Leaders of the pack Privatization fuels new cigarette brand war
Armed with fresh capital from recent privatizations, companies are stepping up advertising for products in the fast-growing, domestic king-size segment.
For some on the local front, the jostling for kiosk visibility has developed into a family feud that's gone to court.
Two years ago, state-owned British American Tobacco (BAT). launched its Jan III Sobieski brand produced at the PWT Augustow factory. The king-size filter cigarette, named after the famed Polish king who vanquished Ottoman troops three centuries ago, took Poland's tobacco market by storm in the last year.
In the wake of Sobieski's success, WWT Poznan brought its new king-size brand to market late last year - Jan III Kowalski. It's a common name with a kingly title that ruffled the feathers of BAT, which filed suit on behalf of its patron claiming trademark violations.
While the suit is pending, both cigarette makers are coupling new brands to former marketing efforts. BAT, which purchased a 33% stake in PWT Augustow last autumn, last month introduced Marysienka, a brand named after Sobieski's wife. And WWT Poznan, now 33% owned by Germany's Reemtsma, launched its Maria Kowalska counterpart a few weeks ago.
But the jostling in the medium-priced tobacco market is just beginning.
"I think the next three to four months we will see a lot of new launches," said Jacek Siwek, general manager of BAT Group Poland. "Sobieski is a success, so why not do it?"
Privatization is changing the Polish tobacco market almost overnight.
Beginning late last year, the Polish government has sold stakes in four factories worth more than $500 million.
France's Seita and BAT were the first to invest last year. BAT purchased a 33% stake in the Augustow plant for $88 million, and has an option to buy a further 32% stake following completion of a $70 million capital investment program. Seita purchased a 33% stake in the Radom plant for $64 million. The most recent deals were Philip Morris' $227 million purchase of 33% in the Krakow plant and Reemstma's $130 million purchase of 33% of WWT Poznan.
With new factories in hand, BAT and Philip Morris have not wasted any time in bringing new names to the Polish market - and backing them with muscular marketing budgets.
"Factories are now acquired, which is prompting companies to do something," said BAT's Siwek.
With its acquisition, BAT went from a 6% market share in Poland at the end of 1995 to a 12% share this year. Privatization spurred the introduction of Marysienka, Siwek said.
"We felt, first of all, we should do it, because we had the resources to do it, including the capacity of Augustow," he said. The company is targeting female smokers with print ads in women's magazines from the traditional Pani Domu to the trendy Twoj Styl in a campaign coordinated by J. Walter Thompson Parintex.
Philip Morris entered the new product market with L&M Lights in February. The launch came within a month of purchasing a 33% stake in Zaklady Przemyslu Tytoniowego SA in Krakow. The company is heavily promoting the brand through direct marketing, sending young women decked out in L&M T-shirts and caps to Warsaw cafés and bookstores to tempt tobaccophiles.
"The important thing for a company like ours is to be present in different price and taste categories," said Michael Parsons, spokesman for Philip Morris Europe, which has been selling Marlboro in Poland for more than 20 years. "Even if people wanted to smoke Marlboro, all smokers are not going to be able to switch to Marlboro overnight."
Changing tastes
As part of their privatization deals, international tobacco firms have pledged additional investments to upgrade the quality of home-grown tobacco in Poland.
Up till now, companies here have used Polish tobacco mainly as filler, while importing higher-quality tobacco for their blends. Polish law requires domestic cigarette producers to use 40% Polish-grown tobacco for their products.
Initial outlays and subsequent investments are pursuing a strong market. As 40% of all adult Poles smoke, the country is the largest cigarette market in Central Europe and the third largest in Europe behind Germany and Italy.
In terms of taste, the Polish market can be divvied into four segments:
* International cigarettes, which make up less than 15% of the market.
* Domestic king-size cigarettes (above 80 mm), about 25% of the market.
* Domestic cigarettes below 80 mm (generally these are 70 mm in length), the largest segment, accounting for about half the market.
* All non-filter cigarettes (64 mm), with a 10% share.
The market as a whole is relatively stagnant at nearly 100 billion cigarettes produced a year, supplying well over 90% of the market. But segments are shifting as consumers move from heavier, non-filter, short cigarette varieties toward higher-quality, lighter brands.
According to industry estimates, the domestic king-size segment grew nearly 25% between 1994 and 1995.
"It's still a very dynamic market," noted Robert Wielicki, sales and marketing director for Danish-owned House of Prince Poland, which set up shop here in 1993 and a few weeks ago launched Mephisto king-size cigarettes in regular and light versions.
It's also a very cost-conscious market, where changes in taxes and beefed-up regulations have given domestic producers a competitive edge - but maybe not for long.
In the 1970s and 1980s, several imported brands could be found in hard-currency stores, but many quality brands made their way here illegally, mostly through Russia.
Tighter retail and border controls have slowed much of the black-market trade during the economic transition. And when the government introduced excise taxes in 1993, the price of imports generally went up. That gave cheaper-priced domestic varieties an edge.
"People simply started to count money," said Robert Wielicki, sales and marketing director of House of Prince Poland.
Today, imported cigarettes cost on average zl. 3 ($1.20) for a pack of twenty, compared to domestic king-sizes, which generally range from zl. 1.80 ($0.72) to zl. 2 ($.80) a pack.
But the price support conferred by tax advantages for domestic producers is shrinking.
Over the last two years, tax increases for domestic brands have outpaced increases for international cigarettes. For example, excise taxes have shot up 180% for domestic king-size brands between Sept. 94-Dec. 1995, but rose only 62% for international products during the same period. (See chart previous page.)
Before the advantage disappears, domestic cigarette makers are flooding the domestic king-size market with new names.
And while the big names stake out their claims, smaller companies are also racing down the tobacco road.
Alexander Field, the first private company to produce cigarettes here in 1991 with a 500,000-unit annual capacity, a month ago introduced king-size Silver and Gold cigarettes. Spanish-owned Tabacalera Poland, which has less than a 1% share of the Polish market, in March launched a month-long advertising campaign for its locally produced Sunset regular and light brands.
"You don't have to invest a lot of money in advertising to be successful," noted Cezary Rut, Tabacalera Poland's managing director.
House of Prince's Wielicki said that it costs only "a few million dollars" to bring a new name to market here, which is relatively low by international standards. This is due in large part to limited advertising possibilities - for example, the lack of billboards. And that marketing window of opportunity also is diminishing.
Marketing
With over 200 brands on the market at about 500,000 points of sale, marketing and packaging have been the key to successful branding, industry experts say.
That's what gave the Jan III Sobieski brand the edge in garnering 8% of the domestic market in less than two years, BAT executives say.
But those may soon be seen as the golden years for making new names in the tobacco industry.
A national tobacco law, set to go into effect in May, requires that 30% of the largest side of a cigarette pack be covered in warnings (compared to 4% in European Union countries with one official language or 6% in countries with two official languages).
Many cigarette manufacturers fear the law may severely restrict their marketing activities, making the warnings more distinctive than the names on the packages themselves.
"You create confusion among the consumers," said Rut of Tabacalera Poland. "Instead of choosing between Brand A and Brand B, they'll be choosing between one warning and another."
For some on the local front, the jostling for kiosk visibility has developed into a family feud that's gone to court.
Two years ago, state-owned British American Tobacco (BAT). launched its Jan III Sobieski brand produced at the PWT Augustow factory. The king-size filter cigarette, named after the famed Polish king who vanquished Ottoman troops three centuries ago, took Poland's tobacco market by storm in the last year.
In the wake of Sobieski's success, WWT Poznan brought its new king-size brand to market late last year - Jan III Kowalski. It's a common name with a kingly title that ruffled the feathers of BAT, which filed suit on behalf of its patron claiming trademark violations.
While the suit is pending, both cigarette makers are coupling new brands to former marketing efforts. BAT, which purchased a 33% stake in PWT Augustow last autumn, last month introduced Marysienka, a brand named after Sobieski's wife. And WWT Poznan, now 33% owned by Germany's Reemtsma, launched its Maria Kowalska counterpart a few weeks ago.
But the jostling in the medium-priced tobacco market is just beginning.
"I think the next three to four months we will see a lot of new launches," said Jacek Siwek, general manager of BAT Group Poland. "Sobieski is a success, so why not do it?"
Privatization is changing the Polish tobacco market almost overnight.
Beginning late last year, the Polish government has sold stakes in four factories worth more than $500 million.
France's Seita and BAT were the first to invest last year. BAT purchased a 33% stake in the Augustow plant for $88 million, and has an option to buy a further 32% stake following completion of a $70 million capital investment program. Seita purchased a 33% stake in the Radom plant for $64 million. The most recent deals were Philip Morris' $227 million purchase of 33% in the Krakow plant and Reemstma's $130 million purchase of 33% of WWT Poznan.
With new factories in hand, BAT and Philip Morris have not wasted any time in bringing new names to the Polish market - and backing them with muscular marketing budgets.
"Factories are now acquired, which is prompting companies to do something," said BAT's Siwek.
With its acquisition, BAT went from a 6% market share in Poland at the end of 1995 to a 12% share this year. Privatization spurred the introduction of Marysienka, Siwek said.
"We felt, first of all, we should do it, because we had the resources to do it, including the capacity of Augustow," he said. The company is targeting female smokers with print ads in women's magazines from the traditional Pani Domu to the trendy Twoj Styl in a campaign coordinated by J. Walter Thompson Parintex.
Philip Morris entered the new product market with L&M Lights in February. The launch came within a month of purchasing a 33% stake in Zaklady Przemyslu Tytoniowego SA in Krakow. The company is heavily promoting the brand through direct marketing, sending young women decked out in L&M T-shirts and caps to Warsaw cafés and bookstores to tempt tobaccophiles.
"The important thing for a company like ours is to be present in different price and taste categories," said Michael Parsons, spokesman for Philip Morris Europe, which has been selling Marlboro in Poland for more than 20 years. "Even if people wanted to smoke Marlboro, all smokers are not going to be able to switch to Marlboro overnight."
Changing tastes
As part of their privatization deals, international tobacco firms have pledged additional investments to upgrade the quality of home-grown tobacco in Poland.
Up till now, companies here have used Polish tobacco mainly as filler, while importing higher-quality tobacco for their blends. Polish law requires domestic cigarette producers to use 40% Polish-grown tobacco for their products.
Initial outlays and subsequent investments are pursuing a strong market. As 40% of all adult Poles smoke, the country is the largest cigarette market in Central Europe and the third largest in Europe behind Germany and Italy.
In terms of taste, the Polish market can be divvied into four segments:
* International cigarettes, which make up less than 15% of the market.
* Domestic king-size cigarettes (above 80 mm), about 25% of the market.
* Domestic cigarettes below 80 mm (generally these are 70 mm in length), the largest segment, accounting for about half the market.
* All non-filter cigarettes (64 mm), with a 10% share.
The market as a whole is relatively stagnant at nearly 100 billion cigarettes produced a year, supplying well over 90% of the market. But segments are shifting as consumers move from heavier, non-filter, short cigarette varieties toward higher-quality, lighter brands.
According to industry estimates, the domestic king-size segment grew nearly 25% between 1994 and 1995.
"It's still a very dynamic market," noted Robert Wielicki, sales and marketing director for Danish-owned House of Prince Poland, which set up shop here in 1993 and a few weeks ago launched Mephisto king-size cigarettes in regular and light versions.
It's also a very cost-conscious market, where changes in taxes and beefed-up regulations have given domestic producers a competitive edge - but maybe not for long.
In the 1970s and 1980s, several imported brands could be found in hard-currency stores, but many quality brands made their way here illegally, mostly through Russia.
Tighter retail and border controls have slowed much of the black-market trade during the economic transition. And when the government introduced excise taxes in 1993, the price of imports generally went up. That gave cheaper-priced domestic varieties an edge.
"People simply started to count money," said Robert Wielicki, sales and marketing director of House of Prince Poland.
Today, imported cigarettes cost on average zl. 3 ($1.20) for a pack of twenty, compared to domestic king-sizes, which generally range from zl. 1.80 ($0.72) to zl. 2 ($.80) a pack.
But the price support conferred by tax advantages for domestic producers is shrinking.
Over the last two years, tax increases for domestic brands have outpaced increases for international cigarettes. For example, excise taxes have shot up 180% for domestic king-size brands between Sept. 94-Dec. 1995, but rose only 62% for international products during the same period. (See chart previous page.)
Before the advantage disappears, domestic cigarette makers are flooding the domestic king-size market with new names.
And while the big names stake out their claims, smaller companies are also racing down the tobacco road.
Alexander Field, the first private company to produce cigarettes here in 1991 with a 500,000-unit annual capacity, a month ago introduced king-size Silver and Gold cigarettes. Spanish-owned Tabacalera Poland, which has less than a 1% share of the Polish market, in March launched a month-long advertising campaign for its locally produced Sunset regular and light brands.
"You don't have to invest a lot of money in advertising to be successful," noted Cezary Rut, Tabacalera Poland's managing director.
House of Prince's Wielicki said that it costs only "a few million dollars" to bring a new name to market here, which is relatively low by international standards. This is due in large part to limited advertising possibilities - for example, the lack of billboards. And that marketing window of opportunity also is diminishing.
Marketing
With over 200 brands on the market at about 500,000 points of sale, marketing and packaging have been the key to successful branding, industry experts say.
That's what gave the Jan III Sobieski brand the edge in garnering 8% of the domestic market in less than two years, BAT executives say.
But those may soon be seen as the golden years for making new names in the tobacco industry.
A national tobacco law, set to go into effect in May, requires that 30% of the largest side of a cigarette pack be covered in warnings (compared to 4% in European Union countries with one official language or 6% in countries with two official languages).
Many cigarette manufacturers fear the law may severely restrict their marketing activities, making the warnings more distinctive than the names on the packages themselves.
"You create confusion among the consumers," said Rut of Tabacalera Poland. "Instead of choosing between Brand A and Brand B, they'll be choosing between one warning and another."
