16 February 2018:
As Japan Tobacco’s cigarette sales in Japan decline, its overseas profits are crucial. Japan Tobacco International, its international arm, is expanding its presence in ASEAN countries where it previously had low sales. In August last year, JTI acquired a Filipino tobacco company, Mighty Corporation, for P45 billion (about US$900 million). Paying that amount of money demonstrates the importance of the Philippines to JTI to increase its presence in the Asia-Pacific region. The Philippines has the region’s second highest cigarette sales volume after Indonesia. JTI sees the Philippines as a growth market where it can increase its profits substantially.
Poor people, who form the bulk of smokers in the Philippines, are important to JTI. More than 50% of cigarette sales are carried out through the small ‘sari-sari’ stores. With this acquisition, JTI is now able to penetrate these traditional stores, selling the cheap cigarette brands and strengthening its appeal to lower income smokers. JTI’s cigarette market shares is set to increase from 6% to 26%.
A bigger chuck of poor smokers JTI captured is in its second acquisition – Indonesia – which has even more poor people and is the world’s second largest cigarette market. In August 2017, JTI paid $677 million in acquiring Indonesian kretek cigarette manufacturers Karyadibya Mahardhikar (KDM) and its distributor Surya Mustika Nusantara (SMN). As in the Philippines, low income smokers will be the most important segment where JTI will increase sales of its cheap cigarettes.
|JTI’s bigger-than-life promotion of its Camel brand in Jakarta for all to see||JTI’s targeting of young people for its Winston, selling “Spirit of Freedom” at a POS in Manila|
Other poor countries, Cambodia, Lao PDR and Myanmar, also present opportunities for selling cheap cigarettes and increase volume growth for transnational tobacco companies. These three countries sell a combined volume of 20 billion sticks a year. Again, poor smokers are the target. They present opportunities for further growth as the companies expect smokers in the coming years to switch from local brands to international brands as the economy grows.
British American Tobacco and Imperial Brands control 65% of the Cambodian market, while Imperial with a joint venture with a local company controls 62% of the Lao PDR market. JTI controls nearly 20% of the Myanmar market and has been expanding its presence for the past few years and has built a manufacturing facility.
To increase profits through more cigarette sales in the ASEAN region, the tobacco industry has to simultaneously fight and delay tobacco control measures. In the Philippines for example, JTI is opposing tax increases by recycling the old claim that raising taxes further would be “disastrous for the legitimate tobacco industry” and that the government should be focused on addressing the revenue lost due to “rampant” cigarette smuggling. JTI is also undermining the government Joint Memorandum Circular which prohibits the government from collaborating with the tobacco industry when it insists on helping the government address tobacco smuggling.
In Malaysia, JTI is also using the same tobacco smuggling bogeyman to roll-back the ban on kiddie packs, ridiculously claiming it is a “unique solution”. JTI, along with the other tobacco companies in Malaysia had received a delay on the ban on kiddie packs when its implementation was postponed by six years, from 2004 to 2010.
Tobacco is a ruthless business – bad for economy, devastating on health and addicts people, especially the poor.