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Despite a decrease in sales and smokers, cigarette companies are making more money than ever.
Here’s something: Quartz reports that despite cigarette sales dropping 37 percent in the United States in the last 15 years, tobacco companies saw revenue from cigarettes increase by 32 percent. This is particularly remarkable given the number of lawsuits they regularly face and/or settle.
First off, congratulations to all those Americans who cut back on or quit cigarettes. The adult smoking rate dropped from 42 percent to 15 percent between 1965 and 2015 and quitting is not easy. Unfortunately, Big Tobacco has a couple powerful strategies to keep the deadly business going strong.
1. They know those who haven’t quit will pay up.
Nicotine is highly addictive and breaking the habit can be extremely hard. So when cigarette companies began to lose smokers and more than doubled the price of cigarettes from $3.73 to $6.42, many who couldn’t or wouldn’t quit simply accepted the bump.
2. It’s cheaper to produce cigarettes.
There used to be seven large cigarette companies in the U.S. Now there are two: Altria and Reynolds American. Across their portfolios, Altria and Reynolds American are producing eight out of 10 cigarettes sold and smoked in the U.S. (Altria has a market share of 51.4 percent, producing Marlboro, which makes up 44 percent of the market by itself. Reynolds American has a share of 34.5 percent, producing Camel, Newport, Pall Mall and American Spirit.)
Practically speaking, this duopoly means that production costs are lower and the two companies have more control over pricing. In other words, there’s only one competitor against whom they each need to price competitively.
3. U.S. taxes and regulation are still comparatively lax.
You may think the U.S. has some serious tobacco taxes, you may even know that tobacco companies can’t advertise on TV. But compared to other developed countries, the U.S. is a relatively welcoming economy for tobacco companies and the average price of cigarettes is lower than other markets.
4. They’ve bought into e-cigarettes.
While the medical community is still mostly split on the value of e-cigarettes and vaping, tobacco companies have never been particularly concerned with the opinions of the medical community. As such, they’ve dived straight into e-cigarettes meaning when you buy e-cigs or vape products, you’re still supporting Big Tobacco. Altria, owns Nu Mark, which bought Green Smoke, in addition to their own in-house MarkTen brand. Reynolds is responsible for the Vuse brand.
