[Intl-tobacco] Russia: Western Tobacco Hits Jackpot With Patriotism

[Robert Weissman]

Western Tobacco Hits Jackpot With Patriotism

by Elizabeth LeBras /   Staff Writer

Source: Moscow Times, Tuesday, 11/14/00

The Russian tobacco market is the world's fourth-largest.

The lines separating foreign and domestic cigarettes blur on closer
inspection.
The most popular Russian labels are actually produced by Western
companies. At
the same time, most foreign brands sold on the domestic market were made

locally.

The confusion over cigarettes’ nationality is intentional. Western
tobacco
manufacturers have purposely taken on Russian trademarks whose names
appeal to
consumers’ patriotism and low prices to their wallets.

The nation’s leading cigarette brands in the second quarter of 2000 were
Prima,
Pyotr I and Yava Zolotaya. COMCON market research agency puts their
market
shares at 25 percent, 21.4 percent and 21 percent, respectively.

All three Russian-sounding brands are owned by Western tobacco
companies.
Thirty-year-old Prima is produced at the Liggett-Ducat cigarette
factory, which
British company Gallaher Group PLC purchased last August. U.S. tobacco
giant RJ
Reynolds produces Pyotr I. Yava Zolotaya, named after the old Soviet
brand
Yava, has been produced by British-American Tobacco since 1997.

U.S. tobacco corporations have invested a total of $2.5 billion dollars
in
domestic production, Expert magazine reported last month. The heavy
investment
is not surprising given that Russia’s tobacco market is the
fourth-largest in
the world.

Masha Vakatova, public relations director of market research firm
COMCON, said
Russian name brands moved to market dominance following the 1998
financial
crisis.

"One of the trends [that emerged from the crisis] was the switch to
local
brands or brands with Russian names," she said. "The companies that
picked up
on this trend of awakening national pride and exploited it succeeded in
occupying whole segments of the market."

Immediately before the crisis, American brands L&M and Marlboro led the
market
with respective shares of 35.5 percent and 29.8 percent, according to
surveys
conducted by COMCON. But after August 1998, the popularity of American
brands
plummeted, and in the first quarter of 1999, Prima lead the market with
29.91
percent, followed by Pyotr I with 25 percent.

Marlboro’s market share fell steadily, from 17 percent in the first
quarter of
1999 to 11 percent in the second quarter of 2000.

An ad for Prima cigarettes, a line bought by Britain's Gallaher Group in
1999.

A survey conducted by independent research center Romir in December 1999

suggests that price was also a strong motivating factor for Russian
smokers to
change their brands after the 1998 crisis.

Cigarette brands with Russian names cost several times less than the
best-known
Western brands. Prima sells for only 2.5 rubles a pack, which is much
less than
Western brands — Marlboros cost from 21 rubles to 30 rubles a pack.

RJ Reynolds and BAT were able to begin producing cheaper brands, like
Pyotr I
and Yava Zolotaya, because they launched operating factories in the
Russian
cities of Krasnodar and St. Petersburg.

The range of Western cigarette brands offered in Russia will likely
increase as
more companies move their production to Russia.

Expert magazine reported that American tobacco giants have moved their
production facilities to Russia and other countries in reaction to
mounting
costs from U.S. lawsuits brought on by sick smokers’ demands for
compensation.
Diminishing profitability has compelled Philip Morris, RJ Reynolds and
Brown &
Williamson to build factories in countries where taxes and production
costs are
considerably lower than in the United States.

In 1999, Philip Morris established Marlboro production facilities in the

Leningrad region. According to Philip Morris, 95 percent of the
Marlboros sold
in Russia are produced by plants in this country. Data from Business
Analytica
indicates that Marlboros produced in Russia cost 10 percent less than
imported
Marlboros.

There is some question whether the quality of Russian-made and
American-made
Marlboros is the same. Many smokers, who have sampled both Russian and
U.S.-produced Marlboros, say the Russian variant is considerably
stronger.

Samantha Davis, a British student studying in Russia, said
Russian-produced
Marlboros "give you more of a cough especially when you smoke too many.
The
taste can also vary depending on where you bought them from."

However, Pyotr Lidov, the Moscow spokesperson for Philip Morris, denied
in an
interview with the radio station Ekho Moskvy that Marlboros produced in
Russia
are inferior to those made in America. He claims that in taste tests
conducted
in the United States, Marlboro smokers were unable to distinguish
between those
cigarettes produced in the United States and those in Russia.

Western companies look set to continue their dominance over the domestic

market. Kommersant’s Dengi magazine reported in October that light
cigarettes
represent the biggest fad to come to Russia in recent years.

Western tobacco makers monopolize the national market for light
cigarettes,
simply because local producers lack the technology to sufficiently lower
the
nicotine and tar content in their cigarettes. According to international

classification, light cigarettes contain no more than 0.85 milligrams of

nicotine and no more than 10 milligrams of tar.

Light cigarettes’ share of the Russian market is expected to rise to 40
percent
in 2000 from 5.8 percent in 1999, according to Business Analytica. A
total of
16 billion to 17 billion light cigarettes were sold in Russia in 1999.
That
figure is expected to rise to 29 billion cigarettes in 2000.