Imperial Tobacco Offers Price Break

Source from:  Toronto (Ont) Sun 01/17/2011

What's good news for London smokers may be bad for many small retailers as Canada's biggest tobacco company moves to drive down cigarette prices. As of Nov. 1, Imperial Tobacco launched a new pricing program that gives about 10,000 retailers, roughly a third of all stores, a $5-a-carton price break they're supposed to pass along to consumers. Retailers who get the deal agree not to sell above a maximum price but can decide to sell for less. The other retailers, though, are just out of luck. Now, the Ontario Korean Businessmen's Association (OKBA) is fighting back, saying all convenience stores will be forced to slash cigarette prices and lower profit margins to remain competitive -- and some could go under. "It's really unfair," David Son, an OKBA member. "It's not an equal playing field. They have a huge market share and they are trying to dictate," said Son, who runs a variety store on Colborne St. He said smokers will always hunt for bargains and it will be especially tough when one store gets the deal and another just down the street or around the corner does not. Imperial spokesperson Eric Gagnon said the company can't afford to extend the discount to all retailers and has the right to choose who gets the deal. A letter from Imperial to OKBA said retailers were chosen for the program based on their volume of tobacco sales, location, demographics of their neighbourhood and their "willingness, capability and motivations to work with ITCO (Imperial)." Gagnon said the manufacturers have to take action to reduce consumer prices to fight the growing trade in black market cigarettes that sell for a fraction of the price. "The price gap is so huge. That's why we have a maximum price to bridge that gap as much as possible," Gagnon said. He said Imperial completed a study before launching the full program and found it didn't trigger any retailers to close. Cynthia Callard, executive director of Physicians for a Smoke Free Canada, said it's easy for Imperial to pressure small retailers and the strategy is a cheap way for Imperial to push down prices. "Instead of just tobacco companies competing, this forces retailers to compete amongst themselves so that doubles the pressure on the prices," she said. She said the convenience store sector would inevitably shrink as cigarette consumption declines and black market smokes eat up more of the market. "It's important for Imperial Tobacco to influence who wins and who loses in the shakedown that's going to come in the market," she said. Callard said Imperial is in a position to exercise "seed to smoker" control on the tobacco market. Three years ago, the collective marketing system for Ontario tobacco farmers was scrapped and farmers who continue to grow the crop have to sell on contract directly to manufacturers. Soon after, Imperial moved to bypass wholesalers and distributors by launching a program to sell and deliver cigarettes directly to retailers, offering them a $3-a- carton discount. When the program was expanded last November, Imperial increased the direct delivery price by $2 a carton to the majority of retailers and dropped it by $3 to those selected for the program, creating the $5 differential. OKBA, with more than 2,000 members, is fighting back by handing our flyers to customers denouncing Imperial's program and suggesting they switch to cigarettes produced by Imperial's rivals -- JTI-MacDonald and Rothmans, Benson & Hedges. Imperial has countered with a sternly worded letter to OKBA alleging an "illegal group boycott or criminal conspiracy" was being operated. Son said retailers who got the deal are afraid to speak out for fear of being dropped from the program. "The people that have the program can't really show their support for us," he said. Even dealers like himself who didn't get the new discount program fear they could get bounced from the direct delivery program and be forced to buy from a wholesaler at a higher price. One outspoken store owner in south-east London was cut off from direct delivery. Gagnon confirmed that in extreme cases retailers that "discredit" Imperial with inaccurate statements could be dropped from the program. Gagnon said the OKBA's attempts to persuade consumers to buy brands made by Imperial rivals was contrary to the Tobacco Act which bans all forms of brand promotion. Enditem