Smuggling threat to tobacco sales says Key Note report

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According to a new report from UK research company Key Note, the most important issue facing the UK market for cigarettes and tobacco is the growing level of smuggled products. The report, Cigarettes & Tobacco, says it is likely that sales of legitimate products will show a sharp fall unless the threat from smuggled products can be addressed.

Between 1996 and 2000, the UK duty-paid cigarette and tobacco market grew by 3.9% to reach a value of £12.37bn ($17.69bn). The growing volume of smuggled products entering the market is undermining legitimate trade, with the value of the market also affected by rising tobacco-specific taxes. Smuggled products are often UK brands that have been exported and subsequently find a way back into the UK market to retail at a discount of up to £2 ($2.86) for a pack of 20, says the report.

Although, the Government is taking steps to combat smuggling through its Customs and Excise operations, many within the trade see a reduction in tobacco taxes as the only way to deal with the problem. Customs officers believe that the UK has become the largest market in Europe for tobacco smuggling, backed by organised crime rings. The rise in sales of non-UK-duty-paid, or smuggled, cigarettes and tobacco has been fuelled by tax rises acting in tandem with supplier price increases.

Key Note forecasts that the value of the UK market for cigarettes and tobacco will continue to rise between 2001 and 2005, although the rate of growth will be slow. Despite the measures taken by the Government, there are likely to be ongoing problems with smuggled products in the UK market, which will continue to affect the performance of the legal market, says the report.

• Key Note forecasts that the UK cigarette and tobacco market will reach a
  value of £12.98bn ($18.56bn) by 2005.
• The Cigarettes & Tobacco market report is available from Key Note on telephone +44 20 8481 8750, priced £310.