Announced Action for October 22, 2004

The Federal Trade Commission’s annual report on cigarette sales and advertising shows
the six largest cigarette manufacturers spent $12.47 billion on advertising and promotional expenditures in 2002, an 11 percent increase from the $11.22 billion spent in 2001. The industry’s total expenditures were the most ever reported to the Commission, even though combined spending on newspaper, magazine, outdoor, point-of-sale, and direct mail advertising declined from the previous year’s level. The major manufacturers also reported that they spent $74.2 million in 2002 on advertisements directed to youth or their parents that were intended to reduce youth smoking. The report also noted that the number of cigarettes sold or given away decreased by 3.7 percent from 2001 to 2002, while certain categories of advertising and promotional expenditures increased significantly.

The 2002 report, released today, contains sales and marketing statistics for calendar year 2002 and historical data dating back to 1963, the year the FTC began collecting information from the cigarette industry.

The major manufacturers reported to the Commission that they sold or gave away 387.4 billion cigarettes domestically in 2002, 14.8 billion fewer than they sold or gave away in 2001.

The 2002 report is the first one issued since the Commission substantially revised the definitions of a number of its advertising and promotional expenditure categories. Those revisions clarified the definitions of certain categories, added additional ones, and split several existing categories into smaller categories (e.g., the promotional allowances category was sub-divided into four new categories).

The largest single category of advertising and promotional expenditures reported by the companies in 2002 was for one of those four types of promotional allowances: price discounts paid to cigarette retailers or wholesalers to reduce the price of cigarettes to consumers. This category accounted for $7.87 billion – 63.2 percent of total advertising and promotional expenditures.

The second largest category was spending on promotional allowances paid to retailers in order to facilitate the sale or placement of cigarettes (e.g., payments for shelf space), which accounted for $1.33 billion. Together, spending on the four types of promotional expenditures totaled $9.66 billion – 77.5 percent of all 2002 spending.

The companies spent $1.06 billion in 2002 on “buy two packs, get one free” type offers where free “bonus” cigarettes were distributed at retail when other cigarettes were purchased – known as “retail value added” offers. They also spent $24.7 million on retail value added offers where the bonus was something other than free cigarettes – e.g.,“buy three packs, get a free T-shirt.”

The companies also spent money distributing non-cigarette items through the mail, at promotional events, and through means other than retail value added offers. In 2002, $49.4 million was spent selling or giving consumers non-cigarette items such as baseball caps with the cigarette brand’s name or logo. Another $174.2 million was spent distributing non-branded, non-cigarette items.

The companies spent $28.8 million giving cigarette samples to the public, including distributing coupons for free cigarettes with “no purchase required.” Spending on “discount” coupons to reduce the price of cigarettes was $522.2 million in 2002.

Spending on public entertainment events promoting cigarettes that took place in adult-only facilities such as bars or concerts was $219 million in 2002. Another $34.1 million was spent on general-audience, public entertainment events promoting cigarettes such as fishing tournaments. The companies also reported spending $54.2 million in 2002 sponsoring sports teams or individual athletes.

Spending on magazine advertising dropped from $172.9 million in 2001 to $106.9 million in 2002, according to the FTC report, while newspaper advertising expenditures decreased from $31.7 million to $25.5 million. No expenditures on transit advertising were reported for 2002. Spending on “outdoor” advertising – including signs in arenas, shopping, stadiums, shopping malls, or on retailer property – totaled $24.2 million. Point-of-sale advertising expenditures – for ads posted at the retail location, but excluding outdoor ads or retailer property – were $260.9 million in 2002.

The industry also spent $111.3 million on direct mail advertising, $940,000 on company Web sites, and $679,000 on telephone advertising.

The companies stated that not only did they not pay money or any other compensation to have a cigarette appear in any movie or television show in 2002, but they also did not solicit the appearance of a cigarette in any movie or television show, or grant permission for the appearance of any cigarette in any movie or television show.

The Commission vote to issue the FTC Cigarette Report for 2002 was 5-0.

Copies of the Federal Trade Commission Cigarette Report for 2002 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. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC Matter No.032-3114)