Philip Morris aims to regain its 28.5% market share in Ukraine within 1 to 2 years
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Philip Morris International (PMI), which lost about half of its 28.5% share in the Ukrainian tobacco market at the start of the war following the closure of its factory near Kharkiv, has since regained its market share to around 26%, said Maksym Barabash, Managing Director of Philip Morris Ukraine (PMU), in an interview with Interfax-Ukraine.
"Before Russia's full-scale invasion, our market share was 28.5%. Due to production shutdowns and our absence from the market for several months, we lost nearly half of that. Later, we began working with a different partner, resumed imports, and gradually built back to 20%. Today, our share, by our estimates, is around 26%," Barabash said.
"We're restoring our share step by step, and while we're working hard, it will probably take another year or two to get back to 28.5%. Competition is very strong," he added.
He noted that the opening of a new factory in te Lviv region in May this year, where PMI invested $30 million and has so far employed 220 of the planned 250 relocated workers from the Kharkiv factory, has aided the recovery.
Barabash estimates the Ukrainian cigarette market today to be around 32 billion units per year, or roughly UAH 140 billion in value. The market is dominated by four international companies holding 90% combined market share, each with operational factories, while legitimate Ukrainian producers account for about 10%. "Their share has historically remained stable, between 11-12%, but it's never approached 30%," Barabash said.
Meanwhile, he emphasized the impact of the illicit market, which reached a 25.7% share by October last year but dropped to 14.5% by this summer.
"Combating the illicit market is currently the most influential factor for the cigarette industry, significantly affecting market volume. For the state, the cost of unpaid taxes is around $700 million," the PMU Managing Director said.
According to Barabash, since international partners highlighted this issue at the highest level, efforts to tackle the illicit market have intensified, and the three-month shutdown of illegal factories over the summer led to increased production volumes and excise revenues.
"The impact was immediate. We saw it in our volumes because, for the first time in ten years, they not only stopped declining but began to grow. Consumption hasn’t changed, but people who used to buy the cheapest products on the black market are now purchasing legal ones," Barabash said.
According to company data, tax payments on the market increased by 30% over three months.
"The cigarette market has now stabilized in part due to the contraction of the illicit market over the summer. Next year, with current tax bill No. 11090 (which proposes a 40% excise tax increase), we anticipate the market could shrink by approximately 10-12% in 2025," Barabash reported.
However, he warned that illegal factories haven’t been fully closed, and there is evidence they are resuming operations.
"Activity is picking up, with retail points again offering products absent for months… We might quickly see the illicit market return to 25%," the PMU Managing Director pointed out.
Source: www.en.interfax.com.ua