Photo: Mint
Photo: Mint

Smokers stock up, vendors cash in as cigarette firms halt production

Some retailers have already started asking for a 10-15% premium depending on the level of their stock

New Delhi: Santanu Ganguly, 35, a Kolkata-based businessman, smokes 30 cigarettes a day. On Monday, he bought five cartons, each with 10 packs of 20 sticks.

That should last him around a month.

Ganguly, who has been a smoker for 15 years, typically buys regular packs every day, but didn’t want to take a chance after cigarette makers halted production on Friday.

“I needed to ensure stock for a few weeks," he said.

Hardened smokers like Ganguly are stocking up on the sticks, partly to beat an almost inevitable retail price hike after tobacco companies on Friday decided to halt production over a dispute with the government on the size of pictorial warnings they should put on cigarette packs.

“I know, this strike would not continue for long. But it makes sense to stock up before the retailers start asking more than the maximum retail price, taking advantage of the situation," says Ganguly.

Starting 1 April, all tobacco products, including cigarettes, bidis and non-smoking tobacco were required to contain pictorial health warnings covering 85% of the space on both sides of the packet, up from 40% earlier.

A government notification to the effect was followed by a statement that a Parliamentary panel had recommended only a marginal increase in the size—to 50%.

Cigarette makers including ITC Ltd, India’s largest, said the resulting lack of clarity had prompted them to halt production.

Tobacco companies assured smokers that sufficient stocks existed in the market.

“Adequate stocks are available in the market," said a spokesperson at ITC.

“As on date we have sufficient stock in hand of cigarettes for sale in the Indian domestic market and, therefore, as of now we do not anticipate any material impact on the financial performance…," Godfrey Philips Ltd, the country’s second largest cigarette maker, said in a statement to the BSE on 2 April.

People in the distribution channel indicated that they can sustain normal supply for three to four weeks with the current level of stocks.

Assuming that cigarette makers have some inventory at factories and warehouses, the duration could be longer.

But distributors and wholesalers have already started squeezing supply to retailers.

“I am getting less than half of my daily orders," said Somnath Das, a cigarette retailer in a south Delhi market.

Mohammad Hussain, a wholesaler in Kolkata, said the scarcity was genuine.

Some retailers have already started asking 10-15% more than the maximum retail price depending on their own stock.

The halt in production would cause an estimated loss of 350 crore a day, according to the Tobacco Institute of India, a lobby group.

It also said the strike would also affect the livelihood of about 45.7 million people dependent on the industry.

There is no indication of how long the production halt would continue.

In a statement on 1 April, the Tobacco Institute of India said the size of the pictorial warning on cigarette packets in India was already larger than the global average of 31%.

Pictorial warnings on cigarette packets have been mandatory since 2009.

Following an increase in excise duty on tobacco products in the budget on 29 February, ITC last month revised prices of its highest-selling brands, Classic and Gold Flake Kings, by 12.84%.

Cigarette prices have multiplied in the last few years as the government has hiked excise duty on cigarettes by 98% since 2012-13, according to Tobacco Institute of India.

The cigarette market in India is dominated by ITC with a 78.5% share of sales by volume, followed by Godfrey Philips (13.5%) and VST Industries Ltd (7%), according to a report by UBS Securities India.

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