Philippines: Cigarette Firm Offers Advice to Competitor

Source from:  Manila Bulletin 01/15/2014

Mighty Corporation (MC) said yesterday it's willing, modestly aside, to reveal its trade secret on how it captured a large share of the low-end cigarette market if its foreign competitor stops bullying them and monopolizing the market.

Referring to Philip Morris-Fortune Tobacco Corp. (PMFTC), Oscar P. Barrientos, MC's executive vice president, said, without going into details, that: "We've eaten their market because their people have not been working and that their down-the-line distribution is gone."

"Gone is the key word," he said, "because while MC anticipated the possible effects of the Sin Tax Law and drew up its own strategy, its giant competitor relied mostly on its traditional marketing style of pushing premium and sub-premium brands and invariably neglected equally promoting its joint-venture partner Fortune Tobacco's six different brands of P1 per stick cigarettes and thus many of its country-wide network also switched, largely for economic reason, to MC's sales force which continued to expand," Barrientos said.

"You see it's not only consumers shifting from premium and sub-premium brands which PMFTC dominated for many years but also some of their salesmen and other cigarette vendors to MC network now selling our products which admittedly are more tasty, smooth and aromatic," the MC executive said, adding that in addition "we have an efficient workforce, no foreign obligations and most of all the ability to apply the knowledge and wisdom of comparative and managerial economics."

"Not really so much on knowledge though because it's practically unlimited. What is important is wisdom because it gives you the ability to perceive what is important and what is not in the crucial three stages of business operations which are sourcing of cheap but quality raw materials, manufacturing and marketing of products," Barrientos stressed.

What he's saying is arguably reflected in the tremendous increase of MC's excise tax payments to the government of P8.2 billion or 1,677 percent increase in just one year as against PMFTC's only 110 percent increase for the same period after the effective implementation of the 2012 Sin Tax Law. MC's excise tax payment the previous year was more than P500 million.

MC's shares in the market increased to more than 20 percent from a measly three percent as a result of the successful implementation the Sin Tax Law that saw the field leveled between local cigarette producers and PMFTC, which controlled 94 percent of the premium, sub-premium and low-priced brands.

"We are happy with the result of our intelligence research and business war-games which we had at the advent of the Sin Tax Law," he said, adding that: "we had anticipated the advantages of the tax measure, prognosticating at the same that there was going to be a major shift in the smoking preferences of the majority of the Filipino consumers, either migrate to low-cost brand or entirely quit the vice or reduce the frequency of smoking for economic and health reasons."

"We were proven right in our research. With low-cost as MC's niche, our market share expanded, in effect substantially gnawed into the competition's dominant share," the MC executive said.

"Not only that," he said, "the competition obviously overlooked MC's superiority in the low-cost market and purposely decided to hold on to the high-end brands, living behind the six P1 per stick brands of Fortune Tobacco."

"At the same time, their mandatory foreign remittances for brand royalties and other imposts have impacted into the giant firm's profitability. These obligations are non-negotiable and the only way out for them is to move for the amendment of the Sin Tax Law. And bullying us into supporting their 'Amend the Sin Tax Agenda' is the real motive behind the competition's underhanded tactics on us," Barrientos said.

He told the media that it's not about MC's alleged non-compliance of the Bureau of Customs (BOC) post entry audit's letter requiring the company to explain fraud because there was none. Enditem