New, bigger cigarette warnings have producers burning up
The losses are related to the law which came into force Sunday, June 14, requiring all cigarettes sold in Poland to carry a health warning that covers at least a third of the front and back sides of the package.
"We already had to let more than $1 million go up in smoke, when we had to burn the old packages that were not sold before June 14," said Aleksandra Samulewicz, public relations director at Philip Morris's ZPT Krakow. The company is the country's largest cigarette maker with 29 billion cigarettes sold in 1997; it claims a 32% share of the Polish cigarette market.
But cigarette producers aren't only fuming about the costs associated with switching to the new packaging, which they have been aware of for 18 months. They charge that the new warning will hit revenue for the rest of the year, Samulewicz said.
Philip Morris will likely lose zl. 6 million ($1.7 million) a month due to a drop in cross-border cigarette sales.
"This will definitely hit our sales in western provinces, where Germans who come here to buy cheaper cigarettes, faced with domestically produced Marlboro in an ugly package and nice packages with a tiny warning smuggled from Lithuania, will most surely choose the latter," Samulewicz added.
This amounts to discrimination against domestically produced cigarette brands, which lose their appeal when compared with cigarettes sold in the European Union (EU), the KSPT alleged.
"The warnings are ridiculously large, much larger than that of the European Union, where warnings do not exceed a tenth of the side," said Artur Dmochowski, president of the KSPT. "The new regulations hit domestic producers, and hit them big time."
Philip Morris said it has already seen this happen since it began introducing new packaging to comply with the law April 1. The company said May sales in Poland's four voivodships that share a border with Germany dropped to 57 million cigarettes compared with 110 million a year ago.
The largest drop was seen in the Zielona Gora voivodship, which reported sales of 8.4 million cigarettes this May, down 80% compared to a year ago.
And shops that sell cigarettes said that customers have already shown an aversion to the new packaging, asking for the old-style cigarettes.
"Clients specifically ask for packages that do not carry the larger warnings," said a woman working at a kiosk on plac Konstytucji last week. The kiosk worker, who did not want to be identified, said that even though she knew about the new regulations she still was left with 14 old packages.
"I don't think I will have any problems selling them," she added.
But the kiosk had better hope that a National Trade Inspectorate (PIH) employee does not come around. Under the new law, selling the old-style cigarettes can result in a fine for the retailer of up to zl. 25,000.
"But what prosecutor will threaten his career with a ridiculous accusation against a kiosk owner who dared sell a package of cigarettes, which were legally produced here and only had a smaller warning," KSPT's Dmochowski said.
The industry is especially sensitive to the effect of the packaging change because it has already suffered one revenue blow this year. In January the Finance Ministry increased obligatory fixed excise taxes on cigarettes by 19.6-29.5%.
The cigarette excise tax on more than 95.8 billion cigarettes produced in Poland last year brought the state treasury zl. 4.56 billion ($1.3 billion). But hiking the excise tax has so far failed to boost government revenue. According to the Finance Ministry, excise tax on cigarettes amounted to zl. 1.11 billion ($318 million) in the first quarter of this year, compared to zl. 1.05 billion ($328 million) in the same period last year.
And the industry said the inflow of money will most likely decrease with coming months, particularly when the increased excise tax and new packages take their combined toll.
"Only due to the raise in the excise tax, we expect our sales to drop by some 3% this year," Samulewicz said.
"We already had to let more than $1 million go up in smoke, when we had to burn the old packages that were not sold before June 14," said Aleksandra Samulewicz, public relations director at Philip Morris's ZPT Krakow. The company is the country's largest cigarette maker with 29 billion cigarettes sold in 1997; it claims a 32% share of the Polish cigarette market.
But cigarette producers aren't only fuming about the costs associated with switching to the new packaging, which they have been aware of for 18 months. They charge that the new warning will hit revenue for the rest of the year, Samulewicz said.
Philip Morris will likely lose zl. 6 million ($1.7 million) a month due to a drop in cross-border cigarette sales.
"This will definitely hit our sales in western provinces, where Germans who come here to buy cheaper cigarettes, faced with domestically produced Marlboro in an ugly package and nice packages with a tiny warning smuggled from Lithuania, will most surely choose the latter," Samulewicz added.
This amounts to discrimination against domestically produced cigarette brands, which lose their appeal when compared with cigarettes sold in the European Union (EU), the KSPT alleged.
"The warnings are ridiculously large, much larger than that of the European Union, where warnings do not exceed a tenth of the side," said Artur Dmochowski, president of the KSPT. "The new regulations hit domestic producers, and hit them big time."
Philip Morris said it has already seen this happen since it began introducing new packaging to comply with the law April 1. The company said May sales in Poland's four voivodships that share a border with Germany dropped to 57 million cigarettes compared with 110 million a year ago.
The largest drop was seen in the Zielona Gora voivodship, which reported sales of 8.4 million cigarettes this May, down 80% compared to a year ago.
And shops that sell cigarettes said that customers have already shown an aversion to the new packaging, asking for the old-style cigarettes.
"Clients specifically ask for packages that do not carry the larger warnings," said a woman working at a kiosk on plac Konstytucji last week. The kiosk worker, who did not want to be identified, said that even though she knew about the new regulations she still was left with 14 old packages.
"I don't think I will have any problems selling them," she added.
But the kiosk had better hope that a National Trade Inspectorate (PIH) employee does not come around. Under the new law, selling the old-style cigarettes can result in a fine for the retailer of up to zl. 25,000.
"But what prosecutor will threaten his career with a ridiculous accusation against a kiosk owner who dared sell a package of cigarettes, which were legally produced here and only had a smaller warning," KSPT's Dmochowski said.
The industry is especially sensitive to the effect of the packaging change because it has already suffered one revenue blow this year. In January the Finance Ministry increased obligatory fixed excise taxes on cigarettes by 19.6-29.5%.
The cigarette excise tax on more than 95.8 billion cigarettes produced in Poland last year brought the state treasury zl. 4.56 billion ($1.3 billion). But hiking the excise tax has so far failed to boost government revenue. According to the Finance Ministry, excise tax on cigarettes amounted to zl. 1.11 billion ($318 million) in the first quarter of this year, compared to zl. 1.05 billion ($328 million) in the same period last year.
And the industry said the inflow of money will most likely decrease with coming months, particularly when the increased excise tax and new packages take their combined toll.
"Only due to the raise in the excise tax, we expect our sales to drop by some 3% this year," Samulewicz said.
