British American Tobacco has warned that a squeeze on disposable income and tax hikes by cash-strapped governments are pushing smokers into a growing illicit tobacco market.
The world’s second largest tobacco company and producer of the Lucky Strike brand said a growing trade in illegal cigarettes was a threat to its business, overshadowing a rise in sales of BAT’s legitimate products.
The company said illegal cigarettes, often sold at less than half the price, were either brands smuggled around the world from countries with low duties or were counterfeit cigarettes in the first place.
Michael Prideaux, BAT’s director of corporate affairs, claimed there is a link between rising taxes and cigarette consumption: “Governments with finances under pressure tend to whack up excise … In Ireland, they keep whacking up tax and cigarette consumption has gone up because of the increase in the illegal market,” he claimed.
Prideaux said that smokers generally go through a series of stages as economic woes bite. “The first thing they do is smoke a bit less and then they trade down and then when they things get really tough they go into the illegal market and once they do that it is very hard to get them back,” he said.
BAT said that despite the pressures on consumers and the threat of illicit trade its sales are up overall thanks to recovery in some key markets such as Russia, France and Germany. In a trading update, BAT said sales were up 7% in the nine months to the end of September, much of that driven by a push on its top brands Dunhill, Kent, Lucky Strike and Pall Mall.
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