And the Future for Duty Free Tobacco is….?

And the Future for Duty Free Tobacco is….?

By: Julian Emeritt •   email: info@trunblocked.com

Last month’s meeting of countries that ratified the World Health Organisation’s Illicit Trade Protocol (ITP), led to a welcome last minute reprieve for the duty free tobacco business. The 48 member countries agreed to delay undertaking research into whether duty free contributes to the illicit trade of tobacco until 2020 at the earliest. The WHO Secretariat had originally suggested the research start immediately.

This delay is a well-deserved victory for industry associations such as the Duty Free World Council (DFWC) and the European Travel Retail Confederation (ETRC), which have lobbied governments and customs authorities hard over the past 12 months, arguing that the duty free channel is, in fact, one of the most highly controlled in the world. The decision to postpone research into duty free is a strong signal that the issue is not a top priority for ITP signatories.

However, now is not the time for the industry to take its eyes off the ball. As controversial as it may be, the tobacco industry still matters to this business. The latest figures from Generation, unveiled at the TFWA World Exhibition last month, show that duty free tobacco sales held steady at US$ 7.2 billion in 2017 – still significantly ahead of other categories such as confectionery (US$ 5billion), jewellery and fine writing (US$ 5.7 billion) and electronics and gifts (US$ 4.9 billion).

It’s true, tobacco’s share of overall duty free sales has slipped over the years – it currently hovers at just 10.3%. Yet the category remains an important footfall driver for many travel retailers. Moreover, research study after study has shown that duty free tobacco purchasers are also good shoppers of other product categories.

Tobacco is a category worth fighting for. The challenge now is to convince and educate the WHO that many of the provisions required by the Protocol to eliminate illicit trade, such as the establishment of a tracking and tracing system, strong security measures and good record keeping, are already being undertaken by the duty free industry in partnership with national Customs authorities.

Tobacco is a category worth fighting for

Successful lobbying campaigns require unity and common purpose. However, it is far from clear that this unanimity now exists amongst the major tobacco companies. While Japan Tobacco International (JTI) has strongly supported the fight to retain duty free tobacco sales,
for instance, Philip Morris International (PMI), the producer of Marlboro, one of the best-selling brands in duty free, appears to be no longer a supporter of the traditional tobacco business.

Instead, the multi-national company wants smokers to ”give up cigarettes” and is trying to persuade smokers to switch to its smoke-free
IQOS heated tobacco device – the latest iterations of which (IQOS 3 and IQOS 3 MULTI) were unveiled in Tokyo with great fanfare last month. PMI’s heated tobacco device is now on sale in 43 markets worldwide and the company estimates 5.9 million adult smokers have stopped smoking and switched to IQOS.

On one level, PMI’s aim is laudable, of course. A world with fewer smokers has to be a good thing. But the question has to be asked: is PMI’s desire to exit the traditional cigarette business a helpful one in the duty free industry’s very important fight to hold onto traditional tobacco sales?

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