Federal Trade Commission Issues Cigarette Report for 2003

Marketing Expenditures Increased to $15.15 Billion, the Most Ever Reported to the FTC

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The FTC’s annual report on cigarette sales and advertising shows that the major cigarette manufacturers spent $15.15 billion on advertising and promotional expenditures in 2003, an increase of $2.68 billion (21.5 percent) from 2002 and the most ever reported to the Commission. The total number of cigarettes sold or given away by those manufacturers decreased by 19.8 billion cigarettes (5.1 percent) from 2002 to 2003. The manufacturers also reported spending $72.9 million on advertisements directed to youth or their parents intended to reduce youth smoking, a 1.8 percent decrease from the $74.2 million reported in 2002.

According to the report, the major domestic cigarette manufacturers sold or gave away 367.6 billion cigarettes domestically in 2003, 19.8 billion fewer than the 387.4 billion they sold or gave away in 2002. Sales declined from 376.4 billion in 2002 to 360.5 billion in 2003, while the number of cigarettes given away decreased from 11.1 billion to 7.1 billion.

This is the second report issued since the Commission subdivided its “promotional allowances” expenditure category into four new categories: price discounts, promotional allowances paid to retailers, promotional allowances paid to wholesalers, and other promotional allowances. In 2003, price discounts paid to retailers or wholesalers to reduce the price of cigarettes to consumers was the single largest category of expenditures reported by the manufacturers, accounting for $10.81 billion (71.4 percent of total spending). Together, the four categories of promotional expenditures totaled $12.72 billion (84.0 percent of all spending). In 2002, the companies reported cumulative expenditures of $9.66 billion on these four categories; price discounts was the single largest expenditure category at $7.87 billion.

The two next largest spending categories in 2003 were retail-value-added involving free cigarettes (i.e., “buy two packs, get one free” types of offers, where the free cigarettes are given out at the point of purchase) and coupons, which accounted for $677.3 million (4.5 percent of total spending) and $650.7 million (4.3 percent), respectively.

Newspaper advertising expenditures decreased from $25.5 million in 2002 to $8.3 million in 2003, the smallest amount spent on this category since the FTC began asking about it in 1970. Although newspaper spending accounted for 23.1 percent of total ad expenditures in 1981, it has accounted for less than one percent since 1992.

Manufacturers spent $156.4 million on magazine advertising for cigarettes in 2003, an increase of 46.4 percent from 2002. Still, magazine advertising only represented 1.0 percent of total spending. Spending on outdoor advertising totaled $32.6 million in 2003, representing an increase of 34.8 percent from 2002, but still only making up 0.2 percent of total advertising and promotional spending. Spending on point-of-sale promotional advertisements declined from $260.9 million in 2002 to $165.6 million in 2003.

The report also contains data on money spent providing cigarette samples to the public, as well as on public entertainment, the sponsorship of sports teams or individual athletes, direct- mail expenditures, Internet advertising, and telephone advertising expenditures. The report also provides the domestic market share for various cigarette length categories, and the market share of menthol and non-menthol cigarettes.

The Commission vote to issue the report was 4-0. (FTC File No. 042-2130; the staff contact is Shira Modell, Bureau of Consumer Protection, 202-326-3116.).

Copies of the 2003 Cigarette Report can be obtained from: Public Reference Branch, Federal Trade Commission, Room 130, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

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