BAT CEO Sees Japan Market Cigarette Sales Down Up to 20% in 2010

Source from:  The Wall Street Journal 11/16/2010

TOKYO -(Dow Jones)- British American Tobacco PLC (BTI: 77.07 ,-0.23 ,-0.30%) chief executive Naresh Sethi said Monday he expects the volume of cigarette sales in Japan to shrink industry-wide as much as 20% in the year through December in the wake of a massive tax rise imposed by the government last month, calling on the administration to raise taxes in smaller, incremental steps in future. "One (consumer product) category going up about 40% is a significant, significant impact on the consumers and we think that the volumes will definitely suffer in a big way in 2011," said Sethi. The executive was speaking in the Japanese capital to discuss the company's future strategy. BAT, the world's second-biggest cigarette maker by sales volumes, estimates sales here may fall to about 165 billion-180 billion cigarettes in the 12 months ending December, compared to an estimated 218 billion in sales in 2010. Still, the executive said his company is still hoping to perform well this year in Japan, banking on new products to help sustain consumer appetite. Responding to the price increase, BAT said it developed the Kent Boost Menthol 1, a new capsule cigarette designed to intensify the taste of menthol. The new product will go on sale Dec. 6. The Japanese government raised tobacco taxes by Y70 for a pack of 20 cigarettes in a move designed to ease the burden on the nation's health care budget. This was only the fourth tax increase - but the steepest -- on cigarettes in Japan in the last decade. The hike prompted BAT and other tobacco giants, including local giant Japan Tobacco Inc. (2914.TO) to raise prices for tobacco products sold in Japan by about 40% on average per pack. For instance, JT raised the price of its popular Mild Seven and 32 other brands by Y110, or 37%, per pack of 20 cigarettes, bringing the price of tobacco to Y410 per pack. Tobacco manufacturers have already taken a steep hit from the price increase. Sales volume in unit terms slumped 70% in October from the same month a year earlier to a record low 6.1 billion, according to the Tobacco Institute of Japan. Sales in value terms tumbled 59% to Y126.1 billion. Sethi said the government should take steps to impose small, annual excise increases in the future, rather than the one-off sharp jump in implementing their agenda to control the tobacco industry. "The simple way of doing that is to have above inflation excise increases every year, which puts slightly more stress on consumers and restricts their consumption and wherever that goes it goes," he said. "I will just hope that from now on there is a tax strategy, excise strategy, that clearly articulates annual excise increases, which become predictable for both industry and all the stakeholders in our industry." Enditem