Cigarette

eScholarship provides open access, scholarly publishing services to the University of California and delivers a dynamic research platform to scholars worldwide. Abstract: The report shows that cigarette sales increased by 0.5 percent from 1999 to 2000, while advertising and promotional expenditures rose 16.2 percent to $9.57 billion, the most ever reported to the Commission. Increases in expenditures for promotional allowances and retail value added account for most of the overall rise in spending. The industry also reported increases in spending for coupons (up 32.8 percent) and public entertainment (up 15.8 percent), but these expenditure categories are relatively small in terms of overall spending. Substantial decreases were reported for outdoor advertising (down 82.8 percent from 1999 to 2000) and transit advertising (down 99.9 percent).


INTRODUCTION
This report is the latest in a series on cigarette sales, advertising and promotion that the Federal Trade Commission ("the Commission") has prepared annually since 1967.
The statistical tables appended to this report provide information on domestic sales and advertising and promotional activity for U.S. manufactured cigarettes for the years 1963 through 2000. The tables were compiled from raw data contained in special reports submitted to the Commission pursuant to compulsory process by the six major cigarette manufacturers in the United States: Brown & Williamson Tobacco Corp., Commonwealth Brands, Inc., Liggett Group, Inc., Lorillard Tobacco Co., Philip Morris Inc., and R.J. Reynolds Tobacco Co. 1 The report shows that cigarette sales increased by 0.5 percent from 1999 to 2000, while advertising and promotional expenditures rose 16.2 percent to $9.57 billion, the most ever reported to the Commission.
Increases in expenditures for promotional allowances and retail value added account for most of the overall rise in spending. The industry also reported increases in spending for coupons (up 32.8 percent) and public entertainment (up 15.8 percent), but these expenditure categories are relatively small in terms of overall spending. Substantial decreases were reported for outdoor advertising (down 82.8 percent from 1999 to 2000) and transit advertising (down 99.9 percent). Table 1 displays annual cigarette sales by manufacturers to wholesalers and retailers. 2 In 2000, the major domestic cigarette manufacturers sold 413.5 billion cigarettes domestically, 2.2 billion more than the 411.3 they sold in 1999. This 0.5 percent increase from the 1999 level follows a 10.3 percent decrease in 3 The reported figures include all advertising, merchandising, and promotional expenditures related to cigarettes, regardless of whether such advertising would constitute "commercial speech" or would be protected from law enforcement action under the First Amendment. The Commission began requiring tobacco companies to include expenditures for such protected speech in 1989.
Because the cigarette sales data that are reported to the Commission by the manufacturers are based on factory shipments, and thus can reflect changes in inventory holdings by cigarette wholesalers and retailers, the Commission has recently been including in its annual report information from the cigarette consumption series produced by the U.S. Department of Agriculture (USDA), which is based on an estimate of the number of cigarettes actually sold to consumers. USDA's cigarette consumption estimates, which are also included in Table 1 Tables 2 through 2B show the amounts spent on cigarette advertising and promotion for the years 1970, and 1975 through 2000. 3 These tables list the amounts spent on the different types of media advertising (e.g., newspapers and magazines) and sales promotion activities (e.g., distribution of cigarette samples and specialty gift items) and also give the percentage of the total amount spent for the various types of advertising and promotion. Table 2B shows that overall, $9.57 billion was spent on cigarette advertising and promotion in 2000, the most ever reported by the major cigarette manufacturers. The $9.57 billion represents an increase of 16.2 percent from the $8.24 billion spent in 1999, and of 42.2 percent from the $6.73 billion 3 spent in 1998. Newspaper advertising expenditures rose slightly from $51.0 million to $51.7 million between 1999 and 2000, an increase of 1.4 percent. This advertising category accounts for one-half of 1 percent of all expenditures. Although newspaper spending accounted for 23.1 percent of total expenditures in 1981, it has accounted for less than 1 percent of expenditures since 1992.
The manufacturers reported spending $294.9 million on magazine advertising in 2000, a decrease of 21.8 percent from 1999. Magazine advertising represented 3.1 percent of total spending. Spending on magazine advertising peaked in 1984, when the cigarette companies reported spending $425.9 million (20.3 percent of total advertising and promotional expenditures).
Spending on outdoor advertising (e.g., billboards) totaled $9.3 million in 2000, an 82.8 percent decrease from 1999, when $53.8 million was spent. In 2000, outdoor advertising expenditures comprised 0.1 percent of total advertising and promotional spending. These expenditures peaked at $386.1 million in 1991.
Spending on transit advertising (i.e., advertising on public transportation) declined from $5.6 million in 1999 to $4,000 in 2000, a decrease of 99.9 percent. Transit advertising has been as high as $40.2 million only two years earlier. Promotional allowances (e.g., payments made to retailers to facilitate sales) were $3.91 billion in 4 Specialty item distribution includes the practice of selling or giving to consumers items such as T-shirts, caps, sunglasses, key chains, calendars, lighters and sporting goods bearing a cigarette brand's logo. 5 This category does not include direct mail containing coupons. Coupons sent via direct mail were reported in the coupon and retail value added category from 1988 to 1996, and, as noted below, 4 2000, up 10.5 percent from the $3.54 billion spent in 1999. As it has been each year since 1994, this was the single largest category of advertising and promotional expenditures, accounting for 40.9 percent of all 2000 spending. Since 1995, spending on promotional allowances has more than doubled.
Money spent giving cigarette samples to the public ("sampling distribution") declined from $33.7 million in 1999 to $22.3 million in 2000, a decrease of 33.8 percent. Cigarette sampling distribution accounted for only 0.2 percent of the total spent on advertising and promotion in 2000; these expenditures have accounted for less than 1 percent of total spending every year since 1992.
In 2000, $264.8 million was spent on specialty item distribution through the mail, at promotional events, or by any means other than at the point-of-sale with the purchase of cigarettes. 4 (Specialty items distributed along with the purchase of cigarettes were redesignated as retail value added expenses beginning in 1988.) Specialty item distribution expenditures declined $70.9 million (21.1 percent) from 1999, and accounted for 2.8 percent of total advertising and promotional expenditures in 2000.
Spending on public entertainment (e.g., sponsorship of concerts, auto racing, and fishing tournaments) increased by 15.8 percent ($42.2 million) from 1999 to 2000. With expenditures reported at $309.6 million, public entertainment accounted for 3.2 percent of total advertising and promotion expenditures in 2000.
The cigarette companies reported a total of $92.9 million for direct mail advertising in 2000, 1.8 percent less than the $94.6 million reported in 1999. 5 were reported separately for the first time in the report to Congress for 1997. 6 From 1988 to 1996, the Commission collected information about spending on coupons and retail value added as a single expenditure category. This category, which included cents-off coupons, multiple pack promotions and retail value added offers, was the single largest category of expenditures from 1990 to 1993. Beginning with its report to Congress for 1997, the Commission reported information about expenditures on coupons and retail value added separately, to provide better information on industry marketing trends. Spending on retail value added (offers such as "buy one, get one free" or "buy three, get free Tshirt," where the cigarette product and the bonus item often are packaged together as a single unit) grew by $956.6 million (37.4 percent) from 1999 ($2.56 billion) to 2000 ($3.52 billion). Retail value added accounted for 36.7 percent of total advertising and promotion in 2000. Since 1997, the first year the Commission reported retail value added as a separate category, spending on retail value added has more than tripled.
In 2000, the companies reported spending $949,000 on Internet advertising, which is less than one hundredth of 1 percent of the year's total advertising and promotional expenditures. This category includes the Internet, World Wide Web, commercial online services and direct mail advertising using electronic mail messages.
In 1988, the Commission began requiring the cigarette companies to state separately the amount of money spent on sports and sporting events. For 2000, the major domestic cigarette companies reported 7 This includes expenditures for: (1) the sponsoring, advertising or promotion of sports or sporting events; support of an individual, group, or sports team; and purchase of or support for equipment, uniforms, sports facilities and/or training facilities; (2) all expenditures for advertising in the name of the cigarette company or any of its brands in a sports facility, on a scoreboard, or in conjunction with the reporting of sports results; and (3) all expenditures for functional promotional items (clothing, hats, etc.) connected with a sporting event. 8 In 1989, the Commission began requiring the cigarette companies to declare whether any money or other form of compensation had been paid to have any cigarette brand names or tobacco products appear in any motion pictures or television shows. 6 that they spent $127.9 million on sports and sporting events, 7 an increase from the $113.6 million in 1999.
Cigarette manufacturers reported that they paid no money or other form of compensation to have any cigarette brand names or tobacco products appear in any motion pictures or television shows. 8 This practice has been reported as unfunded since 1989.
The data on cigarette advertising and promotional expenditures reported in Tables 2 through 2A were not collected in their present form until 1975. Therefore, Table 3  As shown in Table 5, filtered cigarettes have dominated the market since the Commission began collecting this information in 1963. Filtered cigarettes held 98 percent of the market in 2000. Table 6 provides the domestic market share of the various cigarette length categories. The King-7 size (79-88 mm) category continues to be the biggest seller, with 60 percent of the market. This category is followed by the Long (94-101 mm) group, which held 37 percent of the market in 1999. Regular (68-72 mm) and Ultra-Long (110-121 mm) cigarettes accounted for 1 percent and 2 percent, respectively, of the market in 2000. Table 7 gives the market share of menthol and non-menthol cigarettes. In 2000, the market share of menthol cigarettes was 26 percent, while non-menthols held 74 percent of the market.
In 1994, the Commission began requiring the cigarette companies to indicate whether "tar" and nicotine ratings were displayed on cigarette packaging and advertising. Table 8 shows: (1) the percentage of the overall cigarette market represented by varieties with different tar ratings, and (2) within each tar group, the percentage of those varieties that disclose tar and nicotine ratings on their packs. Table 8     * Because of rounding, sums of percentages may not equal 100 percent. ** Expenditures for audio-visual are included in the "All Others" category to avoid disclosure of individual company data. *** Prior to 1987, the Commission did not specifically collect information on Coupons & Retail Value Added.   Tables 2 through 2B were not collected in their present form until 1975. Thus, Table 3, which reports cigarette advertising expenditures from 1963 through 1974, has been retained in this report for comparative purposes.