Asia''s Promise May Evaporate unless Tobacco Companies (Part I)

Source from:  Tobacco Reporter  09/26/2013

For a long time now, companies looking to increase their cigarette volume sales—or, these days perhaps, to reduce their vol-ume declines—have cast their eyes toward the countries of Asia. But times are changing and some of these countries, at least, might not offer growth potential for long unless cigarette manufacturers start to become more innovative. And I don't mean old-style innovative. Changing the shapes of packs might work for a while but, in the longer term, it would surely be wise—from a number of points of view—to start offering reduced-harm prod-ucts on these markets, as is being done more widely elsewhere.

That Asian markets are important—if sometimes volatile—was underlined in July when Philip Morris International (PMI) announced results for its second quarter. The company's cigarette shipment volume during the three months to the end of June, at 228,899 million, was down 3.9 percent on that of the second quarter of 2012. Volume was down in all of the company's regions, including Asia, where it fell 3.5 percent to 80,588 million. Significantly, PMI remarked that without a "disruptive January 2013 excise tax increase" in the Philippines, overall, the company's volume decline would have been 2.6 percent rather than 3.9 per-cent. That is a significant difference that, according to my calcula-tion (and I'dbe the first to admit that my figuring isn't that good), involved a drop of just more than 3 billion cigarettes, or perhaps the equivalent of the Singapore market.

But it's an ill wind that blows nobody any good, and British American Tobacco (BAT), which was previously largely frozen out of the Philippines market, viewed the "disruptive" increase as tax reform, according to a story in  The Philippine Star. James Lafferty, BAT Philippines' general manager, was quoted as saying that since the passage of the excise tax reform law this year, the industry's new players, including BAT and Japan Tobacco (JT), had strengthened their presence and introduced new brands. In fact, BAT was so pleased with the tax regime change that it is considering putting up a factory in the Philippines within the next two years in a move that, according to the story, would involve an investment on top of the $200 million it has already committed to the country.

BAT is in an expansive mood. The company announced in July that it was planning to spend about $50 million over five years building a tobacco manufacturing plant in Myanmar, where it was forced to leave 10 years ago. The company has entered into a joint-venture agreement in that country with I.M.U. Enterprise Ltd. (IMU) to manufacture, distribute and market BAT's brands for the domestic market.

IMU is part of the leading local conglomerate, Sein Wut Hmon Group, which has an extensive fast-moving consumer goods dis-tribution network throughout the country.

Electronic prospects

BAT's CEO, Nicandro Durante, said his company was truly excited with the post-sanctions development in Myanmar and was keen to play a part in the country's economic and social advancement. The only disappointment, perhaps, is that while the company announced it would be returning to the country with its London brand of cigarettes, it made no mention of offering an alternative, reduced-harm product—perhaps an e-cigarette or even a snus.

JT, on the other hand, has made at least two such announce-ments so far this year. In April, it said that it would relaunch in Japan its Zerostyle Mint smokeless tobacco product with an improved flavor and aroma—and a redesigned pack. And then in June, it said that it would be adding to its Zerostyle smokeless tobacco line two snus products, which would be made available from August 2013 at selected retail stores in the city of Osaka. JT made the point that, while the majority of consumers in Japan enjoyed tobacco in the form of cigarettes, demand was increasing for tobacco products designed to be used in places where "consid-eration needs to be given for those nearby."

And the Thailand Tobacco Monopoly clearly doesn't want to get left behind in respect of the move to reduced-harm products. In June, it said that it would consider developing and importing e-cigarettes if the government were to legalize them. According to a story in  The Bangkok Post , e-cigarettes cannot be sold legally in Thailand because they have not been approved by the Thai Food and Drug Administration. However, they are said to be widely distributed online and sold discreetly in some stores.

The status of e-cigarettes in the Philippines also seems to be up in the air. In June, the Philippine Food and Drug Administration (PFDA) questioned how e-cigarettes had gone on sale to the public without clearance from the agency. But the director of the PFDA, Kenneth Go, seemed to answer his own question when he said that the PFDA could not block the sale of e-cigarettes because of a temporary restraining order issued by the Supreme Court on the PFDA's authority to regulate tobacco and its byproducts.

Meanwhile, in Malaysia, the Consumers' Association of Penang (CAP), in June, sounded an alarm over the increasing use of e-cigarettes, notably among young people. CAP President S.M. Mohamed Idris said there was a need to impose a ban on the sale of e-cigarettes "without further delay" because young people might try them and become "hooked." Such a development might become a problem for some members of the community. In July, Muslims in Malaysia were told that shisha or water-pipe smoking was forbidden. The Fatwa (edicts) Committee of the National Council for Islamic Affairs had declared that shisha smoking was  haram  (forbidden) for Muslims. The latest edict follows a reminder issued during the previous month by the Muzakarah Committee of the National Fatwa Council for Islamic Religious Affairs of a 1995 prohibition on smoking in general. (To continue on September 27……) Enditem