Table of Contents

Tobacco in Israel – Industry Overview

EXECUTIVE SUMMARY
Tobacco witnesses strong retail value sales growth in 2010
New legislation increases cigarette taxation in 2010
Local manufacturer Dubek witnesses the largest decline in retail volume sales share in 2010
Vending machines are expected to slowly disappear from tobacco in Israeli
Retail value sales are expected to see positive growth over the forecast period

OPERATING ENVIRONMENT
Legislative overview/ FCTC ratification
Summary 1 Legislation Summary at a Glance
Minimum legal smoking age
Smoking Prevalence
Table 1 Smoking Prevalence in Adult Population 2005-2010
Table 2 Number of Smokers by Gender 2005-2010
Tar levels
Health warnings
Advertising & Sponsorship
Point-of-sale Display Bans
Smoking in public places
Electronic cigarettes
Litigation
Death by Cause
Table 3 Death by Cause 2005-2010

TAXATION AND PRICING
Duty paid packet marks
Taxation rates
Table 4 Taxation and Duty Levies 2005-2010
Average cigarette pack price breakdown
Table 5 Average Cigarette Pack Price Breakdown: Brand Examples 2010

PRODUCTION/IMPORTS/EXPORTS
Table 6 Production/Imports/Exports 2005-2010
Illicit trade in cigarettes

MARKET INDICATORS
Table 7 Illicit Trade Estimate of Cigarettes by Volume 2005-2010

MARKET DATA
Table 8 Sales of Tobacco by Category: Volume 2005-2010
Table 9 Sales of Tobacco by Category: Value 2005-2010
Table 10 Sales of Tobacco by Category: % Volume Growth 2005-2010
Table 11 Sales of Tobacco by Category: % Value Growth 2005-2010
Table 12 Forecast Sales of Tobacco by Category: Volume 2010-2015
Table 13 Forecast Sales of Tobacco by Category: Value 2010-2015
Table 14 Forecast Sales of Tobacco by Category: % Volume Growth 2010-2015
Table 15 Forecast Sales of Tobacco by Category: % Value Growth 2010-2015

DEFINITIONS
Summary 2 Research Sources
Tobacco in Israel – Company Profiles

Devidas Group Ltd in Tobacco (Israel)
STRATEGIC DIRECTION
KEY FACTS
COMPANY BACKGROUND
PRODUCTION
COMPETITIVE POSITIONING
Summary 4 Devidas Group Ltd: Competitive Position 2010

Dubek Ltd in Tobacco (Israel)
STRATEGIC DIRECTION
KEY FACTS
COMPANY BACKGROUND
PRODUCTION
Summary 6 Dubek Ltd: Production Statistics 2010
COMPETITIVE POSITIONING
Summary 7 Dubek Ltd: Competitive Position 2010

Globrands Ltd in Tobacco (Israel)
STRATEGIC DIRECTION
KEY FACTS
COMPANY BACKGROUND
PRODUCTION
COMPETITIVE POSITIONING
Summary 9 Globrands Ltd: Competitive Position 2010

Cigarettes in Israel – Category Analysis

HEADLINES

TRENDS
In July 2010, the Israeli government introduced another drastic change to taxation law, which increased the average unit price of cigarettes in Israel by NIS2 per pack of 20. This had a strong impact on the dynamics of cigarettes in Israel. The tax increase served to raise the price of all cigarettes in Israel by around NIS2 per 20-pack, which made cheaper economy brands less attractive, as they became more expensive in percentage terms. On the other hand, premium and super premium brands also witnessed negative impacts, as their unit price became extremely high and unattractive, which resulted in some consumers trading down to cheaper alternatives. This created an opportunity for standard mid-priced brands to attract consumers from economy, premium and super premium brands. Players realised this potential and the unit price of leading mid-priced brands was lowered slightly. This made already popular, imported mid-priced cigarettes more appealing to consumers and intensified competition for both economy and premium brands. For example, Pall Mall witnessed strong growth of 90% from July 2010, due to the brand only increasing from NIS15 to NIS16, rather than NIS17, per 20-pack following the introduction of the tax changes. Philip Morris implemented a similar strategy for its Next brand and likewise saw a strong increase in demand.

COMPETITIVE LANDSCAPE
All domestic cigarettes in Israel are manufactured by Dubek, which accounted for a 21% share of retail volume sales in 2010. The company manufactures approximately 85% of the cigarettes it sells and imports the remaining 15%, with Highway and No 9 Dark Blue examples of its imported brands. From the turn of the millennium, the volume of imported multinational brands grew at the expense of domestic brands, as Dubek’s share of retail volume sales declined. Dubek saw a further four percentage point loss of retail volume sales share in 2010. Over the review period, Dubek’s brands increasingly came to be seen as old fashioned, while significant price increases as a result of tax changes made its economy brands less attractive. In 2010, Dubek lost the Wall Street brand following a change of ownership at the global level. As a result of this development, Dubek decided to import Highway, an economy cigarette brand that has 25 cigarettes per pack. In Israel, companies are forbidden from selling packs of over 20 cigarettes. However, Dubek was given the opportunity to sell its remaining stock, but thereafter it will not be allowed to sell 25-unit packs.

NEW PRODUCT DEVELOPMENTS
Summary 10 Cigarettes – New Product Launches

DISTRIBUTION

PROSPECTS
Over the forecast period, new regulations are expected to have a significant impact on cigarettes in Israel. For example, by 2013, a new law forbidding the sale of cigarettes through vending machines is expected to result in changes to the distribution of cigarettes in Israel. Furthermore, it is expected that further tax changes will be introduced in 2011 that will serve to increase unit prices further.

SECTOR BACKGROUND
Cigarettes: Price Bands
Summary 11 Cigarette Price Band Definitions
Cigarettes: Menthol/standard
Cigarettes: Filter/non-filter
Cigarettes: Carbon/standard filter
Cigarettes: Filter length
Cigarettes: Slims/superslims vs regular
Cigarettes: Pack size
Cigarettes: Pack type

CATEGORY DATA
Table 16 Sales of Cigarettes by Tar Level: Volume 2005-2010
Table 17 Sales of Cigarettes by Tar Level: Value 2005-2010
Table 18 Sales of Cigarettes by Tar Level: % Volume Growth 2005-2010
Table 19 Sales of Cigarettes by Tar Level: % Value Growth 2005-2010
Table 20 Sales of Cigarettes by Price Band: % Volume Breakdown 2005-2010
Table 21 Sales of Cigarettes by Standard/Menthol: % Volume Breakdown 2005-2010
Table 22 Sales of Cigarettes by Tobacco Type: % Volume Breakdown 2005-2010
Table 23 Sales of Cigarettes by Filter Vs Non-filter: % Volume Breakdown 2005-2010
Table 24 Sales of Filter Cigarettes by Carbon Vs Non-carbon: % Volume Breakdown 2005-2010
Table 25 Sales of Cigarettes by Length: % Volume Breakdown 2005-2010
Table 26 Sales of Cigarettes by Regular/Slim: % Volume Breakdown 2006-2010
Table 27 Sales of Cigarettes by Pack Size: % Volume Breakdown 2005-2010
Table 28 Sales of Cigarettes by Pack Type: % Volume Breakdown 2005-2010
Table 29 Cigarettes Company Shares 2006-2010
Table 30 Cigarettes Brand Shares 2007-2010
Table 31 Sales of Cigarettes by Distribution Format: % Analysis 2005-2010
Table 32 Cigarettes: Production, Imports and Exports: Total Volume 2005-2010
Table 33 Forecast Sales of Cigarettes by Tar Level: Volume 2010-2015
Table 34 Forecast Sales of Cigarettes by Tar Level: Value 2010-2015
Table 35 Forecast Sales of Cigarettes by Tar Level: % Volume Growth 2010-2015
Table 36 Forecast Sales of Cigarettes by Tar Level: % Value Growth 2010-2015
Table 37 Forecast Sales of Cigarettes by Price Band: % Volume Breakdown 2010-2015
Table 38 Forecast Sales of Cigarettes by Standard/Menthol: % Volume Breakdown 2010-2015
Table 39 Forecast Sales of Cigarettes by Tobacco Type: % Volume Breakdown 2010-2015
Table 40 Forecast Sales of Cigarettes by Filter Vs Non-filter: % Volume Breakdown 2010-2015
Table 41 Forecast Sales of Filter Cigarettes by Carbon Vs Non-carbon: % Volume Breakdown 2010-2015
Table 42 Forecast Sales of Cigarettes by Length: % Volume Breakdown 2010-2015
Table 43 Forecast Sales of Cigarettes by Regular/Slim: % Volume Breakdown 2010-2015
Table 44 Forecast Sales of Cigarettes by Pack Size: % Volume Breakdown 2010-2015
Table 45 Forecast Sales of Cigarettes by Pack Type: % Volume Breakdown 2010-2015

Cigars in Israel – Category Analysis

HEADLINES

TRENDS
In 2010, the vast majority of cigar smokers in Israel continued to view cigars as a status symbol, associated with a sophisticated, higher-income audience. Cigars in Israel developed over recent years, as the variety of products available widened to meet the standards of other more developed markets with larger cigar smoking populations. In addition, an increase was seen in the range of distribution channels where both premium and mass cigars can be purchased, while the number of cigar lounges and clubs in the country also increased. The most evident evolution in terms of a cigar smoking tradition within Israel is the manner in which smokers refer to the activity as a lifestyle experience. Israeli cigar smokers tend to refer to cigar smoking as a ritual and use terms such as aroma, flavour and origin, amongst others. Cigar smoking is very common among celebrities, businessmen and politicians. This draws even more attention to cigar smoking as a status symbol and lifestyle choice, as more high and upper-middle income consumers want to join this exclusive group.

HAND-MADE VERSUS MACHINE-MANUFACTURED SPLITS
Table 46 Sales of Cigars by Handmade vs Machine-manufactured 2006-2010

COMPETITIVE LANDSCAPE
The main distributors in cigars excluding cigarillos in 2010 were Esh-Li Cigars and Tobacco, with a 31% share of retail volume sales, and Devidas Group Ltd with a 23% share. Esh-Li Cigars and Tobacco is the exclusive distributor of many cigar and cigarillo brands in Israel, including King Edward, Phillies and Swisher Sweet, which accounted for respective retail volume sales shares of 16%, 9% and 6%. Devidas was the second leading player in cigars excluding cigarillos in 2010, importing brands such as Backwoods, Romeo y Julieta and Montecristo, which accounted for respective retail volume sales shares of 13%, 4% and 3%. There were no manufacturers of cigars or cigarillos in Israel in 2010, and, as such, all products were imported.

NEW PRODUCT DEVELOPMENTS

DISTRIBUTION

PROSPECTS
Small cigars and cigarillos are expected to continue to witness healthy retail volume sales growth over the forecast period, with respective CAGRs of 4% and 6% predicted. The growing consumer base for these products is expected to continue to demand new products and more exciting flavours, which in turn will drive sales. Kiosks and convenience stores are expected to offer a wider range of these products, while importers are likely to increase their focus on these areas.

CATEGORY DATA
Table 47 Sales of Cigars by Category: Volume 2005-2010
Table 48 Sales of Cigars by Category: Value 2005-2010
Table 49 Sales of Cigars by Category: % Volume Growth 2005-2010
Table 50 Sales of Cigars by Category: % Value Growth 2005-2010
Table 51 Sales of Cigars by Handmade vs Machine Manufactured: % Volume Breakdown 2005-2010
Table 52 Company Shares of Cigars Excluding Cigarillos 2006-2010
Table 53 Brand Shares of Cigars Excluding Cigarillos 2007-2010
Table 54 Company Shares of Cigarillos 2006-2010
Table 55 Brand Shares of Cigarillos 2007-2010
Table 56 Sales of Cigars by Distribution Format: % Analysis 2005-2010
Table 57 Forecast Sales of Cigars by Category: Volume 2010-2015
Table 58 Forecast Sales of Cigars by Category: Value 2010-2015
Table 59 Forecast Sales of Cigars by Category: % Volume Growth 2010-2015
Table 60 Forecast Sales of Cigars by Category: % Value Growth 2010-2015
Smokeless Tobacco in Israel – Category Analysis

TRENDS
Retail volume and value sales of smokeless tobacco remain negligible in Israel in 2010

Smoking Tobacco in Israel – Category Analysis

HEADLINES

TRENDS
Israeli water pipes (nargila) are traditionally popular in Israel. The Israeli population is influenced by neighbouring Arab countries in many different industries, such as packaged food, drinks and tobacco. Different flavoured water pipe tobacco products are highly popular among younger consumers in Israel, and until quite recently such items were available in certain pubs and cafés. Water pipes are popular mostly among Jewish Israelis aged under 30 and Arab-Israelis of all ages. In general, the Israeli population is unaware of the dangerous impacts of water pipes. In 2010, a new research study was conducted by the Rambam Hospital, which found that half an hour of water pipe smoking results in serious lung damage, increased blood pressure and pulse rate, and a decrease in blood oxygen levels.

The Role and Effect of Cannabis/Marijuana

DISTRIBUTION

COMPETITIVE LANDSCAPE
Nakhla Tobacco remained the leading distributor of smoking tobacco in Israel in 2010, in accounting for a retail volume sales share of 47%. Following was Devidas Group on a retail volume sales share of 40%. Nakhla Tobacco remained the leading player in pipe tobacco in 2010, in accounting for a retail volume sales share of 67%.

NEW PRODUCT DEVELOPMENTS

PROSPECTS
Over the forecast period, RYO tobacco is expected to continue to attract smokers away from cigarettes, due to being increasingly fashionable, as well presenting an attractive option to more price-sensitive consumers. Over the forecast period, more Israeli smokers are expected to smoke RYO tobacco, due to it being considered a relatively healthy, as well as more affordable, option compared to cigarettes. In addition, demand for more natural and organic RYO tobacco is expected to continue to grow over the forecast period, while new product launches are expected as players look to meet this demand.

CATEGORY DATA
Table 61 Sales of Smoking Tobacco by Category: Volume 2005-2010
Table 62 Sales of Smoking Tobacco by Category: Value 2005-2010
Table 63 Sales of Smoking Tobacco by Category: % Volume Growth 2005-2010
Table 64 Sales of Smoking Tobacco by Category: % Value Growth 2005-2010
Table 65 Company Shares of RYO Tobacco 2006-2010
Table 66 Brand Shares of RYO Tobacco 2007-2010
Table 67 Company Shares of Pipe Tobacco 2006-2010
Table 68 Brand Shares of Pipe Tobacco 2007-2010
Table 69 Sales of Smoking Tobacco by Distribution Format: % Analysis 2005-2010
Table 70 Forecast Sales of Smoking Tobacco by Category: Volume 2010-2015
Table 71 Forecast Sales of Smoking Tobacco by Category: Value 2010-2015
Table 72 Forecast Sales of Smoking Tobacco by Category: % Volume Growth 2010-2015
Table 73 Forecast Sales of Smoking Tobacco by Category: % Value Growth 2010-2015