First casualties of cigarette war

The effects of the price war on the Romanian tobacco market have started to show. British American Tobacco (BAT) Romania, one of the top ten companies on this market concluded last year with losses, even though selling about as much as it did in 2001. Corporate affairs director Adrian Popa estimates the sales to have reached approximately $250 million. He did not provide details about the exact amount of losses, though.
The financial statement submitted by BAT Romania to the Finance Ministry shows it to have made some $251 million turnover in 2001, while net profit was worth about $2.3 million.
The losses of the Romanian branch are also mentioned in the preliminary financial report drawn up by the parent company for last year.
“The tough competition has led to a profit decline in Romania, in spite of the sales that kept at about the same level as last year (i.e. 2001) and in spite of the market share gain of the Viceroy brand,” BAT announced.
Popa feels the effects of the war in 2002 will keep showing for quite a while.
“Last year’s war effects will not go away in a year; this would probably take about two years. I think everyone lost when drawing the line,” Popa said.
Philip Morris, JTI and BAT increased cigarette prices several times last year. The increases were intended to cover the high taxes they have to pay to the State. These companies pay more than $500 million in taxes to the State every year.
Paul Adams, Managing Director of the parent company does not rule out the possibility of a new price war on the Romanian and Polish markets.
“Yes, there will be price wars. As I’ve said, price wars tend to be generated by people who are dissatisfied with their progress and we are very satisfied with our progress. I think everyone’s realised that no one came out too much of a winner (of the war i.e.) and there are some signs of getting back to normality in those two markets. Is there always a threat that it will break out? Yes. It is always a threat,” Adams said.
Adrian Popa explains that regardless of the successive price increases, no change in the price in real terms has been made, so that prices are the same as they were in 1997.
“From 1997 until 2002 prices remained the same. For instance, a Kent pack cost $1.10 in 1997. This price was kept constant until 2002, when it went down to $0.78, so you can get a picture of what it meant. To go back from $0.80 to $1.10 will take about a year, or maybe even three or four,” Popa said.
The company’s portfolio includes the Kent, Viceroy, Lucky Strike, Dunhill and Pall Mall brands. Its best-selling brand in Romania is Viceroy, a low-end brand with about 30% market share, according to BAT Romania. Quantitatively speaking, the company’s market share is 30.6%. The Romanian cigarette market is estimated to be worth one billion dollars a year. BAT’s top competitors on this market are Philip Morris, Japan Tobacco International (JTI), Societatea Nationala Tutunul Romanesc (National Romanian Tobacco Company – SNTR) and Papastratos. claudia.covaci@zf.ro