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. Last Updated: 07/27/2016

Reemtsma Plans Output Boost

Trying not to lose touch with its peers in the international tobacco industry, German producer Reemtsma has announced plans to expand its Russian presence and bring its total investment in the country to $100 million over the next two years.

Reemtsma, a middle-sized player in world tobacco - and the largest producer in Ukraine - will invest all of the fresh funds in increasing production at its Reemtsma-Volga factory, built in July 1997 in the southern city of Volgograd, said Andrei Kravets, director general with Reemtsma Russia. He declined to say exactly how much money will be invested over the period.

"Investment in local production is a logical step," Kravets said. The company began its efforts in Russia in 1995 on a fully imported basis.

Reemtsma-Volga will have a production capacity of 20 billion cigarettes a year after modernization is completed, company officials said last week.

Reemtsma also plans to increase the factory's product range. The facility currently produces the Oval and Prima brands and the company plans to raise the number of brands to 10, including the well-known West.

"Our target is to increase our market share to 10 percent by the year 2002," said Mikhail Kondratyev, public relations coordinator for Reemtsma Russia.

By year's end, Reemtsma is looking to raise its market share to 5 percent of total wholesale sales, up from one percent at the beginning of this year, according to the company's own figures.

Some 75 percent of Reemtsma's total production - some $6.7 billion worth in 1998 - was sold outside of its home market of Germany. The firm's Russian unit is projected to bring in $100 million in revenues this year.

The company is also looking to expand its Ukrainian operations, earmarking 45 million Deutsche marks ($25 million) for its business there. Reemtsma produced 29 billion cigarettes in Ukraine last year, just below 50 percent of total Ukrainian cigarette production.

While Reemtsma's Russian market share lags that of international heavyweights such as RJR and BAT, its Prima brand is the second-most popular individual brand, with 26.7 percent of smokers saying they use the brand, according to a survey carried out by the COMCON market research agency.

RJR's Peter I, consumed by 27.3 percent of smokers, topped the list. Philip Morris' LMs, with 21.8 percent, and British American Tobacco's Yava Zolotaya, with 20.9 percent, trailed Prima.

Russian cigarette consumption is estimated at 250 billion to 265 billion units a year. Some estimates put the tobacco market size at $6 billion.

Reemtsma's expansion push marks the continuation of a trend toward local production that started several years ago and was reinforced by the ruble devaluation last year.

Domestic production surged to 203 billion cigarettes last year from 137 billion cigarettes in 1996, according to the State Statistics Committee.

Meanwhile, imports made up for 18 percent to 20 percent of the market in 1998, accounting for roughly 45 billion cigarettes.

Apart from Reemtsma's expansion plans, other recent projects to either come on line or be announced include:

-American Western Tobacco Investments in June this year opened a Ligett-Ducatt factory with output of 25 billion cigarettes, plowing some $85 million into the project.

-U.S.-affiliated Cres-Neva in August started production at a $15 million tobacco-cutting plant in Lomonosov, 100 kilometers west of St. Petersburg.

-Philip Morris' Izhora factory, with annual capacity of 25 billion cigarettes, is due to be completed by year's end. Total investment in the factory, which will be Philip Morris' third production facility in Russia, is set to top $300 million.

The tobacco industry is one of the few areas in the Russian economy to have posted significant growth over the past few years, growing at a rate of one percent to 1.5 percent a year, according to market research agency Business Analytica.

The market is of particular interest for Western producers, who are facing falling consumption and a rising tide of anti-smoking sentiment and litigation in the United States and other countries in the developed world.


Smokers' Choice

Company Market Share

Japan Tobacco/

RJ Reynolds 20.6%

Philip Morris 15.7%

British American

Tobacco/Rothmans 10.1%

Ligett-Ducatt 6.0%

Bulgar Tabak 1.0%

Reemtsma 0.9%

Other producers 45.7%

Source: Business Analytica