Marketing Plan: San Miguel Cigarettes

Overview of the Industry

With a smoking population of over 38 million strong (or 47% of the total Philippine population), the cigarette industry proves promising to enter into. Having one of the highest smoking prevalences among East Asia Pacific countries, the industry bears the contradiction of having a steeping demand despite an ever-emergent poverty crisis.

The Philippine cigarette industry has thus far experienced unprecedented growth; from 67,851.11 million sticks in 1997, the cigarette industry totaled 88,316.37 million sticks in 2003?., accounting for an average annual growth rate of 4.57%. In 1998, tobacco imports accounted for $33,586,000 (or 4,693 metric tons) of total imports. Meanwhile, during the same year, $6,550,000 (or 1,392 metric tons) worth of tobacco was exported to over 60 countries worldwide.

Since the 1970s, annual cigarette consumption in the Philippines has been steadily increasing. However, per capita cigarette consumption has decreased due to a greater awareness of the health risks involved in smoking. Consumers are more informed of its harmful effects to the body and the environment and are exposed to a more regulated advertising campaign. Despite this, the popularity of cigarette smoking especially among adolescents as well as an ever-growing population have allowed annual cigarette consumption to steadily increase.

Competitive Analysis

Two main contenders dominate the Philippine cigarette industry: Fortune Tobacco Corporation and La Suerte Cigar and Cigarette Factory. They are the market leader and challenger respectively.

Fortune Tobacco Corporation

One of the largest non-monopoly cigarette companies in Southeast Asia, Fortune Tobacco Corporation (FTC) holds a high share of 67% of the local market, or in volume terms, over 50 billion cigarette sticks per year. FTC’s fully integrated plants are equipped with the latest machines at par with international standards.

The unprecedented success of FTC in the international market is built on its unwavering commitment to product quality. The firm ensures that every detail is taken care of in every aspect of its business and in every stage of production. From the selection of raw materials to sturdy packaging, from modern machinery to advanced technological processes, FTC’s passion for perfection is a guarantee of world-class quality.

Fortune Tobacco carries such brands as Winston, Camel, Salem, Champion, Hope, Mark, and More.

La Suerte Cigar and Cigarette Factory

With manufacturing licenses to such brands as Marlboro and Philip Morris, La Suerte Cigar and Cigarette Factory holds 25% of the local market, amounting to approximately 18 billion sticks per year.

Philip Morris products were introduced in the Philippine market in 1955. This exclusive licensing agreement was Philip Morris' first such agreement outside of the United States. In 1993, Philip Morris Philippines was established to manufacture proprietary flavors to be supplied to La Suerte and now performs all leaf-related Agronomy, Logistics, Planning and Buying business functions for the whole Asia Pacific Region.

Philip Morris flagship brands are currently produced at La Suerte's manufacturing plant in Paranaque City, and distributed through their sales and distribution network of close to 70 distributors and 29 key accounts located all over the country. Philip Morris Philippines has recently broken ground in Batangas, beginning construction of a modern cigarette manufacturing plant. An affiliate company, Philip Morris Philippines Manufacturing, Inc., was established for this purpose. The new plant was fully operational from mid 2003. This is Philip Morris' largest investment in Asia. The plant is equipped with state-of-the-art cigarette manufacturing technology, featuring the latest in environmental protection, quality control and safety standards. The new plant supports Philip Morris’ growing tobacco business in the Philippines and exports to the rest of the Asia Pacific Region.

Other Cigarette Manufacturers

Other cigarette manufacturers, namely Sterling Tobacco, Anglo American, and Mighty Corporation, hold the remaining 8% of the local market. These three firms collectively generate sales of 6 billion cigarette sticks per year. Cigarette brands carried by these firms include Navy Club, Rambo, Spotlight, Triple A Freedom, Blue Seal, and Gallo.

Aside from the manufacturing firm, competition can also be assessed via price segmentation.