If a market keeps growing in value by the year, this can mean several things: consumers are increasing, new products are being launched, prices are rising or smuggling is shrinking.
All those factors hold true for the cigarette market in Bulgaria, which once again registered remarkable growth in 2019.
Curbs on the grey market offering cigarettes without excise-duty labels have limited illegal sales to two-digit rates in the past 10 years, reducing their share of total sales to an EU record low of 3.3%. That is one of the reasons for the growing official market of cigarettes, which reached 3.2 billion levs (1.636 billion euro) last year, according to AC Nielsen data. That makes an increase of 9.3% year-on-year in terms of value and 7% on the number of pieces sold. Data from the World Health Organization show that 35 to 40% of Bulgaria's population of some 7 million smoke.
Besides, an entirely new category - that of smoke-free products - has gained popularity in the past few years, especially in big cities, rising by some 4.6% in value. The consumption of smoke-free products is assessed at more than 230 tonnes, given that a pack weighs 6.1 grams on average. Those products, which are not considered part of the cigarette market due to their specific character, additionally increase the sales of tobacco products and their consumers: in this case some 160,000 people, with more than 70% of them using only smoke-free products. Judging by the data about the sold quantities, that segment makes an annual turnover of some 200 million levs.
Farewell, Bulgartabac brands
There are visible shifts on the market and the most important of them is that a new best-selling brand will emerge in the next few months.
The purchase of leading brands of Bulgarian tobacco company Bulgartabac in 2017 made British American Tobacco (BAT) the leader in cigarette sales in the country with more than 40% of the market. Its Rothmans brand mainly accounts for it holding pole position. Within two years after the purchase, the concern prompted all major brands of Bulgartabac (Sredets, MM, GD, Tresor and Bulgartabac) to migrate to Rothmans and thus the brand reached second place in sales in Bulgaria. In 2019 the last but one brand of Bulgartabac, Eva, also migrated to BAT's global brand Vogue. The migration of Bulgartabac's last remaining brand, Victory, to Rothmans started in late 2019.
If BAT's aim was to not only be a leader in market share but also the producer of the best-selling brands in Bulgaria, after the merger of Victory that aim will be achieved. Even if half of Victory's current consumers switch to Rothmans, the brand will surpass the 2011 leader, Karelia.
BAT Bulgaria says that the incorporation of the acquired brands into the global brands is a business decision led by the demand of adult consumers. "According to Nielsen data Rothmans has been the fastest growing brand on the market in the past few years. The migration to Rothmans is still ongoing and will be completed soon. It preserves the same tobacco blend and different varieties and is so far well accepted by adult consumers," BAT said.
The company added that it has four names among the top 10 of the best-selling brands in Bulgaria and Dunhill is a leader in the high price segment. Nielsen data show it was the brand chosen by one in ten adult smokers in the capital Sofia in December 2019.
The cheapest cigarette duo
While market leader BAT is changing its entire portfolio and thus reshaping the ranking of the major brands on the Bulgarian market, the behaviour of some of the other players remains traditional.
Greece's Karelia has been a brand leader for years thanks to its lowest prices. Despite the increase in cigarette prices in 2018-19, Karelia remained the cheapest brand: its standard cigarettes sell for 5 levs a pack despite a series of excise-duty hikes in recent years related to European Union requirements.
Local producer KT International (formerly Kings Tobacco), which is in the same price segment of the cheapest cigarettes, did not increase its prices last year either. Karelia's and KT's products have something else in common: their brands have been offered for years on the market without excise-duty labels. By keeping its prices unchanged on the official market last year Karelia achieved a considerable increase in market share - by 1.3 percentage points, which was the best market performance of producers in the ranking. KT, however, could not get the same advantage and reported a drop in sales by 0.6 percentage points.
Traditionally, the market share lost by leader BAT is distributed among the other cigarette companies. Besides Karelia, the biggest gainers last year were Japan Tobacco and Imperial Tobacco, which registered an impressive increase in their Sobranie and Davidoff brands.
Philip Morris preserved its market share in the cigarette segment. However, both in Bulgaria and globally the concern is investing mainly in the smoke-free segment. According to Nielsen data the sales of smoke-free tobacco products last year reached 777 million pieces.
Consumer tastes remain unchanged. While in other European countries the best-selling products are 80 mm cigarettes (the so-called king size), in Bulgaria 44% of consumption comes from the so-called long cigarettes with normal thickness, while slim cigarettes make up more than 30% of sales. Flavoured cigarettes (menthol, chocolate, rose) are not very popular, so producers do not expect any serious market disruptions to arise from the EU ban of sales of menthol cigarettes that comes into force on 20 May 2020.