Germany doubled the supply of cigarettes to Russia

In the first quarter RUSSIAimported from Germany and other countries twice as many cigarettes as a year ago.Importers could ramp up shipments amid fears of disruptions and increased tobacco excise duty from March 1, 2023

The supply of cigarettes and cigarettes to Russia from abroad in the first quarter of 2023 more than doubled compared to the same period last year - from 32 million to 70 million packages, follows from the report of the operator of the Chestny Znak labeling system (Center for the Development of Advanced Technologies , CRPT). At the beginning of the year, cigarette imports exceeded not only the level of the same period in 2022, when Western sanctions imposed in response to a special military operation in Ukraine caused a massive disruption in logistics, but also the level of supply that was in the first quarter of 2021. Then, in January-March, Russia imported 35.9 million packages from other countries, which is 48.7% less than in the current year.

The main supplier of imported cigarettes and cigarettes to Russia in the first quarter of 2023 was Germany: it accounted for 61% of all imports, follows from the CRPT report. The country doubled its shipments to 42 million packs from 19 million in the first quarter of 2022. Bulgaria and SOUTH KOREA were also in the top three importers: each of these countries accounted for 4.9% in the supply structure, or 3.4 million packages, according to the report. From Bulgaria in the first quarter of 2023, nine times more cigarettes were imported than at the same time last year (388 thousand), and from South Korea - 2.6 times more year-on-year (1.3 million). In the first quarter of this year, 761,000 packages were imported from the UAE, which is 1.2 times more year-on-year (628,000). Countries of the Eurasian Economic Union ( EAEU, which, in addition to Russia, includes Armenia, Belarus, Kazakhstan and Kyrgyzstan) in January-March of this year delivered a total of 19.6 million packages to the Russian market (the CRPT does not provide a breakdown by individual countries).

As considered

The CRPT statistics on imports of tobacco products are based on data obtained from the State Information System for Monitoring Goods "Honest Sign". Participants in the circulation of tobacco products and a number of goods - fur products, medicines, shoes and tobacco, cameras, tires, certain light industry goods, packaged water and dairy products - must submit information to the national system "Chestny Znak". Tobacco manufacturers, importers and sellers have been submitting turnover data to the labeling system since 2019. A single operator of the marking system - TsRPT.

Why imports of cigarettes are growing

On the scale of the entire Russian tobacco market, imported cigarettes occupy a very small share: the largest foreign tobacco companies have localized production in Russia, and they provide the needs of the Russian market with international brands produced at local factories. In the first quarter of 2023, the volume of the domestic market for cigarettes and cigarettes was 2.35 billion packs (+3.6% year-on-year), of which 97% of products were domestic production and only 3% were imported.

What is happening with the business of international tobacco companies in Russia

In March 2022, the British company British American Tobacco (BAT) (produces Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans brands) announced that it would leave the Russian market, and subsequently announced that it would transfer its business toin Russia to a local partner. Two other major cigarette manufacturers, Philip Morris (manufacturing products under the brands Marlboro, L&M, Chesterfield, Parliament, Bond Street, and IQOS) and Japan Tobacco Inc., also warned about a possible change in the ownership of the Russian business. (international brands Winston, LD, Mevius, Camel, Sobranie and Russian brands Donskoy Tabak, Kiss, Play, Peter I, Troika). But at the moment, only the British Imperial Brands (manufacturer of Davidoff, West, Jadé, P&S and Maxim cigarettes) has left the Russian market - in April last year, a group of seven Russians became the new owner of the legal entities of the British manufacturer, five of which are associated with structures the largest Russian tobacco distributor Megapolis, billionaires Igor Kesaev and Sergey Katsiev.

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The share of cigarettes imported from abroad in Russia is consistently growing - this is due to the fact that a number of smokers deliberately choose imported cigarettes, despite the higher cost, says Alexander Zavoykin, executive DIRECTOR of the tobacco consulting agency Fedotov Group .

Mostly wealthy consumers who are ready to abandon popular brands produced in Russia in order to buy products of higher quality, from their point of view, are switching to imported cigarettes, explains Maxim Korolev, editor-in-chief of the Russian Tobacco industry agency. For example, products popular with consumersone of the oldest and largest tobacco factories in Germany - Von Eiken (brands Chapman, Harvest, Pepe), lists Korolev. And from South Korea, for example, separate lines of Esse cigarettes are imported to Russia, which are not produced in Russian production, the expert says. The appearance of Bulgaria among the leaders in the import of cigarettes to Russia Korolev calls a surprise - before, Bulgarian suppliers did not actively work with the Russian market. “Apparently, last year they brought in a trial batch of products, and this year they brought a large one at once, which “made” the statistics,” RBC’s interlocutor suggested.

The sharp increase in imports of cigarettes and cigarettes to Russia in the first quarter of 2023 is explained by the fact that importers are building stocks, fearing possible disruptions in supplies, Alexander Zavoykin believes. In the summer of 2022, the media reported that a number of tobacco shops faced a shortage of tobacco products imported from abroad - in particular, it was about the Chapman brand of cigarettes, which is popular with flavored tobacco consumers. Among the possible reasons for the shortage of goods, sellers of tobacco shops called logistics problems - trucks with cigarettes were not allowed to pass at the border. And in September, the TELEGRAM channel Mash wrote that the German manufacturer Chapman allegedly forbade shipping its cigarettes to Russia. RBC sent a request to Von Eiken.

The increase in imports in the first quarter of 2023 may be due to "compensation" for the failure in supplies in previous periods, argues Korolev from Russian Tabak - according to him, in 2022, cigarette importers faced difficulties in obtaining excise stamps.

In addition, from March 1, 2023, the excise tax on cigarettes and cigarettes increased in Russia (by 2% - from 2552 to 2603 rubles per 1 thousand pieces). In anticipation of the increase in excise duty, importers, who usually consolidate goods in advance at border warehouses in the Baltics, could speed up deliveries and bring in products scheduled for import in April and May earlier in order to save money, Korolev suggested.

RBC sent inquiries to the largest cigarette manufacturers British American Tobacco (BAT), Philip Morris and Imperial Tobacco, as well as to retail chains - X5 Group (Pyaterochka, Perekrestok and Chizhik), Lenta, Auchan, Metro C&C, "Magnet" and "Azbuka Vkusa".

How many Russians smoke

According to the data announced in July 2022 by VTsIOM, a third of Russians smoke (33%), and one in five smokes a pack of cigarettes daily (20%).

According to Rosstat, the proportion of smokers is declining: if in 2009 the prevalence of smoking among men and women was 39%, then by 2023 it will be about 21%. The decrease in the number of smokers may be due to the transition of some consumers from cigarettes to innovative products, said a representative of the International Tobacco Group (formerly Imperial Brands, produces Davidoff, West, Jadé, P&S, Maxim and myblu electronic nicotine delivery systems). However, the demand for tobacco products in Russia remains high: in the first quarter of 2023, sales of cigarettes and cigarettes grew by 3% year-on-year, to 1.6 billion packs, the CRPT noted.