Vinataba: Building on Strong Foundations

Source from:  Tobacco Asia  11/08/2013

Vietnam National Tobacco corporation (Vinataba), a government owned company, has seen a number of changes in recent years, including the appointment of a new chairman, Vu Van Cuong , who replaced the dynamic and poplar Nguyen Thai Sinh who retired in late 2012 after many years at the helm of the company.

Vinataba has entered into a number of joint ventures with multi-national cigarette manufacturers to produce international brands for sale in the country as well as a JV with BAT in a leaf threshing plant.

Vinataba's own products, particularly the iconic Vinataba brand, continue to capture the majority of the market shares in each segment, but the company faces increasing pressure on a number of fronts including endemic smuggling of tobacco products and an increasingly anti-smoking legislative agenda laid out by the government.

To ensure it remains competitive and dynamic in the face of these challenges Vinataba is exploring new avenues to develop both domestic and overseas sales and to develop new strategies and products to capitalize on consumer demand both at home and abroad.

Tobacco Asia had the opportunity to meet with Bui Nhat Tien, Vinataba deputy director general, recently, and he offered an insight into the company's future direction.

Image, style and loyalty

One issue that Vinataba is working on carefully is the image it projects to consumers. Its products are well accepted and liked by domestic consumers, but the dynamic is changing. A younger generation of smokers is emerging, many of them wealthier and more aspirational than the older generation of smokers, and attracting them to Vinataba's product is a key element to the company's future development. To that end, the company is revamping its promotional material to reflect a more sophisticated image.

"Everybody agrees that Vinataba is one of the foremost domestic brands, equal to many other international brands," explained Tien. "But we want to introduce the image of a successful business man enjoying Vinataba products, perhaps over breakfast with a cup of coffee, to attract the current generation f smokers and develop their loyalty."

Packaging is another way that Vinataba hopes to maintain and grow customer interest.

"There has been some reduction in Vinataba brand consumption, so in tune with refreshing the image we may have to redesign the packaging for Vinataba and study the options for other brands, Tien told us. "So later on there may be some changes incorporated in Vinataba cigarette products. There have been a lot of good brands introduced to the market over the years, but the designs of the packaging may be getting old. We may change the design, but at the core of the brands' success is the quality inherent in the products, and this will not be changed."

That said, the company is looking at developing new blends in existing brands to satisfy market demand.

"Young people like something new, fresh and different, and so even though the cigarettes they smoke may be good quality, they still look for new experiences and tastes, so there is a realization that the cigarette blends may need to change to accommodate the desire of younger smokers for new products," Tien said. "Of course, many older smokers prefer to maintain the quality and flavor that they are familiar with: change is not always something that smokers aspire to. Familiarity with an existing product breeds brand loyalty, and changing the taste or appearance of a brand is not always going to sit well with an older consumer h is content with the taste, flavor and appearance of a favorite brand. However, younger, and increasingly richer, consumers do look for new experiences, and this segment must be accommodated. Whether this means creating a new band or altering existing brands is something Vinataba is still considering, but it is clear that packaging will change to reflect increasingly status-conscious consumers anxious to express their personalities though the products they use."

The equation is further complicated by the emergence of new segments, such as low tar and nicotine.

"As low tar, different flavors, and styles become increasingly popular, if one does not understand the customer's preference, one cannot provide them with the products they crave," Tien noted. "A successful businessman understands his customers' requirements, and we will continue to develop products that satisfy the demands of the market."

Joint ventures

Vinataba has entered into partnership with international companies in order to manufacture quality premium cigarettes for the market. The brands available are popular with Vietnamese smokers but have yet to achieve the popularity of Vinataba's own products.

"There is a real demand among consumers for that kind of premium segment," Tien agreed, but he noted that: "While the segment is aspirational, in reality the percentage of the premium segment is not considerable compared to overall market demand."

Vinataba manufactured a total 60.4 billion sticks in 2012, of which 16.9 billion sticks were exported. International cigarette brands manufactured in partnership with Vinataba amounted to 4 billion sticks.. Among the international brands manufactured in JVs with Vinataba in Vietnam, Marlboro is the most successful. In 2012 Philip Morris sold 2.4 billion sticks of Marlboro with Japan Tobacco's Mild Seven sold 480 million sticks.

Smuggled product

Vietnam has seen an increase of between 3% to 5% in licit cigarette consumption over past few years. In 2012, 105 billion sticks were sold of which domestic sales accounted for 83.5 billion sticks and exports 21.5 billion sticks, principally to countries including Africa, Middle East and some Latin American nations. The volume of exports dropped 4% over same period the previous year and domestic volumes saw some decrease in volume.

As noted above, the importation of illicit brands is still a major concern for Vietnam with millions of tax unpaid sticks flooding the market every year despite efforts to curb the trade, and this is hurting licit brands. It is estimated that smuggled cigarettes account for between 15% to 20% of the total market share.

"In reality there is no decrease in the total consumption, as smuggled cigarettes ate into the market share of licit products," according to Tien.

Legislative climate

In May, 2013 the Tobacco Harm Control (THC) law came into effect, and this initiative will clearly have an impact on Vinataba's future development.

There are two main elements to the law.

Firstly, measures to reduce supply to the tobacco trade will be introduced. The government will force manufacturers to conform to certain caps; they will not be allowed to manufacture beyond the quotas. Alongside this initiative, public smoking bans will be introduced in an effort to create an environment where a smoker finds it difficult to light up.

Secondly, the government has asked manufacturers to incorporate GHW on the packaging of cigarettes. The manufacturers have petitioned the government to delay the application of GHW to give them time to study methods of incorporating them onto the packaging.

The government is also working on strategies to reduce consumption of cigarettes.

"In addition to the THC law, the government is working n a total comprehensive strategy to fight tobacco consumption from 2015-2020," Tien confirmed. "As tobacco manufacturers operating under the government, and as members of FCTC, the industry supports these initiatives and any initiatives and agreements the government has with international entities"

Some circles in the government are proposing increases in tobacco taxation, but as there licit products account for only 80-85% of the market and the rest is smuggled, tax increases have to be measured against the possible consequences. Obviously, consumers face with higher taxes on licit products are going to be more easily persuaded to buy cheaper, smuggled, tax unpaid product if it is easily available, and so far there has been little success in effectively curbing the flow of smuggled cigarettes into the country.

"A playground for smugglers to sell illicit product freely in the country is not an outcome that benefits anyone," Tien noted.

Support for farmers

A key element in Vinataba's corporate development is an awareness of its responsibilities to its stakeholders, not just its customers but also its suppliers.

"Vinataba has adopted a slogan that 'we do business together with responsible social programs'," according to Tien. "The company is aware of its social responsibilities and incorporates its commitment into all aspects of its business. We also support poor farmers in some rural areas to grow tobacco and we also help farmers to improve their standard of living and to eradicate poverty in tobacco growing areas in accordance with the government's policies."

The company has some specific programs in place designed to assist farmers produce more profitable crops.

"We have some initiatives to support tobacco farmers in accordance with the government policies in this field," Tien told us. "We are aware of the problems tobacco farmers face and we are committed to assisting them in any way we can. Our policy is to help them to grow tobacco efficiently. This includes providing new seeds, investment in infrastructure in tobacco growing areas, supplying technical support for tobacco cultivation and so on. Vinataba supports and helps to introduce appropriate new technologies and practices to assist farmers whenever and wherever possible." Enditem