TJI interview with Amrish R. Anand, CEO international business at Godfrey Phillips India.
TJI: What are your present responsibilities as the CEO of international business at Godfrey Phillips India?
Amrish R. Anand: I have been managing the group's international business for more than four years. I have had very good exposure to the likes of British American Tobacco and Philip Morris. We have a tie-up with Rothmans, UK and have a long-term agreement with Japan Tobacco to improve our productivity and soft skills.
![]()
Are these tie-ups all operations-related or do they also have a marketing component?
With Japan Tobacco, it has been operations-related: to improve our product quality, to raise productivity and to improve our systems. We follow the same systems as the Japanese company which has brought very big rewards, as our product quality and productivity have taken a big leap. With Rothmans International, it has been both for operations and for marketing. We have both marketed and produced their Rothmans brand in India. In this relationship, we get a lot of technical and marketing support from Philip Morris, as and when we require.
What are your most important brands in the Indian market?
We have three main franchises: Four Square, Red and White and Cavanders, with king-size and regular variants. Four Square is our number one brand and has been growing year on year at an average of 30 per cent. It is the number one brand in Mumbai and is growing in the states of Maharashtra, Gujarat, Western UP and also now in northern India. Red and White has grown by close to 14 per cent between 2008 and 2009. The Cavanders franchise has had a bit of setback because of the new taxation rules. What the government did was to increase the excise duty substantially, which is now close to 338 per cent on plain cigarettes of 59 mm length. On 69 mm plain cigarettes, the excise has gone up to 142 per cent. Because of these increases, which took place in February, the plain segment - which was close to 23 per cent of the market - has taken a big hit. A pack of ten plain cigarettes that used to sell for five rupees now costs INR 15. As a result, we have lost nearly 30 per cent of this market.
Wouldn't it then make sense for you to replace your plain brands with filtered brands?
That is precisely what cigarette companies in India are trying to do - to upgrade smokers from plain to filtered. But India, as you know, is a very price-sensitive market. What has happened with the price increase, therefore, is that although smokers of plain cigarettes have started smoking some filtered cigarettes, they are balancing their budget by downgrading to bidis or chewing tobacco. Up to last year, we were having a compound annual growth rate of between four to 4.5 per cent. Since then, because of the excise duty, the growth has stagnated. The steep price increase has led to another unfortunate development: growth in excise-evaded cigarettes. According to estimates, close to a billion sticks of contraband cigarettes are being smuggled from neighbouring countries each year. In addition, there are some unscrupulous manufacturers who evade excise and push their stocks into the market. These tax-evaded cigarettes are being sold at one rupee per stick for filter cigarettes. For us, and other ethically operating companies, it is impossible to compete at these prices.
Is this a lot considering India's size?
Unlike many other countries, only 14 per cent of the tobacco grown in India is used in cigarettes, the rest is consumed in other forms, such as bidi or chewing tobacco. So a billion sticks is close to ten per cent of the market.
In view of the tax regime and other government regulations, how do you see the cigarette market in India developing?
As a percentage, average excise tax on cigarettes is close to 53 per cent. It is, however, increasing year on year, which is curbing demand. There is also a tax differential based on cigarette size. For king-size cigarettes, excise tax per 1,000 pieces is close to INR 1,800 today. On regular size cigarettes, it is INR 900 per 1,000 sticks. As far as smoking and health go, restrictions are increasing. We used to be able to put up hoardings and we could get into the print media. Now, the only place where you can put a small two by two advertisement is in a paan shop (the Indian vendor selling cigarettes and betel leaf). You can put up a poster and you can have a header there. But, there again, there are legal limitations. There are indications that graphic health warnings will soon be required. If there is a reprieve, it will only be temporary.
What is your export business?
Our exports are for cut filler and for cigarettes. A number of companies in our export markets have secondary manufacturing capabilities. Because primary leaf manufacturing requires a big investment, they do only secondary packaging. This means that they are only making the cigarettes. We, therefore, offer our customers a full service, which includes developing a blend for them, R&D work and the supply of cut filler based on their requirements. The second segment is contract manufacturing. And the third is a small and growing export market for our cigarette brands.
Which regions are of importance?
We started with the emerging economies because we had the capability to manufacture better products than they could. So we focused on Africa, South East Asia, and the Middle East. This is the bulk of our market and our exports for both cut filler and cigarettes in these regions are growing.
How do you see these markets developing?
They are tough but there are opportunities because we have state-of-the-art manufacturing and R&D. We have the ability to develop blends that are as good as any. The biggest challenge, however, is that we are up against big multinationals that have very deep pockets. Nevertheless, our exports are showing promise and growing steadily.
Are you also positioning your premium brands such as Jaisalmer internationally?
We are selling Jaisalmer at airport duty-free shops, where it is doing quite well. We are also exporting small quantities of the brand. In cigarettes, you can play either a pricing game or a premium game. As Jaisalmer is a premium quality product, we automatically compete with the big multinationals - as they also occupy the same space within the premium segment.
If we look at your Stellar brand, it was the first slim cigarette to be launched in India. How is it faring?
Stellar is a slim and not a super slim. In that sense it does not compete directly with imported super slims. What we have done with Stellar is introduce a new product category. The USP for the brand is that it is a slim cigarette that gives the consumer good smoking satisfaction. It also has a small and attractive pack. At present we are investing in the brand and hopefully we will reap the benefits in the years to come. It is therefore too early to comment on its development.
You state that your I-gen brand holds the promise of advanced cigarette quality. Could you please elaborate?
Advanced cigarette quality means that if you look at the tobaccos and tar limits, we are following all the European standards. This has been a first. And if you see the packaging, it is both modern and attractive. Our research showed that many young adults today do not want to smoke the same brands as their fathers and grandfathers. On this basis we developed I-gen. The objective was to position I-gen as a brand with all the characteristics of a good quality international brand for today's generation of young, modern adults who want to make a different statement than the previous generations.
Why is your Four Square brand number one in Bombay but not in Delhi?
Several regions in India have strong brand preferences. Four Square was the first king-size cigarette that we launched and in contiguous regions, such as the states of Maharasthra and Gujarat, the brand has grown very well. If you look at the Delhi region, our Red and White brand is a big seller. So by pushing Four Square as the number one brand in Delhi, we would be cannibalising our volume for Red and White.
Which segments are you targeting with Red and White and Four Square?
They are pretty much in the same price category. As the bulk of the market is for regular-size cigarettes, whether it is Red and White or Four Square, we were getting volume from the competition and this is very satisfactory for us.
What are your innovations in retailing?
If you look at the retail universe today, it is very crowded. Whether it is the Cokes or the Pepsies of the world, every consumer product is trying to shout from the retail space. So you have to design your packaging in such a way that it is not only visible to the consumer but attractive as well. The second limitation is that the paanwalla (the person manning the Indian tobacco retail kiosk) today has realised that, from a retail perspective, he is king. So he is demanding very high prices for displays, for putting up a poster, putting up a header, etc. So one has to do a lot of work to select the right locations. We are doing that. In addition, as you drive around Delhi or Bombay, you can see for yourself the work we have done on our Four Square and Red and White brands, and notice the difference between our competitors and us. The objective is to constantly add value, even in the limited window of opportunity that we have. In this respect we do a lot of innovation work, both in packaging and in merchandising - some of which, however, is confidential.
Is the current economic slowdown affecting the tobacco industry in India?
It is affecting everybody. India has come down from nine per cent annual GDP growth to around 4.5 to five per cent. The country's exports are down. Consumer products are selling but the premium products are giving way to cheaper ones. But given time, we hope that, with growing incomes in the rural areas, consumption of cigarettes will grow. At the same time, challenging markets enable us to look at different windows of opportunity. Opportunity is always there. I can give you a very good example: with our brand Four Square, we have recently opened the market in West Bengal, which was the forte of ITC. Four Square is showing promise in the region and selling better than our expectations. But investments have been heavy. In the tobacco business you not only need to get the product right but also the distribution and merchandising.
How do you see Godfrey Phillips developing in the years ahead?
At Godfrey Phillips India, our vision states that we will be the best in tobacco and, when we say tobacco, it includes all forms of tobacco. To this end, we have excellent facilities and R&D capabilities. Our centre, which has ISO/IEC 17025 certification, is recognised internationally. We are not only fully equipped to do all the tests to meet with the requirements, and comply with the dos and don'ts that the big multinationals are following, but are also fully capable of developing and manufacturing products that meet international standards. Although we are currently into cigarettes, we are doing a lot of R&D and test marketing to see how we can add value to chewing tobacco and bidis through premium products. The challenge and opportunity is not only in product development and marketing, but also in the ability to deliver quality consistency. This is important because, due to the very nature of bidis, there is no quality control. By targeting these segments, our objective is to expand our markets because the tax discrimination on cigarettes, in comparison to bidis, will stay for a long time, especially as there are so many people involved in the bidi industry. For politicians, this population is an important group.
Interview: EBReport for TJI
Amrish R. Anand is CEO international business at Godfrey Phillips India, the second-largest player in the Indian cigarette industry with an annual turnover exceeding USD 369.6 million. Main brands are Four Square, Red and White, Jaisalmer, Cavanders and Tipper. With Stellar, the company launched India's first slim cigarette; I-gen is the first euro norm cigarette in India.
Godfrey Phillips India has two major stakeholders, one of India's leading industrial houses, the K. K. Modi Group, and one of the world's largest tobacco companies, Philip Morris. Enditem
