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10 Questions

with Dominic Brisby
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January 30th, 2008 issue

VLADIMÍR WEISS/THE PRAGUE POST
Brisby says Imperial would cut back on promotion money it invests in pubs and bars if the country passed a smoking ban.
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THE BRISBY FILE


Title: General manager, Imperial Tobacco Czech Republic
Age: 29
Nationality: British
Previous position: Market manager, Imperial Tobacco Canary Islands
Education: M.A., Oxford University

By Feb. 1, both German states bordering the Czech Republic — Bavaria and Saxony — will have banned smoking in public places, joining a list of European countries that have similar bans, including France, Ireland and Italy. Despite growing public support, residents of the Czech Republic remain generally resistant to such a ban, which must be welcome news to Dominic Brisby of Imperial Tobacco, one of the major tobacco companies operating in the country. Brisby talks to The Prague Post about bans, black-market cigarettes and upcoming price hikes.
➊ Does Imperial oppose the smoking bans we’ve seen spread across Europe in the past few years?
We think outright bans are disproportionate and unnecessary. We understand that some people find cigarette smoke annoying, but if consumers really wanted pubs and restaurants to ban smoking then the market would take care of this by itself. In a free society it does not seem unreasonable to be allowed to sit down at the end of a day’s work with a beer and a cigarette.
➋ Do such bans cause a decline in sales?
Smoking bans tend to cause a short-term drop in cigarette sales of about 4 percent, but sales then recover over time as smokers learn how to deal with the new conditions. For example, in many countries with smoking bans, thousands of pubs and bars have been forced to close because smokers decided they preferred to stay at home than be forced to smoke outside.
➌ How has Imperial adapted its practices to countries with bans?
Bans don’t change the fundamentals of our business. We still have to provide high-quality brands, well-distributed, at the right price. At the same time, we do adapt our strategies where there are smoking bans. For example, in the Czech Republic,  we currently invest money into pubs and bars for distribution and promotion of our products, and we would certainly cut back on this in the event of a ban.
➍ A survey last year found that residents of the Czech Republic, more than any other EU country, were resistant to the notion of restricting smoking in pubs and clubs. Why do you think that is?
I think Czech people place great value on personal liberty and freedom of choice. Perhaps Czech people, having lived under a communist system, are also less willing to allow politicians to micromanage every aspect of their lives.
➎ With entry into Schengen, do you expect any increased problems from black market cigarettes?
Generally speaking, you have two types of black market cigarettes. First, there are genuine cigarettes smuggled across borders by criminal gangs. These often come from the Ukraine and increasingly from Poland. The other type is fake cigarettes, which can be manufactured anywhere, including [domestically]. These are also controlled by criminal gangs and entail even greater risk for the consumer because of the lack of control of manufacturing processes.
Black market cigarettes are a big problem that is likely to become bigger. They deprive the government of taxation revenue and deprive legitimate retailers of their income. The only winners are organized criminals. We don’t expect entry into Schengen will make any real difference, since the driver of smuggled and counterfeit cigarettes is high taxation. The higher the tax, the higher the incentive for the criminal.
➏ Taxes are behind the expected rise in cigarette prices this year, correct?
There was a need to increase taxes on cigarettes to be in line with EU requirements, although the government decided to take this further, to try and raise revenues. Cigarettes will rise probably 8 Kč [45 U.S. cents] per pack in either March or April. We can live with the increase in cigarette taxes, but the increase on loose tobacco will put the taxes at an extremely high level and could encourage a surge in smuggling.
Previously, we have reduced our margins, although not to deal with tax increases per se, but rather to respond to aggressive pricing from some of our competitors. My expectation is that this time we will pass on the full tax increase to consumers.
➐ Do these taxes dissuade people from smoking or cause them to move to cheaper brands?
Most smokers have chosen to continue to smoke. The market in the Czech Republic is broadly stable at about 24 billion cigarettes per year.
Smokers have moved to cheaper brands, like Imperial Tobacco’s Moon, over the past couple of years. This is natural as the absolute price of cigarettes increases. Many consumers have also chosen to save money by making their own cigarettes, using loose tobacco like our brand Paramount, which has over 40 percent market share in this category.
➑ Beginning in the United States, we’ve seen the concept of smoking move from a question of choice and taste to a moral issue, perhaps coinciding with reports on the health effects of secondhand smoke. Why this change in perception?
I think freedom of choice is a moral issue, and is an issue worth fighting for. At the same time, it’s true that some of the anti-smoking extremists have been very successful in setting the public agenda, and in trying to create greater legitimacy for their attacks on smokers. The interesting thing now is that there are indications that the public perception may be going full circle. One analogy could be the prohibition era in the United States — certainly many people disliked the social consequences of alcohol consumption, but society learned that disproportionate policies against a popular consumer product can be counterproductive.
➒ What steps do you take to prevent underage smoking?
We are absolutely opposed to underage smoking and in many markets across the world we fund youth smoking prevention programs. We only market our products to adult smokers and abide by a stringent international marketing code to ensure consistency across the group. We also encourage governments to have legal minimum-age requirements for the purchase of tobacco products.
➓ Philip Morris is the dominant cigarette company on the market. What strategies do you use to take them on?
There is no real secret to our strategy, which is to offer outstanding quality and value to adult smokers, in every price segment of the market. This has led to unprecedented growth of our brands like Davidoff and Moon, as well as in loose tobacco. We’re also pleased that our brand portfolio will be strengthened following our 12 billion euro [$17.5 billion/313 billion Kč] acquisition of Altadis, which will give us iconic brands like Gauloises.
In the Czech Republic, we pride ourselves on our ability to respond quickly to events — whether consumer demands or competitors’ actions — as well as our perfect execution in the market. As a result of all this, Imperial Tobacco is the fastest-growing tobacco company in the country.
Want your manager to answer our 10 Questions? Contact Paul Voosen at pvoosen@praguepost.com


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