How Philip Morris Conquered Turkey (fwd)

[Robert Weissman <rob@essential.org>]

                        September 11, 1998
 Drawn to Marlboro's Buzz,
 Taste,
 The Turkish Shun the Local Leaf

 By SUEIN L. HWANG 
 Staff Reporter of THE WALL STREET JOURNAL

 ISTANBUL, Turkey -- How did Philip Morris Cos.
 capture nearly a quarter of the cigarette market in
 Turkey, a nation almost synonymous with tobacco?

 For a few clues, stroll the cobblestone streets of
 Istanbul's trendy Ortakoy neighborhood. Waiters at
 sidewalk cafes carry dishes on trays sporting the
 red-and-black Marlboro chevron logo to diners seated
 under red umbrellas, also provided free by the company.
 Fashionable young consumers don $100 pairs of
 Marlboro Classics khaki pants. On Ortakoy's main
 drag, a Philip Morris salesman dressed like the
 Marlboro Man makes his rounds in a truck painted to
 resemble a cigarette pack.

 In the seven years since Turkey abolished price controls
 that had propped up its state-owned tobacco company,
 Philip Morris has gotten millions of Turks to cast aside
 local cigarettes in favor of its Marlboro, Parliament and
 L&M brands. Take Mehmet Yalcin, a 19-year-old
 Marlboro loyalist who now scoffs at Turkish cigarettes.
 "None of my friends smoke local cigarettes," says Mr.
 Yalcin, standing on a dusty street in an Istanbul ghetto.
 "That would be humiliating."

                             Under regulatory
                             and legal fire in the
                             U.S., tobacco
                             companies have
                             been staking their
                             financial futures in
                             developing
                             countries. For
                             Philip Morris --
                             which saw
                             international
 tobacco profits grow 60% to $4.6 billion last year from
 1994 -- nowhere has that push been more successful
 than in Turkey. In the nation that inspired the phrase
 "smokes like a Turk," 43% of the 62.9 million population
 smokes, according to government estimates, compared
 with 25% in the U.S. Meantime, cigarette consumption
 in Turkey has increased at an average annual rate of
 about 4.76% since 1992, making this one of the
 fastest-growing markets in the world. In the U.S.,
 smoking has fallen an average of half-a-percent each
 year over the same period.

 The rapid infiltration of Turkey lends considerable insight
 into how New York-based Philip Morris has become
 the biggest tobacco company on Earth, producing nearly
 one of every six cigarettes world-wide and raking in
 $72 billion in revenue last year. In fact, the battle plan it
 used to capture Turkey is the same one it has perfected
 setting up operations in nearly 30 countries world-wide.

 First, it lobbied heavily to eliminate the government's
 control of tobacco prices, enlisting the help of one of
 Turkey's most influential businessmen. Then it poured
 tens of millions of dollars into a state-of-the-art
 cigarette factory, where, competitors say, it carefully
 engineered its cigarettes to appeal to Turkish taste
 buds, but with a stronger kick than local smokes. It
 dispatched salesmen to 130,000 stores across the
 country, successfully recruiting many of the
 mom-and-pop shops to support a vast in-store
 marketing plan. And it spent lavishly on an advertising
 blitz of cowboys and panoramic vistas, selling a
 cellophane-wrapped piece of America for $1.20.

 In the process, Philip Morris has watched its share of the
 Turkish cigarette market mushroom, to 23% in 1997
 from 15% in 1995, while Tekel, the government-owned
 tobacco company, has seen its hold drop to 70% from
 82% over the same period, according to figures
 provided by the Turkish government. Third-ranked R.J.
 Reynolds, with its Winston and Camel brands, says its
 share has grown to 7.3% from 2.9%. (Tekel says
 Reynolds's share is lower.)

 Turkish smokers got their first taste of Philip Morris
 brands in the 1970s, when smuggled, tax-free American
 cigarettes began flooding local bazaars. But it wasn't
 until the early '80s that the company was allowed to sell
 cigarettes here. Eager to raise Turkey's status in the
 West, then-Prime Minister Turgut Ozal decided to turn
 his rural country into a model of free-enterprise. One of
 his first targets: Tekel, the creaky state monopoly that
 had held exclusive rights to sell tobacco, salt and liquor
 to Turks since the waning days of the Ottoman Empire.

 Run for years by bureaucrats, Tekel represented
 everything Mr. Ozal wanted to change about Turkey. Its
 antiquated factories, scattered across the country,
 churned out cigarettes that leaked tobacco particles
 and filled throats with hot, burning smoke. Tekel didn't
 deliver supplies door-to-door, forcing store owners to
 close their shops and travel to its warehouses whenever
 they needed to pick up more inventory. It didn't even
 bother to advertise.

 How could Mr. Ozal prod Tekel into the modern age?
 He announced in 1984 that foreign tobacco merchants
 would be allowed in Turkey for the first time since the
 days of the sultans.

 But there was a catch: Tekel would continue to price
 and distribute all cigarettes, both foreign and domestic.
 That advantage came in especially handy when Tekel in
 1988 launched Tekel 2000, a cigarette blended with
 American tobacco leaves that it designed to compete
 with Marlboro. Priced about 25 cents lower than a
 standard 20-cigarette pack of Marlboros at the time,
 Tekel 2000 quickly won a quarter of the market.

 Arguing that it couldn't survive in Turkey unless it had the
 right to price and distribute its own products, Philip
 Morris leveraged the one thing it had that the
 government badly wanted: millions of dollars to invest in
 the country. And it wouldn't invest that money unless
 Tekel gave up control, says Norman Janelle, who
 headed Philip Morris's Turkish operations at the time.

 A Well-Connected Businessman

 To make its case, Philip Morris enlisted the help of one
 of Turkey's most powerful businessmen, Sakip Sabanci.
 The colorful scion of one of the wealthiest families in the
 world, Mr. Sabanci controls a conglomerate involved in
 everything from Hilton hotels to Bridgestone tires.
 Influential in Turkish politics, he also enjoyed close ties
 to Prime Minister Ozal, who once served as chief
 executive of his company.

 In one 1989 showdown with Philip Morris executives at
 Tekel headquarters here, Tekel executives were refusing
 to give up pricing and distribution rights. Silent for most
 of the meeting, Mr. Sabanci rose from his chair and
 addressed the room with a booming voice that belies his
 small stature. "Look, this is not to be feared. This is
 good for Turkey. This is good for you," Mr. Janelle
 recalls him saying. (Mr. Sabanci didn't respond to
 several requests to comment for this article.)

 Tekel eventually relented, and in May 1991, Philip
 Morris got the right to market, price and distribute its
 own cigarettes, conditioned on a number of factors,
 including building its own factory. Months later, it
 announced a joint venture with Mr. Sabanci's company,
 Sabanci Holding Inc., and poured in $100 million to start
 construction of a factory in the southwestern city of
 Torbali.

 The factory opened in 1993, and Philip Morris
 eventually expanded it into a $230 million facility.
 Located in a sprawling compound that includes a soccer
 field, volleyball and basketball courts, and separate
 rooms for popular Turkish pastimes like table tennis and
 backgammon, the plant is a world away from Tekel's
 antiquated facilities. It is capable of cranking out more
 than 28 billion cigarettes annually.

 State-of-the-Art

 Inside the plant, a handful of men, wearing crisp khaki
 outfits, study computer monitors as thundering machines
 pump out as many as 12,000 cigarettes a minute. Fresh
 Marlboro packs zip past faster than the eye can see.
 Sukru Arkayin, operations director, shows off a new
 optical system that uses a laser beam to inspect
 shredded tobacco for debris such as string and plastic
 foam. With a pop, a sharp burst of air fires the offending
 matter off to a separate bin. "This process is from the
 U.S. It was just installed the beginning of this year," Mr.
 Arkayin says proudly.

 Tekel's large Maltepe plant half an hour outside Istanbul
 seems to dwell in an earlier time. Lacking Philip Morris's
 sophisticated machinery, Tekel scientists in lab coats test
 batches of tobacco by hand. In front of one machine, a
 woman wearing a traditional headscarf bends to sweep
 the dusty floor with a crude broom.

 The differences in appearance underscore an even
 bigger gap in the companies' products. Turkish smokers
 marvel at Marlboro's smooth taste and powerful buzz, as
 compared to harsher, local cigarettes made with
 Turkish Oriental tobacco, which is naturally lower in
 nicotine content than the American-leaf tobacco Philip
 Morris imports here.

 Maneuvering his small taxi through a dusty, sprawling
 suburb of Istanbul, Adnan Kocarslan volunteers his idea
 of Marlboro's secret. "These cigarettes are mixed with
 wine, creating a very special, very addictive taste," he
 claims, swerving around a tight corner. "Smell a
 Marlboro, and it smells like an alcoholic drink."

 This urban myth is partly based on Muslim prohibitions
 on alcohol. But it reflects a commonly held belief here
 that Philip Morris tinkered with its cigarette
 formulations to specifically attract Turkish smokers.

 'Their Kitchen Is Big'

 "We generally believe Philip Morris cigarettes use more
 additives and chemicals than Turkish cigarettes," says
 Mustafa Guclu, who headed Tekel in the early 1990s.
 "Their kitchen is big, our kitchen is small."

 In particular, Tekel executives claim that the American
 company adjusted tar levels in its cigarettes to wean
 Turkish smokers off high-tar Oriental tobacco. When
 Philip Morris started producing cigarettes at the Torbali
 plant, Tekel scientists say they were startled to find that
 the tar levels were higher than in U.S. Marlboros, which
 had served as a model for Tekel 2000.

 Mr. Guclu and Gulsevil Makul, chief of quality control
 for Tekel's Maltepe plant, say the first Marlboros made
 in Turkey had up to 18 milligrams of tar. That is about
 11% more than the 16-milligram American standard and
 a tad closer to Oriental cigarettes, which contain as
 much as 20 milligrams. Since 1993, however, Mr. Guclu
 and Ms. Makul say, Marlboro's tar deliveries have
 gradually declined to U.S. levels.

 A Competitor's Secret Report

 Supporting the idea that Philip Morris adjusts its
 cigarette blends is a confidential 1992 report, titled
 "PM's Global Strategy: Marlboro Product Technology,"
 conducted by researchers at rival B.A.T Industries
 PLC's Brown & Williamson unit. "When Marlboro has
 been introduced into a market there is evidence that
 initial offerings may be closer to that market's traditional
 taste," concludes the 150-page-plus report, which
 documents different Marlboro formulations in countries
 including Brazil, Britain and Germany. "Over time, then,
 PM will alter the product and introduce product
 technology more consistent with an overall Marlboro
 sensory character."

 Philip Morris says it doesn't comment on speculation by
 competitors. The company says it strives "to ensure that
 Marlboros are as consistent as possible world-wide,"
 but adds that some variation results from local
 regulations that limit constituents like tar or require the
 use of locally grown tobaccos. The company says that
 in Turkey, Marlboro tar levels have remained the same
 at 15 to 16 milligrams. Marlboros are adapted in certain
 ways to local tastes, says Marco Terribilini, now head of
 Philip Morris's operations here, but the changes are
 extremely subtle. "You would have to be an extremely
 good smoker to notice the slight difference," he says.

 Cowboy Salesmen

 Beyond the taste difference, Tekel couldn't keep up
 when Marlboro's prices were cut. Although they still
 maintain Tekel 2000 was a success, Tekel executives
 today say they want to sell the brand to a foreign
 competitor. "We are losing ground," says Kemal
 Ketenci, head of statistics. "Without new investment,
 without good policies, how can we compete?" Since
 1992, Philip Morris has poured $250 million into
 Turkey.

 Where Philip Morris really bested rivals is in marketing
 and distribution. In September 1994, the company
 began delivering cigarettes to individual stores -- a new
 concept in Turkey. It dressed up its salespeople like
 cowboys, sending them off into the sunset, in vans
 painted like Marlboros, to visit store owners across a
 51,000-square-mile distribution area.

 As it does around the world, Philip Morris uses its
 distribution system to turn every store it can into an
 advertising venue. In Ortakoy, Anjel Malku runs a small
 convenience store that owes much of its decor to Philip
 Morris. The company provided the white racks for its
 cigarettes, and in early May installed two huge backlit
 signs featuring the Marlboro Man. "I work for Marlboro,
 that's what I do!" Ms. Malku says.

 In Istanbul, Marlboro hosted parties at nightclubs and
 sponsored contests. "Of course, the first thing you do is
 paint the town red," explains Mr. Janelle, the former
 Philip Morris executive here. "We painted every
 building." Tekel, unaccustomed to the concept,
 grudgingly responded with just a handful of small ads, he
 says. (Tekel says its advertising was limited in part by a
 lack of funds.)

 Rounding Up Young Smokers

 In a country where a third of the population is under 35,
 Philip Morris's campaigns have caught on with young
 people. At a quaint cafe inside the wrought-iron gates of
 Galatasaray, one of the most prestigious high schools in
 Istanbul, 17-year-old Ozlem Dinc sits with two
 girlfriends around a tiny table with three Marlboro packs
 on it. "We spend 20% of our pocket money on
 cigarettes," she says. "Not cigarettes," one friend
 interrupts. "Marlboros!"

 Can Acikel, a senior, recalls when representatives for
 Philip Morris and R.J. Reynolds a few years ago would
 regularly hand out samples near the school: He picked
 up five free packs a day, every day for a week. "When
 they were launching a new brand, they came so often!"
 recalls Mr. Acikel. "They were always here, standing in
 the middle of the street distributing cigarettes."

 Philip Morris declined to comment on the student's
 recollection. Although selling cigarettes to minors
 wasn't illegal at the time, managers at Philip Morris and
 Reynolds say sampling to minors violates their marketing
 codes. "I can't comment because I wasn't there, but if
 anybody was distributing cigarettes near schools I
 would say it was wrong, regardless of whether it was
 legal," says a Reynolds spokesman.

 Such marketing efforts have helped incite a previously
 unheard of phenomenon in Turkey: the antitobacco
 activist. "It became such an interesting issue when the
 foreign tobacco companies came in," says Elif Dagli, a
 leading activist. Pressured by antitobacco groups,
 Turkey's Parliament passed one of the strictest
 cigarette ad bans in the world in late 1996. Not only
 does it prohibit campaigns using any cigarette "name,
 trademark or trade name," it also broadly prohibits any
 campaign "encouraging" people to smoke. The law also
 restricts smoking in airports, schools and other public
 facilities, and the sale of cigarettes to anyone under 18.

 Enduring Imagery

 But the legislation is no match for Philip Morris, which
 has years of experience dealing with ad bans in other
 countries. Turkish readers of the newsmagazine Tempo
 are treated to a redesigned two-page, red-and-white ad
 showing a river-rafting expedition. "Adventure Team
 '98," the copy reads, omitting the word "Marlboro,"
 usually included in the title. Likewise, in hundreds of
 small convenience stores topped with lighted Marlboro
 signs, Philip Morris has simply deleted the Marlboro
 name, leaving the easily identifiable red chevron.

 The message isn't lost on smokers. Walking about
 Ortakoy with his friends, 19-year-old Ahmet Tastan
 points to the red chevron in one store. "This doesn't say
 Marlboro, but we understand it," he says. "The law
 didn't change anything."

 Mr. Terribilini says Philip Morris has devoted a lot of
 time and money to complying with the new ad
 restrictions. He notes that the company even deleted the
 Marlboro name from its sales representatives' shirts.
 "The way we see it, this law focuses on the advertising of
 cigarette products," he says. However, "it doesn't
 cover all nontobacco products and events."

 Some of those "nontobacco" products can be found at
 Mudo, a hip clothing store in Istanbul's popular
 Akmerkez shopping mall. Past the platform loafers and
 lime-green jackets, beneath pictures of buffalo and a
 large American flag, is one of the store's best-selling
 brands: Marlboro Classics, whose jeans bear the slogan
 "For Strength and Endurance." Owning Marlboro's chic
 isn't cheap: A pair of khakis runs $100. A local brand
 costs $36.

 For young Turks who can't afford such luxuries, the lure
 of the Marlboro Man is still powerful. In Bagcilar, far
 away in both miles and prosperity from the shopping
 malls of Istanbul, Ugur Onder, 20, watches a soccer
 game in a trash-strewn field. Mr. Onder still lives with his
 mother because he can't afford rent for an apartment.
 But he admits to spending half of his income on his
 pack-and-a-half daily Marlboro habit. "I need it to pick
 up girls and boost my image," he says.





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