A Closer Look at the FTC's Cigar Report

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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.

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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.

CIGAR SALES

"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.

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