Tobacco market in Ukraine

The Ukrainian tobacco market is one of the most competitive and dynamic among other regional markets of tobacco products. There are about 100 brand families and more than 350 cigarette names on it, which is a sign of a vast range of offers and a high level of competition.

The market’s dynamism is determined by the availability of a variety of cigarette formats, part of which is actively developing. Modern cigarette formats are becoming increasingly popular – Super Slims, King Size Super Slims, as well as Slims and an emerging formats Queen Size and Ultra Slims. Other more traditional format Slims received niche. In fact, in this format, which occupies 1,4% of the market, represented only by Imperial Tobacco cigarettes. Last year, their aggregate share increased by a quarter, and today they account for 20% (according to AC Nielsen, December 2014).

In terms of market segmentation with regard to the strength of cigarettes, there is also a growing demand for cigarettes with relatively lower tar and nicotine content. Ukraine differs from many other European markets because smokers’ preferences here are related mostly to cigarettes of moderate strength with a tar content of 2-8 mg. Such cigarettes account for 66,5 % of the market. The segment of cigarettes with 1 mg of tar occupies 5 % of the market and continues to grow.

Today, more than 60% of all cigarettes sold in Ukraine fall within the low and medium price segments. Their price does not exceed 15 hryvnias per pack. Imperial Tobacco's portfolio share of these segments is much higher - about 90%. Over the last year the share of the premium segment in the market rose to 16% (as of December2014). Imperial Tobacco is presented in the segment of premium cigarettes family brands Davidoff.

The consumption of tobacco products in Ukraine in general remains stable. According to the 2010-2013 consumer survey, 35-36% of adult Ukrainian citizens in the age of 18-64 are regular smokers (approximately 9.3 million people), consuming on average 17 cigarettes a day. During the last two years, the share of smokers and smoking frequency did not change very much.

The main trend observed on the Ukrainian market in recent years is a decline in legal production volumes. In January 2014, according to the company AC Nielsen annual market volume declined by more than 6.9% compared with the same period last year. The same rate of decline seen a year ago.

The situation when consumption remains stable and the volumes of legal production decrease is a sign that legal products are being substituted by illegal products. The growth in supply of cheap unregistered products is a result of a repeated unpredicted increase in excise duty rates for cigarettes. Ukrainian smokers cannot sustain the constant growth in prices for legal cigarettes and switch to cheaper smuggled and counterfeited products. 

The tobacco industry is one of the largest industries in terms of the amount of tax payments to the national budget. For instance, in 2014, the tobacco manufacturers paid to state budget more than 20 billion hryvnias of taxes, including 17,9 billion hryvnias of excise duties. The importance of a legal tobacco industry is confirmed by the fact that the top ten largest taxpayers in Ukraine include three tobacco companies.