Philippines: Tobacco Market

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With 117Mn population (13th most populous country), 25 years of median age and 1.5% annual population growth, Philippines is a key growth market in the Asia-Pacific Region for the tobacco majors. PMFTC (Philip Morris Fortune Tobacco Corporation), a 50-50 JV by PMI and local conglomerate LT Group (formed in 2010), controls 62% of the 52Bn-stick market. Actually, Philippines was PMI’s 6th largest market in FY2022 in terms of volume: 32.2Bn sticks (32Bn cigarettes, 0.2Bn heated tobacco).

However, booming sale of cheap/smuggled cigarettes (driven by the higher excise taxes imposed by the government) is causing the legal cigarettes to shrink (fast) in the Philippines. The market is more than halved in the past decade: from 109Bn stick in 2012 to 52Bn sticks in 2022. And, the market conditions are even more dire in 2023: an industry-wide (excise driven) price increase in Q1, illicit incidence increasing further and unfavorable trade inventory movements. In the first nine months of 2023, market volume declined by 20% and PMI’s SoM is down to 56% (i.e. PMI’s shipment volume is down more than 26%).

Under difficult operating conditions, LT Group’s tobacco earnings (thus, PMI’s earnings) slid 25% to P9.06Bn ($162Mn) in YTD20231. Accordingly, Fortune Tobacco’s contribution to the LT’s earnings is now down to 47% (from 86% in 2021 and 61% in 2022). LT Group is trying diversify operations as tobacco sales dwindle2: the contribution of Philippine National Bank to LT’s earnings is now up to 40%. Meanwhile, in the absence of “diversification” option, PMI remains eager to invest further by bringing its smoke-free products to the market:

– in November 2022, PMI launched BONDS by IQOS (a compact and affordable heated tobacco device; resistive external heating with no blade) and BLENDS (tobacco sticks)

– in October 2023, PMI launched IQOS ILUMA and disclosed its intention to launch ZYN soon.

References:

  1. https://businessmirror.com.ph/2023/11/13/lt-group-9-months-profit-down-6/ ↩︎
  2. https://www.forbes.com/sites/jonathanburgos/2023/05/29/billionaire-lucio-tans-grandson-seeks-to-diversify-lt-groups-operations-as-tobacco-sales-dwindle/ ↩︎

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