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A Project Report

On
The Study of Indian Cigarette Industry

Submitted to: Submitted by:

Submitted in partial fulfillment Of MBA degree


TABLE OF CONTENTS

Sr. No. CONTENTS Pages

1. Introduction of topic. 1-4

2. Research Objectives. 5
3. Research Methodology. 6

4. Analysis. 7
Consumer Questionnaire Analysis. 7-25
Retailer Questionnaire Analysis. 26-28
Objective wise analysis (secondary data) 29-32

7. Appendix. 33
Consumer Questionnaire. 33-36
Retailer Questionnaire. 36

8. Conclusion of study. 37-38

9. Recommendations. 39

10. Bibliography. 40.


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

Structure of the market: -

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 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 'unorganised sector' and this is for
bidis; the third consumer market also exists in the 'unorganised sector'
and this includes chewing tobacco, smokeless tobacco and a number
of other forms of tobacco products.

A further characteristic of the domestic Indian market for tobacco


products is the pattern of consumption. Although there is a very large
population in India, in general, incomes are relatively low and this
leads to consumers purchasing small quantities of goods on a very
regular basis.

Cigarettes account for only 18.8% of domestic tobacco consumption in


India. Bidis account for 53.5%, and the balance is mainly non-smoking
tobacco (NST) products.

Current Scenario:-

In India, there are about 200mn tobacco consumers. About 18% of


people in India smoke either bidi or cigarette. Among them 25mn
smoke cigarettes. The relative share of smokers is higher in rural areas
at 18.9%, compared to 15.4% in urban areas. However, penetration of
cigarettes is extremely low in rural areas.
Only 2.1% of rural adults smoke cigarettes, compared to 6% of urban
adults in India. In contrast as high as 16.9% of rural adults smoke bidis,
compared to 9.6% of urban adult population. Overall penetration of
bidis is 14.8% and that of
cigarette is 3.2%. Awareness of these products among adult male
population is over 90%.

Volume consumption of cigarettes declined sharply in 2001. The share


of cigarettes in tobacco consumption has been declining steadily,
falling to a record low of 87.8 billion sticks in March 2002; down from
its peak at 104.2 billion sticks in March 1998. The share of cigarettes in
the total consumption has been declining year after year and has gone
down to a mere 14% as against an average of 86% in the rest of the
World
Cigarette sales have been adversely affected by rising excise duties
and legislation against public smoking. There has been a movement in
consumption patterns towards smokeless tobacco.

Smoking is being gradually curbed in public places. There is growing


health consciousness among the premium cigarette smokers

Trend of demand of cigarettes: -

Demand: Past & Future


Year Bn pieces
1990-91 78.5
1991-92 81
1992-93 84
1993-94 87
1994-95 90
1995-96 97.9
1996-97 104.2
1997-98 108.1
1998-99 101.8
1999-00 99.3
2000-01 101.8
2001-02 102.2
2002-03 103.5
2003-04 104.8
2004-05 106
2005-06 107.2
2006-07 108
2011-12 108
Players: -

There are four major players who control 99% of the market in India.

1.) ITC (Indian Tobacco Company).


2.) GPI (Godfrey Phillips India).
3.) VST (Vazir Sultan Tobacco).
4.) GTC (Golden Tobacco Company).

ITC commands 66% of the market.

Their major brands and sales figures are as follows;

Leading Cigarette Brands Of Major Players

ITC VST GPI GTC


Major Filter brands
Premium India King Kingston Rothmans Chancellor
Classic, State Harvard,
Legend Jaisalmer
Express555, Craven
Chesterfield,
Benson & Hedges Burton Dunhill, Cartier
Marlboro
Panama Filter,
Medium Wills Charms Mini Four Square
King
King, Gold Premium,
Navy Cut Red & White Baton
Charms Viginia Filter
Red & White
Popular Gold Flake Charminar Gold Filter Panama Filter
Filter
Commando,
Bristol, Capstain
Originals
Major non filter brands
Upper Scissors Charminar Gold Red & White Flair, Style
Charminar, Charms
Lower Hero Cavenders Panama
Standard

Sales in past 5 yrs:

Figures in mln. Stick ITC GTC VST GPI Total Var.(%)


FY2001-02 60865 7208 9040 8854 85967 -12
FY2000-01 66478 8624 11636 10611 97349 -1
FY1999-2000 66145 8311 11884 12114 98454 -3
FY1998-1999 67753 8367 12873 12797 101790 -6
FY1997-1998 68137 12924 13942 13100 108103 --

Background of research: -

We chose to carry out our project in this field because of the unique
nature of this industry.
After flourishing for nearly a 100 years, the cigarette industry seems to
be heading for tough times. Players in this sector talk of product
diversification and portfolio management, a clear sign of coming strife
foe them.

As was shown, the demand for cigarettes is slowing down, successive


governments have shown step fatherly attitude towards this industry,
recently an advertising ban was imposed on cigarette brands, taxes on
cigarettes are imposed regularly and also increased regularly etc.

The recent influx of foreign brand and allegations of smuggled


cigarettes have also added a new dimension to the situation, as can be
expected the players are not amused at the situation.

…THE cigarette industry has been hit by "prohibitive and


discriminatory tax and marketing restrictions", according to Mr. R.A.
Shah, Chairman, Godfrey Phillips India (GPI).
Speaking at the company's annual general meeting (AGM) here on
Tuesday, Mr. Shah urged the Government to come up with a
reasonable and practical regulatory mechanism for the industry, which
was facing stagnation.
According to a release, a 15 per cent hike in excise duty coupled with
the economic downturn following the September 11 attacks in the US
had crippled the cigarette industry, which provides employment to
nearly 30 million people. Further, the dumping of "cheap, smuggled
cigarettes" had come as yet another setback to the sector.
GPI posted a turnover of Rs 960 crore in 2001-02. The profit before tax
stood at Rs 71.84 crore. The shareholders on Tuesday approved a
dividend of Rs 18.50 per share compared to Rs 16 per share in the
previous year (2000-01)…

(Source: - Hindu Business Line, Wednesday, Sep 25, 2002)

Thus, we felt it would prove to be a leaning experience if we tried to


analyze what was wrong with the scenario, and hence, important
learning’s can be derived from this exercise that would provide an
insight into the situation.
OBJECTIVES OF STUDY

Primary Objective: -

The primary objective of this report study is to gather information and


present an overview of the Indian cigarette industry.

Secondary objectives: -

The secondary objectives are as follows;

 Identify all the major players in India who compete within this
industry.

 Analyze the market dynamics of this industry, i.e., details of


product variation, price competition, market share of the players
etc.

 Examine the pricing policy followed by the players.

 Study the non-price competition among the players, issues


therein like, after sale service, discount offers etc.

 Comment on the type of market structure of the cigarette


industry.

 Evaluate and present consumer preferences.


RESEARCH DESIGN
For the proper gathering of information related to this topic, and also
to fulfill the research objectives laid out earlier in the report, we chose
the following research methodology.

Collection of data: -

1.) Primary Sources of data collection.

Primary sources were explored through the process of direct,


structured formal questionnaire method and informal interview
process.

Due to time and cost constraint, it was agreed by the group to


undertake a combination of random and convenience sampling.

A sample of 75 respondents was agreed upon by the group and


after the questionnaire was drafted, the method of simple random
sampling was chosen to conduct our survey.

Apart from consumer survey, a retailer survey was also undertaken.


For this a sample of 5 retailers was chosen. Again, the tool was the
questionnaire, and the sampling method was random sampling.

It was felt that a questionnaire would be an effective tool and the


results could be analyzed and presented better and with a very low
margin of error, hence it was chosen as our research tool.

2.) Secondary Sources.

A lot of information regarding the project has come from secondary


sources. These secondary sources majorly comprise various
websites like, company websites, industry observer websites,
research firms etc.

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