Amidst a growing smuggling trade in cigarettes, the Law 9028 on Tobacco Control and Its Harmful Effects on Health has also impacted the once-thriving tobacco industry in Costa Rica. According to a recent press release by market research firm Euromonitor International, tobacco industry executives in Costa Rica has responded with pricing and marketing strategies within a restrictive environment.

 

The report by Euromonitor arrives in the wake of a rule imposing on cigarette manufacturers to display garish images of some of the most harmful and fearsome health effects caused by smoking. These include:

• Heart disease
• Male impotence
• Emphysema
• Abortion
• Mouth and tongue cancer
• Premature death

The approval of tobacco control legislation during the second half of 2012 significantly impacted cigarettes in 2013, with new taxes and a smoking ban changing smokers’ consumption habits in Costa Rica. Besides the sudden increase in the unit price of tobacco and the ban on smoking in public places, packaging restrictions (effective since June 2013), which prohibit the sale of cigarette packs other than 20s, drove consumers to re-evaluate their options and opt for value-for-money alternatives. This scenario and the ongoing weak economic situation saw the emergence of a new price segmentation strategy, which focused on applying cost reductions (value-for-money alternatives) and maintaining the most successful products, such as the recently launched Viceroy and Derby soft boxes and L&M Forward (menthol capsule).

 

Competitive Landscape

The Costa Rican tobacco industry is dominated by the world?s largest manufacturers. Tabacalera Costarricense SA, a subsidiary of Philip Morris International, remained the category leader in 2013 with a 58% share of volume sales, followed by British American Tobacco Caribbean & Central America with a 36% share. Both companies enjoy a privileged position within the category, supported by top-of-mind global brands and economy-of-scale production systems.

 

Industry Prospects

The new tobacco legislation, which was approved in 2012, is anticipated to continue to affect the performance of cigarettes over the forecast period. This includes bans on advertising, certain pack presentations and smoking in public places. Manufacturers will likely continue to focus on different benefits, encouraging consumers to opt for certain brands on a regular basis. Product development should keep moving towards versatile alternatives (menthol capsule filters) and more convenient packs.