one-way valves

are put in the hose sockets to avoid the need to manually plug hoses.

Recently many cities, states and counties have implemented indoorsmoking bans. In

some jurisdictions, hookah businesses can be exempted from the policies through

special permits. Some permits however, have requirements such as the business

earning a certain minimum percentage of their revenue from alcohol or tobacco.

New business for water pipe, hookah bar that rapidly growing in Indian metro and

mega cities. In recent culture of India spread these hookahs bar specially youngster

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of India prefer these bars to smoke and use this new avtaar of hookah. The

smoking of hookahs is available in many flavors like chocolate, vanilla etc.12

5. Pipe

Pipes are made of briar, slate, clay, or other substances. Tobacco is placed in the bowl,

and the smoke is inhaled through the stem. In Southeast Asia, clay pipes known as

sulpa, chillum, and hookli are widely used. In rural part of India it is one of the popular

medium to smoke tobacco.

6. CigarsCigars are made of air-cured, fermented tobacco, usually in factories, and are generally

expensive. Cigar smoking is predominantly an urban practice.

Cigars are made of air-cured and fermented tobaccos with a tobacco-leaf wrapper. The

long aging and fermentation process produces high concentrations of carcinogenic

compounds that are released on combustion. The concentrations of toxins and irritants

12WHO Study Group on Tobacco Product Regulation (TobReg) an advisory note "Waterpipe tobaccosmoking:health effects, research needs and recommended actions by regulators", 2005

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http://www.who.int/entity/tobacco/global_interaction/tobreg/Waterpipe%20recommendation_Final.pdfhttp://www.who.int/entity/tobacco/global_interaction/tobreg/Waterpipe%20recommendation_Final.pdfhttp://www.who.int/entity/tobacco/global_interaction/tobreg/Waterpipe%20recommendation_Final.pdfhttp://www.who.int/entity/tobacco/global_interaction/tobreg/Waterpipe%20recommendation_Final.pdf

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in cigars are higher than in cigarettes. Cigars come in many shapes and sizes, from

cigarette-sized cigarillos to double coronas.

7. Chuttas

A hand-rolled cigar smoked in reverse with the lit end inside the mouth. The name

chutta in Telugu (spoken in Andhra Pradesh) may have come from the Tamil (spoken

in Tamil Nadu) word shruttu, meaning to roll. Chuttas are coarsely prepared cheroots.

They are usually the products of cottage and small-scale industries, or are made at

home. Nearly 9% of the tobacco produced in India is used for making chuttas. It is

estimated that about 3000 million pieces of chutta are made annually in India. Chutta

smoking is widespread in the coastal areas of Andhra Pradesh, Tamil Nadu and

Orissa.13

8. Chillum

Chillum smoking is an exclusively male practice; it is limited to the northern states of

India, Predominantly in rural areas. The chillum is a straight, conical pipe made of clay,

10.14 cm long, held vertically. Chillum smoking requires a deep pulmonary effort.

Often, one chillum is shared by a group. They are made locally, are inexpensive and

easily available. Chillum probably predates the introduction of tobacco to India and

was used for smoking opium and other narcotics.

9. Kreteks

Kreteks are clove-flavored cigarettes widely smoked in Indonesia. They may contain a

wide range of exotic flavorings and eugenol, which has an anesthetic effect,

allowing for deeper and more harmful smoke inhalation. Most Prevalent in

Indonesia.14

13

k.srinath reddy & prakash c. gupta, tobacco control in India, Ministry of Health & Family Welfare,Government of India14 http://tobaccoatlas.org/tobaccoatlas/data.html

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3.9 Product life cycle (based on past 12 years).

It is claimed that every product has a life period, it is launched, and it grows, and at

some point, may die. A fair comment is that - at least in the short term - not all products

or services die. Jeans may die, but clothes probably will not. Legal services or medical

services may die, but depending on the social and political climate, probably will not.

Even though its validity is questionable, it can offer a useful 'model' for managers to

keep at the back of their mind. Indeed, if their products are in the introductory or

growth phases, or in that of decline, it perhaps should be at the front of their mind; for

the predominant features of these phases may be those revolving around such life and

death. Between these two extremes, it is salutary for them to have that vision of

mortality in front of them.

Thus, the life cycle may be useful as a description, but not as apredictor; and usually

should be firmly under the control of the marketer. The important point is that in many

markets the product or brand life cycle is significantly longer than the planning cycle of

the organizations involved. Thus, it offers little practical value for most marketers.

Even if the PLC exists for them, their plans will be based just upon that piece of the

curve where they currently reside (most probably in the 'mature' stage); and their view

of that part of it will almost certainly be 'linear' (and limited), and will not encompass

the whole range from growth to decline.

SVIM, KADI (2008-10) 26
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year 1998 1999 2000 2001 2002 2003

sales in cr. 3565.9 4481.2 4853.14 5440.86 6008.88 6913.5

year 2004 2005 2006 2007 2008 2009

sales in cr. 7569.079 8846.74 10986.51 13479.75 15362.35 16994.27

(Source: Ace Equity)

Interpretation

The Sales of the cigarette industry is in growing stage, it is growing at rate of around

10.62%. So many companies like Godfrey Philip, GTC, Raghunath Ind., RTCL etc. are

investing in the industry. There is continuous growth in the cigarette industry. In

Growing Stage companies in the industry should follow the following strategy.

Distribution

In this stage, companies should expand their market to the other cities of INDIA. Their

distribution channels are the same as in the initial stages of the product.

Promotion

In the growth stage, the company should also use the different promotion strategies to

attract the new and the existing customers.

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3.10 Application area of the product-past, present and end

user industry:

Smoking became a popular leisure activity in Europe

during the early seventeenth century .By 1830, the

cigarette had crossed into France, where it received the

name cigarette; and in 1845, the French state tobacco

monopoly began manufacturing them In the English-

speaking world, the use of tobacco in cigarette form

became increasingly popular during and after the Crimean War. This was helped by the

development of tobaccos that are suitable for cigarette use, and by the development ofthe Egyptian cigarette export industry .The widespread smoking of cigarettes in the

Western world is largely in 20th century During World War I and World War II,

cigarettes were rationed to soldiers.15

Introduced initially in India as a product to be smoked, tobacco gradually began to be

used in several other forms. Paan (betel quid) chewing became a widely prevalent form

of smokeless tobacco use. Cigarettes thrived everywhere in the world despite social

(and some religious) disapproval. Historically, tobacco consumption has been linked

with social status and commensality.

When tobacco was introduced as a smoking substance, it was naturally considered a

medicinal herb the belief that cigarettes are a pain killer is widely prevalent in many

parts of rural India. Use of tobacco products as a dentifrice among adolescents in India

has recently been reported, highlighting the continuation of the misconception till date

It is said to facilitate smooth intestinal functioning and motion, prevent toothache by

killing germs, cure itching on the skin, control wind in the body, and is also said to be

useful in the treatment of scorpion bites. It is worth noting that even now, in some rural

areas of India, people use cigarettes for these purposes. In urban cultures, young

professionals (who have their own yuppie culture.) are often characterized by specific

rituals of bonding and sharing. These include visiting pubs; meeting particular groups

of friends, sharing a few drinks and smokes cigarettes, and generally unwinding. Such

15 http://www.wikipedia.org/tobacco

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rituals, for example, have become part of the group identity of young professionals

from the information technology industry which is burgeoning in India.

Cigarettes which is more popular among the local Hindus

and project a modern image. During the end of the 20th

century, the adverse health effects of cigarettes started to

become widely known. Consumption is basically a

demonstration of the ability to come up to the collective

mark, be it in case of fashion, jewelery, or display on social occasions. In this case,

therefore, the construction of identity through consumption is not to be different, but to

be same. Hence, both men and women consume cigarettes, not as a mark of distinction,

or indulgence, but as a part of the tradition of commensality.

3.11 Market structure (share of local brands, unorganized

market, substitute and counterfeits)

Of the total amount of tobacco produced in the country, around 48% is in the form of

chewing tobacco, 38% as bidis, and only 14% as cigarettes. Thus, bidis, snuff and

chewing tobacco (such as gutka, khaini and zarda) form the bulk (86%) of India's total

tobacco production. In the rest of the world, production of cigarettes is 90% of total

production of tobacco related products.16

The Indian cigarette industry can be broadly classified into three segments: The King

size segment, The Regular size segment and The Micro segment. Out of the 8.4 bn

sticks consumed per month the king size segments accounts for 5% of overall sales.

With monthly sales of 5.7 bn sticks, the regular size segment accounts for 68% of the

market. Out of this nearly 4.4 bn sticks are in the regular size filter segment which

accounts for more than 50% of total cigarettes sales in India. Faced with a negative

excise duty impact, the micro segment is stagnating at 1.4 bn cigarette sales per month,

which is nearly 16% of overall sales.

Catering to a vast population such as India's, there are only 4 main cigarette

manufacturers on the domestic scenario, viz., ITC, Godfrey Phillip (GPIL), VST and16 http://www.tobacco-facts.net/2009/11/tobaccoproduction

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GTC. Of these, ITC and VST belong to the same group. ITC is the unchallenged leader,

backed by its parent company BAT, UK; it has managed to stay ahead of its

competitors by sheer market penetration, volume and brands that cater to the varied

tastes of Indian population. GTC (Golden Tobacco Company), a part of the Dalmia

group, has consistently been posting losses. Although the company holds some known

brands in the lower segments, it has not managed to rope in any major brands from its

foreign partner - Rothmanns.

In the Unbranded segment, there are number of manufacturers. Typically the cigarettes

of these manufacturers are priced between Rs. 0.5 Rs. 2 per stick. most of them being

priced at Re. 1. Due to its low price its sales are more prevalent in the rural market.

Also, the retailers have higher margins in unbranded cigarettes than in brandedcigarettes, thus they prefer to stock and sell them more. One important characteristic of

unbranded cigarettes is the low Brand Loyalty and Brand recognition. When customers

buy an unbranded cigarette they are more conscious of the price than the brand, the

decision of the brand is more dependent on the retailer. Such cigarette manufacturers

are regional in nature. There sales coverage is over a certain region, and they usually

dominate their low price segment in that region. Golden Elephant, Clock 100, Lucky

10, Davidoff, Classy, Popa, No. 10, Kartoos are the few local brand of India.

Market penetration is determined to some extent by the advertisement budget. While

the urban market is tapped easily and has already reached its saturation level, a vast

rural market lies untapped. As mentioned above, cigarettes account for a small portion

of the tobacco consumed.

Substitutes

Beedis are tobacco wrapped in tendoo leaves. Unlike cigarettes, they are taxed at a very

low rate. Beedis consume nearly 55% of the total tobacco produced as against 15-20%

for cigarettes. Their sales volume in India is estimated to be over 10 times that of

cigarettes.

The market for beedis is growing at a faster rate than that for cigarettes. Excise duty

hikes on cigarettes have resulted in a shift in demand from non-filter cigarettes to

beedis as the demand for cigarettes in the lower segment is price sensitive.

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A shift in demand from beedis to micro cigarettes is expected due to the increasing

price competitiveness of cigarettes as well as the growing urbanization and health

consciousness regarding the high nicotine content in beedis, compared to cigarettes.17

Counterfeits

The share of Counterfeits in cigarette industry is very low around 2% of total sales of

industry. Because of restriction by government Counterfeits are not available in the

urban area and they are not available in urban market because of it the sales are vary

low.18

17 http://en.wikipedia.org/beedis18 http://www.tobacco-facts.net/2009/11/counter -new-approach

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SECTION 4

STUDY OF GLOBAL CIGARETTE

INDUSTRY

4. STUDY OF GLOBAL CIGARETTE INDUSTRY

4.1 Introduction

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Tobacco products are being chewed, snuffed, and (mostly) smoked all around the

world. People have been consuming tobacco products for centuries. Tobacco is also

grown in many places. Originally from the Americas, since 1492 it has spread far and

wide. Today, tobacco is grown in over 100 countries.

No other product has stimulated demand for tobacco as much as the cigarette. Until the

1870s, cigarettes were mainly rolled by hand. Today, they are made by machines.

Thanks to these machines, which can produce hundreds if not thousands of sticks per

minute, cigarettes have become an article of mass consumption.

Today, over 80 per cent of tobacco grown is used for cigarettes. The world market for

cigarettes is dominated by a low and steadily diminishing number of suppliers.19

4.2 Global Cigarette Consumption (in Billion Sticks)20

YearConsumptio

n Medium High

1880 10

1890 20

1900 50

1910 100

1920 300

1930 600

1940 1,000

1950 1,686

1960 2,150

1970 3,262

1980 4,453

1990 5,328

2000 5,711

2010(EX) 6,319

2020(EX) 6,717 6769 6819

19Joy de Beyer Tobacco Control Coordinator Health,tobacco in world Nutrition and Population World Bank20TA 3 summit -2007 Guindon & Boisclair

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4.3 Top 5 cigarette consuming countries 200721

Country Cigarettes (in millions)

China 2,162,800

United States 357,000

Russian Federation 331,440Japan 258,500

Indonesia 239,000

4.4 Different types of cigarettes use different types of tobacco in

world

There are basically four types of cigarettes: Virginia (flue-cured); American blend;

dark; and oriental cigarettes. The latter two, dark (traditionally popular in French-,

Spanish-, and Portuguese-speaking countries) and oriental (traditionally popular in the

Eastern Mediterranean, Eastern Europe and the (former) USSR) have lost ground to the

first two. Virginia (or English) cigarettes are made almost entirely from flue-cured

Virginia tobaccos. They are popular in the UK and in its former colonies. The

American blend is currently the most popular type of cigarettes. Its world market share

continues to grow. The main tobacco components of the American blend are flue-cured

21

ERC. (2007). World Cigarettes 1: The 2007 Report. ERC Statistics Intl PIc.

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Virginia (approx. 50 per cent), Burley and Oriental (around 12 per cent). In addition,

each cigarette brand uses a specific mix of tobaccos (and other ingredients such as

sugar and aromatic substances) to give it its characteristic taste and to set it apart from

its competitors.22

4.5 Major Importing and Exporting Nations of cigarette

Overall Trade Leader: U.S.

United States

United States: The United States is not only the second biggest exporter of cigarette

but it is also ranked second in tobacco production, tobacco imports, and it is the leaderin cigarette export. The United States, like Brazil, also focuses on the production and

export of burley and flue-cured tobacco. The main types of importing tobacco are

oriental, flue-cured, and burley. Flue-cured, and burley tobacco come mainly from

Brazil, and oriental tobacco comes mainly from Turkey and Malawi.

Importing as well as exporting has faced a decrease in the 2007 season. Exporting

decrease is due to overproduction of cigarette in the world market. The cigarette

import industry suffered more during this last season, decreasing 7 percent in quantity

and 12 percent in value. These numbers are showing the effects of three factors. First

is the large stock of tobacco in the country, second is the fall of cigarette consumption

in the world market, and third is the problematic issue of the United States cigarette

settlements.23

Export Leaders, non-U.S.

22Joy de Beyer Tobacco Control Coordinator Health,tobacco in world Nutrition and Population World Bank23U.S. Department of Agriculture, Foreign Agriculture Service

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1. Brazil

Brazil has been at the top of the chart as the biggest cigarette exporter in the past five

years. In Brazil, tobacco is grown mostly in the south; especially in one town called

Santa Cruz do Sul. Brazil is known for its production of flue-cured tobacco and burley

tobacco. Unlike its competitors, Turkey and Zimbabwe, overproduction of cigarette in

the past three years has not affected Brazil.24

2. Turkey

Turkey cigarette production is focused on oriental tobacco. Like China and many other

countries, the Turkish Government has been trying to decrease production, but such an

effort has not been very successful except in the last two years (2006-2007). The

increase of production from 2002 until 20077 was due to the high increase in the

demand of quality oriental tobacco based cigarette in the market.

As in China, the Turkish cigarette industry is regulated by the government, and because

of the high inflation in 2006 and 2007, the government decided to raise the price of

cigarette. Not only that, exporting also suffered due to the decrease of tobacco

consumption in the United States and also due to the economic problems in Russia, two

of the main countries to which Turkey is a supplier.25

3. Zimbabwe

24 http://www.soc.duke.edu/~s142tm12/Brazil\Importers.html25 http://www.soc.duke.edu/~s142tm12/TurkeyExportinfo.html

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Zimbabwe is cigarette exporting industry suffered from 1995 until 1998. Zimbabwe

focuses its production mainly on flue-cured and burley tobacco. Burley tobacco

production has been decreasing in Zimbabwe due to the lack of investments in the

small crops managed by farmers but still they are export leader. 26

Import Leaders, non-U.S.

1. Germany

Germany over the past five years has led the world in importing unmanufactured

tobacco and is also one of the top cigarette consumers and exporters. Germany, unlike

other countries in the European Union, has not developed a great anti-smoking

campaign and its consumption continues to increase. Another factor that has also

influenced the consumption of cigarettes in Germany is the migration of Eastern

Europeans, many of whom have a smoking habit. Germany is leading importing

tobacco is flue-cured, followed by burley, and oriental. The main suppliers to Germany

are the United States, Brazil, Zimbabwe, and Malawi. In the export of cigarettes,

Germany is main buyers are the European Union members, Eastern Europe, the

Commonwealth of Independent States, and the Middle East.27

2. Japan

Japan is not only one of the top importing tobacco countries in the world but is also the

one of the biggest importers of cigarettes in the world. Japan Is increase in imports ofraw tobacco and cigarettes are due to the big domestic market that has developed in the

past decade. In a poll in 2007, Japan was estimated to have 59 percent of adult men

and 15 percent of adult women smoking.

The main supplier for the Japanese market is the United States, who supplies Japan

with flue-cured and burley tobacco. Japan is second supplier is Brazil, followed by

Zimbabwe. The United States not only supplies unmanufactured tobacco but also

26 http://www.soc.duke.edu/~s142tm12/ZimbabaweExportinfo.html27 http://www.soc.duke.edu/~s142tm12/Germanyimportinfo.html

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supplies Japan with manufactured cigarettes, which in 2006 held 95 percent of the

Japanese market.28

Major Player: China

China

Although China does not appear in the World Trade Analyzer chart as being one of the

leaders in either importing or exporting of cigarettes, it is one of the major countries in

the cigarette industry. In the 1990s, China has produced more than twice the amount of

the next cigarette producer, the United States. This huge amount of cigarette

production is due to hundreds of millions of smokers in China.. The next largest

tobacco-producing country is India with only one fourth of Chinas production. China

produces mainly flue-cured tobacco, which in 2006 came up to 92 percent of the total

production.

In the past years China has been trying to better the quality of its tobacco. In order to

do so the government has been investing money into new stocks, improving the qualityand usage of fertilizers, and adopting more effective pest control measures. China is

also trying to move production away from the Yellow River area.

Although Chinese tobacco production grew from 2007 to 2008 by 12 percent. 29

4.6 World Cigarette Consumption by Region, 200730

28 http://www.soc.duke.edu/~s142tm12/Japanimportinfo.html29

http://ffas.usda.gov/cigarette

30 ERC, 2007

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Region Pieces

(million)

Percent of

total

Asia & Australia 3291429 57

Eastern Europe & Former SovietUnion

774573 14

The Americas 687583 12

Western Europe 513771 9

Middle East & Africa 481146 8

Total 5748502 100

Pieces smoked per day 2008= 15749 millionPieces smoked per minute 2008= 10.93 million

4.7 Top 10 Global Cigarette players by Revenue31

1. Philip Morris USA Inc.

31 http://biz.yzhoo.com/ic/profile/tobaco_1203.html

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2. R.J. Reynolds Tobacco Holdings, Inc.

3. Brown & Williamson Tobacco Corporation

4. Carolina Group (CG)

5. Altria Group, Inc. (MO)

6. British American Tobacco p.l.c. (BTI)7. Japan Tobacco Inc.

8. Gallaher Group Plc

9. Altadis, S.A.

10. Imperial Tobacco Group PLC (ITY)

1. Philip Morris USA Inc.

Many Americans who smoke end up flicking the butt of this company's premium

product when they're done. Philip Morris USA, a subsidiary of cigarette giant Altria

Group, is the #1 cigarette maker in the US and controls half the nation's cigarette

market. Its Marlboro brand, alone, accounts for about 40% of cigarette retail sales in

the country. Its 15 other brands include Virginia Slims and Parliament, as well as

discount brand Basic. Like others in the industry, Philip Morris faces rising state and

federal excise taxes that continue to boost the cost of lighting up. Rising prices have

some smokers turning away from their name brands in favor of discount smokes.

Financial Highlights

Fiscal Year End: December

Revenue (2008): 18753.00 M

Revenue Growth (1 yr): 1.40%


2. R.J. Reynolds Tobacco Holdings, Inc.

Together, no one can stop us. No doubt that is what R.J. Reynolds Tobacco Holdings

and Brown & Williamson were thinking when the two merged to create Reynolds

American Inc. (RAI). R.J. Reynolds has been smoking for more than 120 years, but

increasing competition and the need to cut costs convinced the #2 US tobacco company

to merge with #3 Brown & Williamson. However, RAI still trails the Altria Group

(owner of Philip Morris), which steers about half of the US tobacco market. Still, RAI's

RJR Tobacco unit boasts five of the 10 best-selling brands of cigarettes in the US:

Camel, Kool, Pall Mall, Doral, and Winston. Brown & Williamson's former parent

British American Tobacco owns about 42% of RAI.


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Revenue (2008): 8845.00 M

Revenue Growth (1 yr): (-2.00%)

Employees (2008): 6,600

Employee Growth (1 yr): (-9.60%)

3. Brown & Williamson Tobacco Corporation

If Brown & Williamson Tobacco can't convince you that smoking is Kool, it's not for a

lack of trying. Led by its Kool brand, the British American Tobacco unit makes more

than a dozen brands, from bargain smoke GPC to the classic Lucky Strike. Other

brands include Pall Mall and Capri. Brown & Williamson is #3 in the US (behind

Philip Morris USA and R.J. Reynolds), with about 10% of the cigarette market. The

company operates a R&D center in Macon, Georgia. In October 2003 Brown &

Williamson announced plans to merge with R.J. Reynolds' US tobacco business (RJRT)

to form a new public company.



Revenue (2003): 3550.00 M


Employees (2003): 5,000

Employee Growth (1 yr): 0.00%

4. Carolina Group (CG)

Newport news provides the best read on Lorillard, the #3 cigarette maker in the US

(behind Philip Morris USA and Reynolds American). Newport, Lorillard's flagship

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brand, is the best-selling menthol cigarette and second-largest cigarette brand in the US.

It generates about 90% of Lorillard's sales by volume. Other brands include the

premium and discount lines of Kent, Max, Old Gold, Satin, True, and Maverick. The

company sells its products primarily to wholesale distributors. Lorillard was named the

Carolina Group until 2008, when it split from former parent Loews. Founded in 1760

by French immigrant Pierre Lorillard, it is the nation's oldest continuously operating

tobacco firm.



Revenue (2008): 4204.00 M


Employees (2008): 2,800


5. Altria Group, Inc. (MO)

The house the Marlboro Man built, Altria Group, is the largest cigarette company in the

US. Altria operates its cigarette business through subsidiary Philip Morris USA, which

sells Marlboro -- the world's best-selling cigarette brand since 1972. Altria controls

about half of the US tobacco market. It manufactures cigarettes under the Parliament,

Virginia Slims, and Basic cigarette brands. While still firmly hooked on cigarettes,

Altria is transitioning from primarily a cigarette manufacturer to a purveyor of a variety

of tobacco products, including cigars and smokeless tobacco products. To that end, it

has made a number of strategic acquisitions, including smokeless tobacco maker UST

in 2009.


Fiscal Year End: December Revenue (2008): 19356.00 M

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Employees (2008): 10,400

Employee Growth (1 yr): (-87.60%)

6. British American Tobacco p.l.c. (BTI)

When people pick up smoking, British American Tobacco (BAT) picks up steam. Spun

off in the reorganization of B.A.T. Industries, BAT is the world's #2 tobacco company

(behind Marlboro maker Altria Group). The firm makes about 715 billion cigarettes

each year and sells them in more than 150 countries. BAT's global cigarette brands

include Dunhill, Kent, Lucky Strike, and Pall Mall -- just four in a portfolio of some

300. The company also makes loose tobacco and regional cigarette brands. Its former

US unit, Brown & Williamson (Kool and GPC cigarettes), merged with R.J. Reynolds

Tobacco (RJRT) in 2004.



Revenue (2008): 17544.20 M


Employees (2008): 56,170Employee Growth (1 yr): 6.00%

7. Japan Tobacco Inc.

Japan Tobacco has plenty to puff about. The company controls more than 70% of the

cigarette market in a country where about half of the male population smokes. Japan

Tobacco is the world's #3 tobacco firm, trailing Altria and British American Tobacco.

The company's JT International unit makes and markets Camel, Salem, and Winston

brands outside the US. Japan Tobacco also operates in the food, pharmaceuticals,

agribusiness, engineering, and real estate industries. A state-owned monopoly until

1985, the Japanese Finance Ministry now owns about half the firm. Japan Tobacco

bought Britain's Gallaher Group for some $15 billion in April 2007. In 2009 it agreed

to acquire the UK's Tribac Leaf and two Brazilian firms.

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Fiscal Year End: March

Revenue (2009): 70229.30 M


Employees (2009): 47,977Employee Growth (1 yr): 1.00%

8. Gallaher Group Plc

When the smoke finally settles over London, Gallaher Group helps kick it up again.

The #2 UK cigarette company -- with about half of the country's cigarette market --

Gallaher makes tobacco products and sells them in Asia, continental Europe, Ireland,

Russia and other former Soviet republics, and the UK. The manufacturer's premium

cigarettes include top UK brands Benson & Hedges and Silk Cut; mid-priced brands

such as Sovereign; and low-priced brands include Dorchester and Mayfair. Gallaher

also makes and markets Hamlet cigars, Amber Leaf hand-rolled tobacco, and Condor

pipe tobacco. Japan Tobacco acquired the company in April 2007 for about $15 billion.

9. Altadis, S.A.

The Pyrenees Mountains may divide France and Spain, but Altadis unites the countries

for a smoke. Born of the 1999 merger of Spain's Tabacalera and France's Societe

Nationale d'Exploitation Industrielle des Tabacs et Allumettes (Seita), Altadis is one of

the world's largest tobacco firms. Altadis brands include Ducados, Fortuna, Gauloises,

and Gitanes. Its cigar operation (the top worldwide) produces Antonio y Cleopatra,

Farias, Hav-A-Tampa, and Montecristo and controls a quarter of the world's cigarmarket (mostly from its Altadis USA unit). Altadis was acquired by Imperial Tobacco

in February 2008 and sold its about 50% stake in Aldeasa, a top operator of Spain's

duty-free shops, to Autogrill in April 2008.



Revenue (2008): 1026.00 M

Employees (2008): 2,500

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10. Imperial Tobacco Group PLC (ITY)

The UK's #1 cigarette maker, Imperial Tobacco Group has traded up to an even bigger

throne. Its acquisition of Spain's Altadis in 2008 added the Montecristo and Ducados

brands. Its purchase of German tobacco firm Reemtsma (Davidoff and West cigarettes)

doubled its size and made it one of the world's top tobacco firms. Imperial's other

brands include Lambert & Butler, the UK's #1 cigarette, as well as Castella cigars, and

Amphora and St Bruno pipe tobacco. Its Drum brand is the #1 hand-rolling tobacco

worldwide, and Rizla is a top cigarette paper. Acquisitions in Australia and New

Zealand have assured Imperial's presence in emerging markets. It bought

Commonwealth Brands, the #4 US tobacco company, in 2007.


Fiscal Year End: September

Revenue (2008): 37297.30 M


Employees (2008): 32,316


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SECTION 5

COMPREHENSIVE STUDY

OF

INDIAN CIGARETTE INDUSTRY

5. COMPREHENSIVE STUDY OF INDIAN

CIGARETTE INDUSTRY

5.1 Introduction

The cigarette industry is one of the oldest industries in India (almost 100 years old). Itis an important agro-based industry. It is highly labor intensive and provides livelihood

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to about thirty million people directly and indirectly. India's tobacco industry is one of

the largest in the world, with India having the second largest area planted to tobacco

leaf after China. Furthermore, India's production of leaf is only exceeded only by China

and the USA. The tobacco industry in India is quite complex when compared to the

nature of the industry in many other countries. The particular features that distinguish

the Indian industry are the existence of three district consumer markets for tobacco

products, each of which comprises approximately one third of the national market for

tobacco products. One a consumer market is formed by what is called the 'organized

sector' and is based on filter tipped cigarettes; a second consumer market exists in what

is called the 'unorganized sector' and this is for bidis; the third consumer market also

exists in the 'unorganized sector' and this includes chewing tobacco, smokeless tobacco

and a number of other forms of tobacco products.

The cigarette industry is highly labor intensive and important agro based industry

providing livelihood to about 5 million people directly and indirectly. Cigarette is an

item falling under the First Schedule to the Industries (Development & Regulation)

Act, 1951 and requires an industrial license.

5.2 major player of Indian cigarette industry

ITC Ltd.

Godfrey Phillips India Ltd.

Golden Tobacco Ltd

Sinnar Bidi Udyog Ltd

Raghunath International Ltd

Virat Crane Industries Ltd.

VST Industries Ltd. 5

RTCL Ltd.

5.3 Brands of Four Cigarette Majors

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5.4 Sales and market share of cigarette companies32

32 Ace equity

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Particulars Mar-09Market

share

ITC 15,388.11 90.5488%

God frey philip 1,132.10 6.6617%

VST 381.08 2.2424%

GTC 84.49 0.4972%

RTCL 1.2 0.0071%

Virat 0.48 0.0028%

Raghunath 6.43 0.0378%

Sinnar bidi 0.39 0.0023%

Total 16,994.28 100.0000%

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Sale15,388.1

1,132.1381.0 84.4 1 .2 0 .4 8 6 .4 3 0 .3 9

0.00

2,000.00

4,000.006,000.00

8,000.00

10,000.0012,000.00

14,000.00

16,000.00

18,000.00

ITC

Godfre

yphilip VS

TGT

C

RTC

LVi

rat

Raghu

nath

Sinnar

bidi

Compan

Salea

inc

rore

s

In Indian cigarette industry the major player ITC has the highest sales in the year mar

2009 is Rs.15388.11 corers. After that second highest sales for rs.1132.10 corers is for

god frey Phillip which is far below the ITC sale. Thats why ITC has about 90.54%

market share in cigarette industry.

market share

90.5488%

6.6617%

2.2424%0.0023%0.0378%

0.0028%

0.0071%

0.4972%ITC

God frey philip

VST

GTC

RTCL

Virat

Raghunath

Sinnar bidi

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5.5 Manufacturing Cost of cigarettes33

Process Cost % Cost %

Procurement of tobacco 39.67

Purchase 36.99

Carrying 1.46

Storage 1.22

Processing 4.94

Stemming 0.03

Plant operation 0.69

Reconstituting 3.52

Blending 0.16

Cutting 0.4

Drying 0.14

Cigarette Making 54.39

Plug making 10.64

Cigarette making 18

Packaging 25.75

Shipping 1 1

100 100

The graph shows the components relative picture of the costs involved in

manufacturing. The major portion is bored by purchase of tobacco; process in the

manufacturer produces cigarettes at its factory and then delivers them to distributors.

33Dr.s.r.singvi Pricing Strategies for consumer products

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5.6 Price range of major smoked cigarette34

34 Dr.s.r.singvi Pricing Strategies for consumer products

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5.7 export of cigarette by India35

5.8 cigarette Tax structure (RS.PER 1.000 STICKS)

In Tax Structure of cigarette (per 1000 sticks) Tax calculation comes to Rs.19 for State

Taxes , VAT at the rate of 12.5% Rs.105.4, Trade Margins for Rs.116.1, Excise Duty

for Rs. 843.6 has the highest portion in the tax structure.

35 Tobacco board of India

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SECTION - 6

SUPPORT ACTIVITIES

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6. SUPPORT ACTIVITIES

6.1Role of Supply Chain in Indian cigarette industry

The role of supply chain in the organized Cigarette industry in India should be a shelf-

centric partnership between the retailer and the manufacture for this will create supply

chains that are loss free. This will also give rise to top and bottom line growth.

It is the supply chain that ensures to the customer in all the various offerings that a

company decides for its customers, be it cost, service, or the quickness in responding to

ever changing tastes of the customer.

The infrastructure in India in terms of road, rail, and air links are not sufficient. And so

warehousing plays a major role as an aspect of supply chain operations. To overcome

these problems, the Indian Cigarette industry is trying to reduce Transportation costs

and is investing in logistics through partnership or directly.

6.2 Distribution systemFrom the factory, when the cigarette manufacturing process finished and then after

stocking period, then there is a stage when it is to be shipped and delivered to the

customers. In this whole system following parties are involved:

Area sales managers

District sales managers

Head offices

Factory managers

Godown incharges

Transporters

Distributors

Whole sellers

Retailers

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6.3 cigarette supply chain diagram

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6.4 Operation Support Systems

ERP System: Various ERP vendors have developed cigarette manufacturing

-specific systems which help in integrating all the functions from warehousing

to distribution, front and back office store systems and merchandising. An

integrated supply chain helps the retailer in maintaining his stocks, getting his

supplies on time, preventing stock-outs and thus reducing his costs, while

servicing the customer better.

CRM Systems: The rise of loyalty programs, mail order and the Internet has

provided retailers with real access to consumer data. Data warehousing &

mining technologies offers retailers the tools they need to make sense of their

consumer data and apply it to business. This, along with the various available

CRM (Customer Relationship Management) Systems, allows the cigarette

manufacturer to study the purchase behavior of consumers in detail and

grow the value of individual consumers to their businesses.

Advanced Planning and Scheduling Systems: APS systems can provide

improved control across the supply chain all the way from raw material

suppliers to the retail shelf. These APS packages complement existing (but

often limited) ERP packages. They enable consolidation of activities such as

long term budgeting, monthly forecasting, weekly factory scheduling and daily

distribution scheduling into one overall planning process using a single set of

data.

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SECTION - 7

KEY SUCCESS FACTORS

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7. KEY SUCCESS FACTORS

7.1 key success factors for cigarette industry

1. Market position

A strong market position supported by product strong brand equities is an important

factor for cigarette player to succeed. Once firm does attain market leadership in the

industry, it takes remarkable efforts and times for a new player to surpass it. The

company should also have diversified brands and\or types of products in an effort to

stimulate consumers interest in buying and ensure revenue stability and gain higher

market share.

2. Raw material procurement

Ability to procure large amount of high quality tobacco and clove is an important factor

to assure continuity of production. The company should also be able to anticipate the

volatility of raw materials costs and manage inventory at the most economical level to

minimize working capital needs.

3. Diversification

The company need diversified product types, brands and target markets to ensure

revenue stability

4. Marketing and distribution

Has a strong ability to build and maintain strong brand equity of its products through

creative and effective advert

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