Discount Tobacco

What is discount tobacco?

Discount tobacco is tobacco that is sold at a lower price than regular manufactured cigarettes.

There are two kinds of discount tobacco:

• Discount tobacco brands are cigarettes sold for less than the premium category brands.
• Loose tobacco, tobacco sticks and roll-your-own tobacco are taxed at a lower rate than cigarettes on a volume basis. These products are discounted compared with regular manufactured cigarettes.

Why is discount tobacco a problem in Alberta?

Alberta has seen a dramatic increase in the availability and use of discount tobacco. Canadian tobacco manufacturers are using discount tobacco to regain smokers lost because of tax increases, and to encourage tobacco consumption.

History

The large increase in market share of discount cigarettes in Canada has occurred over a short period of time.

In early 2002, Canadian tobacco manufacturers moved into the discount cigarette category, which had historically consisted of brands sold by small tobacco companies. Rothmans, Benson & Hedges (RBH) was the first major manufacturer to enter this market by reintroducing Number 7 and Canadian Classics as discount brands. In order to compete within the discount tobacco brand category, Imperial Tobacco gradually repositioned most of its brands within the Peter Jackson family brand into this category. In May 2004, Imperial Tobacco decreased prices on its third-largest brand, Matinee, effectively making it a discount brand. JTI-Macdonald introduced two new discount brands, Legend and Studio, that are being sold exclusively in Mac’s convenience stores for about $1 less than premium brands.

Despite maintaining their overall ranking, the top three brands have seen a decline in both sales and market share from 2001 to 2004. Meanwhile, discounted brands have increased market share and cigarettes sold. For example, discount brand Number 7 KS's market share has increased from 0.48% to 3.98% and Peter Jackson KS from 0.28% to 3.23%.

Discount cigarette sales as a percentage of Canadian cigarette sales

• 2001 - 2%
• 2002 - 4%
• 2003 - 14%
• 2004 - 34%