The Federal Trade Commission's annual report to Congress on cigarette sales and advertising for 1998 shows that cigarette sales fell from 1997 to 1998, but advertising and promotional expenditures increased significantly. According to the report, which details the last year of spending prior to the implementation of the tobacco industry's Master Settlement Agreement with the Attorneys General of 46 States, the five largest cigarette manufacturers spent $6.73 billion on advertising and promotional expenditures in 1998, a 19 percent increase from the $5.66 billion spent in 1997. The industry's total expenditures were the most ever reported to the Commission.
The 1998 annual report, released today, contains sales and marketing statistics for calendar year 1998 and historical data dating back to 1963, the year the FTC began collecting information from the cigarette industry.
In 1998, the manufacturers reported to the Commission that they sold 458.5 billion cigarettes domestically, which is 20.1 billion fewer than they sold in 1997. These figures parallel U.S. Department of Agriculture cigarette consumption estimates, which show a decline from 480 billion cigarettes in 1997 to 465 billion in 1998.
The largest category of advertising and promotion expenditures was promotional allowances, which include payments to retailers for shelf space. Cigarette companies spent $2.88 billion in 1998 on promotional allowances (42.8 percent of total industry spending), up from $2.44 billion in 1997.
Spending on discount coupons increased from $552.6 million in 1997 to $624.2 million in 1998. Spending on retail value added - which includes both multiple-pack promotions ("buy one, get one free") and non-cigarette items, such as hats or lighters, given away at the point-of- sale with the purchase of cigarettes - rose from $970.4 million in 1997 to $1.56 billion in 1998, an increase of 60.3 percent. At the same time, expenditures for distribution of branded specialty items (such as lighters) through the mail, at promotional events, or by any means other than at the point-of-sale with the purchase of cigarettes declined from $512.6 million in 1997 to $355.8 million in 1998.
The industry's expenditures on advertising in newspapers rose 73.4 percent, from $17 million in 1997 to $29.4 million in 1998, but even with that increase, newspaper spending accounted for less than ½ percent of all expenditures. Spending on magazine advertising increased from $237 million in 1997 to $281.3 million, according to the FTC report, while outdoor advertising expenditures decreased slightly from $295.3 million to $294.7. Point-of-sale advertising declined from $305.4 million in 1997 to $290.7 million in 1998.
The industry reported spending $125,000 on Internet advertising in 1998. As in every year since 1989, the industry reported that no 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.
The report also notes several other significant actions recently taken by the Commission: (1) its final approval of a settlement agreement with R.J. Reynolds Tobacco Company resolving charges that ads for Winston "no additives" cigarettes were deceptive because they implied, without a reasonable basis, that Winstons are safer than other cigarettes because they contain no additives; (2) its acceptance of proposed settlement agreements with Santa Fe Natural Tobacco Company, Inc. and Alternative Cigarettes, Inc. resolving charges that, like Reynolds, their ads implied, without a reasonable basis, that their tobacco-containing cigarettes were safer to smoke than other cigarettes because they contain no additives, as well as charges that Alternative Cigarettes falsely implied that smoking its herbal cigarette did not pose the health risks associated with smoking tobacco cigarettes; and (3) the Commission's work with the Department of Justice and the U.S. Customs Service to ensure that bidis cigarettes imported from India are properly labeled with the Surgeon General's health warnings.
Finally, the report reiterates a Federal Trade Commission recommendation that Congress consider giving authority over cigarette testing to one of the Federal government's science-based, public health agencies. It also notes, in light of the Supreme Court's recent ruling that the Food and Drug Administration lacks statutory authority to regulate tobacco products as drugs, that the Commission believes Congress should provide a statutory basis for FDA's substantive jurisdiction over tobacco products.
Copies of the "Federal Trade Commission Report to Congress for 1998 Pursuant to the Federal Cigarette Labeling and Advertising Act" 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; 1-877-FTC-HELP (1-877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site.
Office of Public Affairs
Bureau of Consumer Protection