FTC's Annual Report to Congress on Cigarette Sales and Advertising for 1997

The Federal Trade Commission's annual report to Congress on cigarette sales and advertising for 1997 shows a $552 million increase in advertising and promotional spending from 1996. According to the report, the cigarette industry spent $5.66 billion on advertising and promotional expenditures in 1997, 10.8 percent more than it spent in 1996. Despite the increase, spending remained below the $6.0 billion reported in 1993. Spending has increased annually since 1987, except for a $1.2 billion decrease from 1993 to 1994. This year's report also includes a Federal Trade Commission recommendation that Congress consider giving authority over cigarette testing to one of the Federal government's science-based, public health agencies.

The 1997 annual report, released today, contains sales and marketing statistics for calendar year 1997 and historical data dating back to 1963, the year the FTC began collecting information on the cigarette industry.

In 1997, the five major domestic cigarette manufacturers reported to the Commission that they sold 478.6 billion cigarettes domestically, which is 5.5 billion less cigarettes than they sold in 1996. These figures parallel U.S. Department of Agriculture cigarette consumption estimates, which show a decline from 487 billion cigarettes in 1996 to 480 billion in 1997.

The largest category of advertising and promotion expenditures was promotional allowances, which accounted for 43.1 percent of all expenditures. Cigarette companies spent $2.44 billion in 1997 on promotional allowances (up from $2.15 billion in 1996), which include payments to retailers for shelf space.

Spending on discount coupons, multiple-pack promotions ("buy one, get one free"), and retail value-added offers (non-cigarette items, such as hats or lighters given away at the point of sale with the purchase of cigarettes) increased $214 million (from $1.31 billion in 1996 to $1.52 billion), the most spent on coupons and retail value-added offers since 1993. At the same time, expenditures for distribution of branded specialty items through the mail, at promotional events, or by any means other than at the point of sale with the purchase of cigarettes declined from $544.3 million in 1996 to $512.6 million in 1997.

Money spent giving cigarette samples to the public rose about 38.4 percent from 1996 to 1997 (increasing from $15.9 million to $22.1 million), although these expenditures remained well below their 1993 level of $40.2 million.

The industry's expenditures on advertising in newspapers rose 20.7 percent, from $14.1 million in 1996 to $17.0 million in 1997. Despite the increase, newspaper spending accounted for less than ½ percent of all expenditures. Spending on magazine advertising decreased from $243 million in 1996 to $237 million, according to the FTC report, while outdoor advertising expenditures increased from $292.3 million to $295.3 million. Point-of-sale advertising expenditures increased from $252.6 million in 1996 to $305.4 million.

The industry reported spending $215,000 on Internet advertising in 1997 (less than 0.01 percent of all advertising and promotional expenditures for the year.)

As in every year since 1989, the industry reported that no money or other form of compensation had been paid to have any cigarette brand names or tobacco products appear in any motion pictures or television shows.

The report also recommends that Congress consider giving authority over cigarette testing to one of the Federal government's science-based, public health agencies. Since 1967, the "FTC test method" has been used to produce cigarettes' "tar" and nicotine ratings. In recent years, the Commission has become concerned that the test method may be misleading consumers who rely on the ratings as indicators of how much "tar" and nicotine they actually get from their cigarettes. In fact, not only are the ratings relatively poor predictors of "tar" and nicotine exposure, but public health agencies have expressed concerns that new studies question whether cigarettes with lower ratings are less harmful.

In light of these concerns, last year the Commission requested that the Department of Health and Human Services conduct a thorough review of cigarette testing. That review is currently underway. Because the Commission does not have the specialized expertise needed to design scientific test procedures, it recommends that Congress consider giving authority over cigarette testing to one of the Federal government's science-based, public health agencies. The Commission also believes it is vital that a mechanism for implementing HHS's recommendations be established to facilitate swift implementation by the appropriate Federal agency.

The report also notes several other significant actions taken by the Commission recently: (1) the resolution of the litigation concerning the R.J. Reynolds Tobacco Company's use of the "Joe Camel" campaign to promote Camel cigarettes; and (2) the Commission's acceptance of a proposed settlement agreement with Reynolds resolving charges that ads for Winston "no additives" cigarettes were deceptive because they implied, without a reasonable basis, that Winston cigarettes are safer than other cigarettes because they contain no additives.

Copies of the "Federal Trade Commission Report to Congress for 1997 Pursuant to the Federal Cigarette Labeling and Advertising Act" 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; 1-877-FTC-HELP (1-877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site.