A report released yesterday from the Federal Trade Commission (FTC) on cigarette and smokeless tobacco sales and marketing expenditures show that in 2020, cigarettes sales increased for the first time in 20 years, with cigarettes sales from tobacco companies to wholesalers and retailers rising from $202.9 billion in 2019 to $203.7 billion in 2020. To no surprise, tobacco company marketing expenditures increased along with sales, with marketing expenditures for cigarettes rising by 3% overall and 4% specifically in the retail environment. Sales of smokeless tobacco also increased, and while total marketing expenditures for smokeless tobacco decreased by 2%, the proportion of spending in the retail environment increased by 2%. 

In 2020, the tobacco industry spent over $6.8 billion marketing and promoting cigarettes and smokeless tobacco directly in retail stores, or at the point of sale (POS). These POS expenditures account for over 81% of the tobacco companies’ total marketing dollars spent on cigarettes and smokeless tobacco combined. These figures from the Federal Trade Commission Reports on Cigarettes and Smokeless Tobacco Sales and Marketing Expenditures in 2020, released this month, document a continued concentration of tobacco industry expenditures in the retail environment. The FTC has been preparing reports on sales, advertising, and promotions of cigarettes since 1967 and smokeless tobacco since 1987. Reports are issued periodically and give tobacco control advocates detailed advertising and promotion spending reports in more than two dozen categories. The spending reports show that tobacco companies spend the majority of their marketing dollars on two categories: price discounts and promotional allowances to keep products cheap and visible at the point of sale. See more details on their expenditures at the point of sale here.

When factoring in price discounts and promotional allowances paid to wholesalers, which also ultimately reduce the price of products to consumers, the amount spent rises to over $8.2 billion, over 97% of the tobacco industry’s total marketing budget for these products. These price discounts counteract the impact of tobacco control policies like excise taxes and target price sensitive smokers.

• What are Price Discounts? Price discounts are what tobacco companies pay to cigarette retailers or wholesalers in order to reduce the price of cigarettes to consumers, including off-invoice discounts, buy-downs, voluntary price reductions, and trade programs.
• What are Promotional Allowances? Promotional allowances are what tobacco companies pay to either cigarettes retailers or wholesalers in order to facilitate the sale or placement of tobacco products. For retailers, this can include payments for stocking, shelving, displaying and merchandising brands, volume rebates, incentive payments, and the cost of tobacco products given to retailers for free for subsequent sale to consumers. For wholesalers, this can include payments for volume rebates, incentive payments, value added services, promotional execution and satisfaction of reporting requirements.

Price discounts remain the largest categories for both cigarettes and smokeless tobacco, totaling over 87% of total industry spending on these products. Specifically, price discounts paid to cigarette retailers in order to reduce the price of cigarettes to consumers are the single largest expenditure, totaling nearly $6.1 billion – 77.4% of total advertising and promotional expenditures for cigarettes, which also represents an increase of 6% from 2019. Combined with price discounts paid to wholesalers ($876 million), this category represents 88.5% of tobacco companies’ total cigarette marketing expenditures. Price discounts are the largest expenditure for smokeless tobacco as well, with tobacco companies spending 296.6 million on price discounts paid to retailers (an increase of 4% from 2019) and $85.3 million on price discount paid to retailers, representing a combined 67.4% of all marketing expenditures for smokeless tobacco.

There are a couple of other key changes in the reports for this year.

• Smokeless data now includes nicotine pouches and lozenges that do not contain tobacco. Sales of these products totaled $420.5 million.
• Data on sales of different flavors of smokeless tobacco are also included for the first time. In 2020, menthol smokeless tobacco comprised 50.8% of sales by pound sold and 54.2% of dollar sales; fruit-flavored smokeless tobacco products comprised 2.8% of sales by pounds sold and 2.5% of dollar sales; and alcohol and other flavors of smokeless tobacco comprised 0.07% of sales by pounds sold and 0.02% in dollar sales. Though not new, data on the market share of menthol flavored cigarettes is also included. In 2020, menthol cigarettes were 37% of the market share among the major manufacturers.

Remember that these numbers are for cigarettes and smokeless tobacco alone – they do not include any marketing expenditures for cigarillos, little cigars, e-cigarettes, or any other tobacco products. However, the FTC may issue future reports on e-cigarette marketing expenditures – last month the FTC issued orders to five e-cigarette companies, requesting information on their 2019-2020 sales, advertising, and promotional data. This follows a similar set of orders they issues to six e-cigarette companies in October 2019, requesting information from 2015-2018.

Tobacco marketing at the point of sale matters. Research shows that tobacco marketing can cause youth to start smoking, keep current smokers hooked, and make it harder for current and former users to quit and stay quit. These FTC reports emphasize the critical need to monitor and address tobacco industry activity in the retail environment. Learn more about the FTC reports, The War in the Store, and strategies to limit price discounts, promotions, and POS advertising in your community. 

 

Note: In 2016, the FTC Cigarette and Smokeless Tobacco Reports began separating price discounts into amounts paid to retailers and amounts paid to wholesalers. In previous calculations, we had included this category as a whole. In an effort to keep track of what is directly spent at tobacco retail locations like convenience stores that any person can access, we calculate the amount spent at the POS uses the following categories: (a) point-of-sale advertisements, (b) price discounts to retailers, (c) promotional allowances to retailers, (d) retail-value added bonus tobacco products and bonus non-tobacco products, (e) coupons, and (f) consumer engagement. Other marketing dollars not considered to be aimed at POS include, for example, dollars spent on direct mail, magazines, internet, or sponsorships. However, we also are reporting totals including price discounts and promotional allowances paid to wholesalers for their role in reducing the price of tobacco products for consumers.