Agency Report Provides First-Time Data on Cigar Sales and Advertising Expenditures
Congress should enact legislation mandating health warnings on cigar labeling and advertising and prohibiting cigars ads on television and radio, a Federal Trade Commission report released today states. The agency's recommendation would require cigars be subject to the same statutory scheme as cigarettes and smokeless tobacco. The FTC produced the report on the cigar industry's 1996 and 1997 sales and advertising and promotion expenditures in response to the dramatic increase in U.S. cigar consumption and increasing concern among health authorities about the risks of cigar smoking. The agency has collected and publicly reported similar information from the cigarette industry since the 1960s and from the smokeless tobacco industry since the mid-1980s.
According to the report, the data collected from five leading domestic cigar manufacturers show a dramatic increase in cigar sales and revenue from 1996 to 1997. There also were substantial increases reported in almost every category of advertising and promotional spending for the same time period: conventional advertising (51 percent); magazine advertising (49 percent); and newspaper advertising (254 percent). In addition, the report reveals that over 75 percent of the cigar industry's marketing expenditures were for nonconventional forms of advertising and promotion about which information was previously unavailable.
"We now know, based on findings of the National Cancer Institute, that cigars, like other tobacco products, pose serious health risks," FTC Chairman Robert Pitofsky said in releasing the report. "Regular cigar smokers are at risk of mouth and throat cancers similar to that of cigarette smokers. We also now know that there has been a dramatic increase in cigar use and in the extent of advertising for cigars in the last few years. Yet cigars are not regulated as cigarettes and smokeless tobacco are. The Commission believes that consumers should be advised that cigars are not a safe alternative to cigarettes. We are recommending that Congress pass legislation mandating health warnings on all cigar advertising and packaging, and a ban on electronic advertising."
Last year the FTC issued orders to five cigar manufacturers requiring them to file "special reports" on their sales and advertising expenditures. The orders required the companies to report the total number of cigars sold; the total dollar value of cigar sales; and the total dollar amounts expended on cigar advertising, merchandising, and promotion in 1996 and 1997. The orders also required a breakdown of different categories of advertising and marketing expenses for each cigar brand marketed, including any payments for placements of cigar products in movies. Information also was required on the characteristics of each different variety of cigar marketed within each brand. The orders were sent to the Consolidated Cigar Corporation; Swisher International, Inc.; General Cigar Co., Inc.; Havatampa Incorporated; and John Middleton Incorporated.
Part One of the report provides the first in-depth analysis of the domestic cigar industry's sales and advertising and promotional expenditures for calendar years 1996 and 1997.
"The data reported ... confirm that the cigar industry experienced a dramatic increase in cigar unit sales and revenue from 1996 to 1997," the report states. Aggregate unit sales of the five largest manufacturers increased 15 percent from 1996 to 1997, from approximately 3.8 billion to 4.4 billions cigars. The aggregate dollar sales of cigars, based on wholesale price, increased 43 percent from 1996 to 1997 - from $613 million to $876 million, the report notes. The report also shows that the percentages of the market held by little, medium, and large cigars remained generally consistent during the two-year period.
The report states that from 1996 to 1997, the major cigar companies greatly expanded their product lines. The number of cigar brands marketed increased by 54 percent, from a total of 207 brands in 1996 to 319 brands in 1997. And the number of cigar varieties increased by almost 41 percent from 1,437 in 1996 to 2,025 in 1997.
CIGAR ADVERTISING AND PROMOTIONAL EXPENDITURES
According to the report "the dramatic increase in cigar use in America has occurred in tandem with the increase in promotional activities surrounding cigar smoking." The report notes that cigar events at restaurants, bars and private clubs are now common and refers to two magazines devoted almost entirely to cigar smoking. Total advertising and promotional expenditures for cigars increased 32 percent -- from $30.9 million in 1996 to $41 million in 1997. While the expenditures are modest, the increase is substantial, the agency said. Moreover, there was a significant increase in the amount spent in 16 advertising and promotional categories.
"By far, the industry's largest expenditures in 1996 and 1997 were on promotional allowances - that is, discounts and other incentives given to retailers to encourage cigar sales," the report states. "In both years, these expenses comprised approximately 40 percent of the total amount expended for advertising and promotion." Magazine advertising was the manufacturers' second largest advertising expense in both years, increasing by 49 percent from $6.6 million to almost $10 million.
Expenditures on celebrity endorsements and appearances, and payments for product placements in movies and television, more than doubled between 1996 and 1997, from approximately $143,500 to approximately $339,000, the report notes. And Internet advertising rose almost 180 percent from 1996 to 1997, from over $78,000 to over $218,000.
The report also provides baseline data on the physical characteristics of cigars and possible correlations between cigar styles and consumer preferences.
Part Two of the report provides a brief overview of the recent increase in cigar smoking prevalence and of the health risks associated with cigar smoking. It notes that the "reported increases in cigar sales and advertising and promotional expenditures come at a time when health authorities are expressing increasing concern about cigar usage." The findings of the NCI Cigar Monograph and other newly released survey data regarding the recent increases in cigar smoking prevalence rates are also discussed in this section of the FTC report.
Part Three reports the conclusions of the National Cancer Institute's report on the health risks of cigar smoking. It reiterates the NCI Cigar Monograph's conclusions that cigar smoking can cause several forms of cancer and therefore is not a safe alternative to cigarettes.
Part Four discusses available information on consumer perceptions of the risks of cigar smoking. It notes that the "limited information available on consumers' perceptions of cigar-related risks suggests that consumers generally are aware that cigar smoking poses health risks, although they lack information about the specific risks involved."
Part Five outlines the Commission's legislative recommendation. "While consumers may be aware generally that cigar smoking poses risks, warnings highlighting the specific health risks of cigar smoking may further educate consumers or reinforce their existing beliefs," the report states. "Moreover, given the public's extensive exposure to health warnings for cigarettes and smokeless tobacco, the current absence of clear and conspicuous federal health warnings for cigars may send a misleading signal that cigars are not harmful to one's health, or that cigars are a safe alternative to cigarettes," the Commission said. In addition, the Commission said the same may be true as a result of the presence of cigar advertising on T.V. and radio.
The report recommends that cigar manufacturers and marketers be required to comply with a system of multiple rotating warnings, similar to the rotational plans now in place for cigarettes and smokeless tobacco. The rotational plan for cigar warnings should be appropriately tailored to accommodate the relatively small sales volume of many cigar brands and the broad diversity of cigar packaging, the agency said. The health warnings should be displayed clearly and conspicuously on all labeling and advertising. The large majority of popularly priced cigars are sold in pre-packaged containers, and the warnings should be clear and prominent on those containers. For the smaller percentage of cigars sold singly, there are a number of ways the warnings could be displayed such as on boxes or other containers or could be posted in retail establishments that sell cigars individually.
The Commission recommended that Congress consider three warnings:
1) WARNING: Regular cigar smoking can cause cancers of the mouth and throat, even if you do not inhale.
2) WARNING: Inhaling cigar smoke can cause lung cancer. The more deeply you inhale, the greater your risk.
3) WARNING: Cigars are not a safe alternative to cigarettes.
According to the report "advertising on electronic media, i.e., radio and broadcast and cable television, is the type of advertising most likely to be passively received by minors. In addition, the Commission believes that cigars should be subject to the same type of legislation that other tobacco products are subject to." It therefore recommends legislation banning cigar advertising on television, radio, or any other electronic media regulated by the Federal Communications Commission.
The Commission also recommends that Congress consider measures to reduce youth access to cigar products, including restricting the use of self-service cigar displays.
The Commission vote to authorize release of the report was 4-0.
Copies of the "Report to Congress: Cigar Sales and Advertising and Promotional Expenditures for Calendar Years 1996 and 1997" are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC News Phone recording at 202-326-2710.
(FTC File No. 9723100)
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