Smokeless Tobacco Industry In Algeria

TRENDS       

• Smokeless tobacco used to be largely consumed in Algeria by the majority of men in all social groups. Locally, ‘chemma’ is the terms given to moist snuff and ‘neffa’ is dry snuff. Chemma is put directly on gums or placed in paper, while dry snuff is ingested through the nose. The latter is also consumed by older ladies in rural areas. Consumption is becoming less popular but the tradition is still present among lower income groups and in rural areas where some consumers used to produce their own tobacco. Moist snuff is the most prevalent category of smokeless tobacco and is available within both legal and illicit channels.

• Smoking tobacco boxes and bags are subject to the same legislation as other tobacco products. However, there is no ban concerning their consumption in public places which applies to cigarettes and smoking tobacco.

• It is estimate that 70% of the male population uses smokeless tobacco, predominantly moist snuff, essentially in rural areas and among lower income groups. It is viewed as more efficient and cheaper than cigarettes. Except for the older females in rural areas who consume dry snuff, Algerian women do not consume smokeless tobacco products.

• Illicit trade represents strong competition for smokeless tobacco and is estimated to represent around 30% of total sales. This figure could be even higher as manufacturers also estimate their shares according to total market including illicit trade. The liberalisation of the market in 2001 and the competition from private companies served to lower illicit trade, but legal companies still perceive competition from illicit trade, and from consumers who produce smokeless tobacco traditionally from their own plantation.

• Volume sales decreased by 0.4% in 2009, largely due to lower production by SNTA, which is the biggest player in the category and the recent entrant, Bentchikou Tabacs Algérie cannot fill in the gap left by SNTA, a gap which is taken over by the illicit trade and domestic traditional production.

• Value sales increased by 2% in 2009, due to an increase in unit prices at the manufacturers’ level. Prices rose because SNTA decreased its production and sales thus shifted to products offered by leading competitor Bentchikou Tabacs Algérie, which sells smokeless tobacco at higher prices, hence the increase in total value sales.

• Dry snuff witnessed positive growth in 2009 with a 0.3% volume sales increase. Illicit trade products are less present in this category, which allows legal manufacturers to develop their production and increase their sales.

• As few brands are present in the category, there is no price segmentation and all products are positioned as economy because it is essentially lower income consumers who purchase smokeless tobacco.

• Algerian consumers traditionally use loose US-style moist snuff, while portion snuff does not exist in the market. Loose US-style moist snuff can be put directly on the gums, or put in paper to form a bag similar to portion snuff; this form of use is less harmful to gums.

DISTRIBUTION

• Newsagent-tobacconists/kiosks remained the leading distribution channel in Algeria, representing 67% of volume sales in 2009. This retail channel is widely spread across the country and offers the largest stock range. The channel distributes both legal and illegal products. However, the majority of illicit trade products are sold from street vendors; this channel takes a large share of smokeless tobacco sales if both legal and illegal sales are considered.

• The government does not control the system of distribution in Algeria. The national company SNTA has agreements with tobacco retailers to which it distributes directly. Private companies distribute directly to retailers that order smokeless tobacco.

• In Algeria tobacco promotion is allowed in POS, however, smokeless tobacco is not advertised, primarily because neither manufacturers nor retailers want to bother with displays. Furthermore, smokeless tobacco is not perceived as needing any marketing, with operators considering that its sales might not be boosted by promotion as consumers already have their well-established habits.

• Retailers do not receive any incentives from manufacturers and, in compensation, they tend to increase their profit margin whenever they feel the need without any control from the government or manufacturers.

• Vending is not present in Algeria.

• Internet retailing and advertising of tobacco products is illegal in Algeria. As a result of limited internet penetration, the relatively recent introduction of payment cards and the inadequate delivery systems, internet sales do not exist in any category of tobacco.

COMPETITIVE LANDSCAPE

• The biggest manufacturer is Société Nationale des Tabacs et Allumettes (SNTA), with a value share of 88% in 2009. The company produces the leading brands Makla El Hilal and Nedjema. The private company Bentchikou Tabacs Algerie accounts for the remaining share and has gained ground since it entered the category in 2004with its brands Makla Bouhlal and Naffa Africaine and Makla Ifriquia

• The national company SNTA had a monopoly on production prior to 2001, thus it remains the category leader because consumers are used to its products. However, Bentchikou Tabacs Algérie imports its products from its headquarters in Belgium, and the company is continuously gaining share in Algeria.

• Bentchikou Tabacs Algérie saw the biggest increase in share in 2009 with a rise of one percentage point. The company is entering into competition with SNTA, and while SNTA slightly decreased its production in 2009 because of tobacco supply issues, Bentchikou Tabacs Algérie took advantage of this situation and is expected to continue gaining share; sales are supported by more attractive packaging, while its products’ unit prices are not much higher than those of SNTA.

• There is no other price segment than economy within smokeless tobacco. Manufacturers know that the main consumers of this product type are from lower income groups and would thus not be interested in premium brands; those consumers struggling with the cost would rather switch to illicitly traded products and increase traditional home production.

NEW PRODUCT DEVELOPMENTS

• Since Bentchikou Tabacs Algérie introduced its brands in 2004 the legally available brands have remained the same.

• There are no tobacco-free smokeless tobacco products in Algeria.

PROSPECTS

• Smokeless tobacco is expected to register a negative CAGR of 0.3% over the forecast period, while constant value sales are expected to drop at a CAGR of 1%. This negative performance will be due to a weakening interest in smokeless tobacco in favour of cigarettes. The young generation is expected to move away from smokeless tobacco, which is viewed as archaic and inconvenient; such consumers are more attracted to cigarettes.

• The declining trend of smokeless tobacco consumption started during the review period, with a lack of interest from consumers and slightly higher prices within the category. The declining consumption is particularly apparent since domestic cigarette production commenced, as this served to bring down cigarette prices, which in turn attracted consumers who had previously opted for smokeless tobacco. This decline is expected to continue into the forecast period where snuff will register a 0.35% CAGR decline in volume terms.

• Illicit trade represents the biggest threat to the category’s growth. Despite the low quality and consumers’ being aware of the potential danger of illegal products, they continue buying these products because of the lower prices. The decreasing interest towards smokeless tobacco is also a threat to the future growth of the category. Products are not advertised, and cigarette consumption is taking over smokeless tobacco.

• In general, legislation regarding smokeless tobacco and its consumption is unlikely to change or effect future sales; declining demand is more likely to hinder sales than laws against consumption.

• SNTA is not planning to change or innovate its product range within smokeless tobacco. The national company is not responsible for innovation in tobacco. However, the private company Bentchikou Tabacs Algérie might develop its product range as it looks to gain further share. The category is not expected to see any significant changes over the forecast period.

Source:    Euromonitor International