This category covers establishments primarily engaged in the wholesale distribution of tobacco and its products. Leaf tobacco wholesalers are classified in SIC 5159: Farm-Product Raw Materials, Not Elsewhere Classified , and establishments primarily engaged in stemming and redrying tobacco are classified in SIC 2141: Tobacco Stemming and Redrying. Items handled by establishments in this business include: chewing tobacco, cigarettes, cigars, smoking tobacco, and snuff.
422940 (Tobacco and Tobacco Product Wholesalers)
The wholesale distribution of tobacco and tobacco products in 2001 was a relatively small but profitable industry, employing about 57,261 workers and bringing in about $50.3 billion in sales. 374 companies in this classification were small—employing fewer than five persons. 212 had between five and nine employees; 193 had between 10 and 19 employees; 270 had 20 to 99 employees; 69 had 100 to 499 employees; and about 35 establishments with 500 or more employees. In 2003, total annual sales dropped to $27.7 billion. The total number of employees decreased to 28,898. The average sales per establishment were about $20 million.
Wholesalers of tobacco and tobacco products benefited from the explosive growth of the cigar trend in the United States in the late 1990s. The cigar emerged as a symbol of success and even celebrity. After cigar sales fell five percent annually for three decades until the mid-1990s, the industry surged on the strength of the endorsement by celebrities and pop culture generally. Glossy magazines like Cigar Aficionado featured movie stars and athletes sporting cigars on its famous covers. Moreover, the industry moved to acquire premium product placement in motion pictures. Premium cigars sold 370 million units, valued at $1 billion, in 1997, an almost 400 percent increase from 1992.
Continued success was not assured, however. Health concerns have intensified the examination of the cigar industry, leading to possible mandatory health-warning labels on their products, a series of printed advertisements warning against the dangers of cigar smoking, and calls from the Federal Trade Commission to prohibit cigar advertising on radio and television.
At any rate, despite the high profile of cigars, they still constitute a miniscule market sector next to cigarettes and smokeless tobacco. Throughout the entire industry, heightened regulatory scrutiny has forced wholesalers to raise their prices in order to remain competitive with increased expenses. Moreover, distributors have begun to more aggressively diversify their activities. While many have traditionally combined their cigarette shipments with the distribution of candy to capitalize on the lucrative convenience-store market, many have expanded into packaged and fresh foods as well. Like many other industries, e-commerce had been another source of distribution that had increased sales for the tobacco industry also.
Negative media attention has caused a gradual decrease in production over the last few years. More importantly, over the past sixteen years annual shipments have dropped from 244 billion pieces to 120 billion pieces. The trend continued with a four percent decrease in 2003. In fact, total output for cigarettes was the lowest since 1958. Tobacco consumption was predicted to fall between 1 and 2 percent annually.
Like many other industries, e-commerce has been another source of distribution that had increased sales for the tobacco industry as well.
Research and litigation continued to play a major role as the industry focused on secondhand smoke and an effort to produce a "smokeless" cigarette. In 2001, The European Union had required health warning labels located on every pack of cigarettes. The mandated labels would cover 30 percent of the front of a single pack of cigarettes, as well as 40 percent on the backside.
The tobacco industry will continue to deal with litigation, competition, and higher Federal excise taxes. With many individual states dealing with budget deficits, the tobacco industry is usually their first target for additional funding through excise taxes. The total number of states passing excise taxes has increased from three in 2000 to 21 by 2002. In 2002, state tax had jumped from $1.1 billion to $9.5 billion. Combined, sixteen states currently have imposed excise taxes of a minimum of $1.00 per pack. An additional 34 states have imposed taxes of a minimum of fifty cents per pack.
The leading companies in this industry included Philip Morris of New York, which controlled 49.3 percent of the U.S. market and 17 percent of the global market. R.J. Tobacco dominated 23.2 percent of the market; Brown & Williamson controlled 10 percent; Loril-lard Loews & Carolina controlled 8.2 percent; and Liggett Vector controlled 2.3 percent. U.S. Smokeless Tobacco Co. was the leader in the snuff market under the brands Skoal and Copenhagen. Sales for snuff increased from $1.6 billion in 2002 to $1.8 billion for 2003.
In 2002, the leaders for cigar imports included, the Dominican Republic with 66.19 percent; Honduras with 20.21 percent; and Nicaragua with 7.94 percent.
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McLure, Jason. "Changing Habits." News Week, 14 August 2003. Available from http://www.keepmedia.com/pubs/Newsweek/2003/08/14/309877 .
United States Department of Agriculture. Economic Research Service. Tobacco Outlook Summary. April 2004. Available from http://usda.mannlib.cornell.edu/reports/erssor/specialty/tbs-bb/2004/tbs256s.txt .
United States Department of Agriculture. Economic Research Service. Tobacco Outlook Yearbook. December 2003. Available from http://usda.mannlib.cornell.edu/reports/erssor/specialty/tbs-bb/2003/tbs2003s.txt .
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