Ukraine: Tobacco Market

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In 2012, 83.4Bn cigarettes were sold in Ukraine – then, a key tobacco market. In the years to follow, the cigarette market fell 8% p.a. due to the ageing population, emergence of RRPs (mainly heated tobacco) and growth of illegal products (driven by the rapid increase in excise taxes). Note that Ukraine is the second-largest market in Europe for illicit cigarette consumption (7.4Bn cigarettes, corresponding to 20% of the market, in 2022)1. By 2021, the cigarette market more than halved – with 4 international tobacco companies (PMI, BAT, Japan Tobacco and Imperial Brands) capturing 92% of the market in total. The rest (8%) is owned by a local player: VTF (Vinnykivska Tobacco Factory), known for its Marvel brand. Interestingly, since the launch of IQOS in 2016, Ukraine has become the 4th largest heated tobacco market in the world with 1Mn users (mostly, IQOS).

Russian invasion of Ukraine started in February 2022 which led the population outflow/displacement and supply chain disruptions. The tobacco market declined by more than 20% with PMI reporting the largest losses. In 2022, PMI’s total sales in Ukraine declined by 30% although its heated tobacco segment (-14%) held up much better than its cigarette segment (-38%).

Production in PMI’s Kharkiv plant was suspended in Feburary 2022 due to the lack of a bomb shelter. After being absent from the market for two months, PMI initially supplied the market from 8 plants abroad and later outsourced the production to Imperial’s Kyiv plant. In June 2023, PMI announced that it will invest $30Mn to launch a new production facility near Lviv in western Ukraine, creating 250 jobs. The facility is set to open in April 2024 and will supply 80-90% of PMI’s Ukrainian sales at full capacity.

In 2023, the market found some support as the refugees start to return home. In Q2 2023, the market grew by +13% against an exceptionally weak Q2 2022 (- a period in which major product supply issues were experienced as the existing stocks ran out). PMI reported +50% growth in the same period following a -27% decline in Q1 2023. PMI’s SoM, which fell by half from 28.5% at the peak of the supply crisis, is now restored back to 24%2.

In line with the “7-year plan” adopted in December 2017 (to harmonize the tobacco tax rates with the EU), Ukrainian government’s 2024 budget plan foresees a further 20% increase in the specific excise rate and minimum excise duty. Accordingly, average price for a pack of 20 cigarettes could increase from UAH75 ($2.1) to around UAH90 ($2.5) next year.


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