Tobacco Giant 'Smoking Out Rival'

Source from:  businessday.co.za Nicola Mawson 08/08/2007

Consumer Industries Correspondent JAPAN Tobacco International (JTI) said yesterday that British American Tobacco SA (Batsa) should dispose of a popular brand such as Benson & Hedges if found guilty by the Competition Tribunal of anticompetitive practices. Adv David Unterhalter, on behalf of JTI, told a tribunal hearing yesterday that SA's largest cigarette manufacturer, Batsa, had spent "hundreds of millions" in its bid to retain its dominant position, including paying club and vending machine owners to ensure either a prominent display or exclusivity. Theoretically, the tribunal can impose a penalty of up to 10% of Batsa's annual turnover if it finds against it. Its parent company's 2006 annual report states that the Africa and Middle East region accounted for £1,5bn in revenue, of a group total of £9,8bn. Adv Fanie Cilliers, on behalf of Batsa, disputed Unterhalter's allegations. He said that despite JTI being a division of a large international firm, it had "chosen to make a small investment in its promotional budget". Cilliers said JTI did not have sufficient sales representatives, and did not supply display equipment to retailers as Batsa did. "A large, powerful player … made a small investment, and complains that it is being outmarketed." Unterhalter said that since the strategies had been put in place, Batsa's share of the market was growing while JTI's was declining. But Cilliers said the entire market had been experiencing declining sales as government tax on cigarettes kept increasing. With a 90% market share, Unterhalter said Batsa stood "like a colossus over this market". The cigarette giant had 27 brands locally, but had 142 different varieties of its brands in the market. He said that Batsa dominated the vendor machines in clubs as a way of targeting young adults to convert them to smokers, a conversion that would be entrenched through dominance of petrol station space. "There is a process of persuasion leading to conversion that would leave most religions gasping." Cilliers said consumers stuck loyally to brands, and would not be swayed by promotional material. He said more than half of Batsa's promotions budget was spent on direct customer contact. More than 65% of cigarettes were sold in convenience stores, and the incentive programmes were a way of staying in touch with these retailers, Cilliers argued. Adv Willem Pretorius, for the Competition Commission, said while the commission was acting on the complaint JTI lodged with it in 2003, it was also representing the interests of all of Batsa's competitors. Yesterday was the first day of hearings at the tribunal after JTI initially filed a complaint with the commission in 2003. Hearings will continue for two weeks this month and for two weeks in January. JTI, which has 4,7% of the market, is the second-largest player, followed by Phillip Morris with about 1%. Enditem