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Tobacco’s last battlefield
Plain packaging could deal a fatal blow to the tobacco industry, says Alex Williams. It’s time to sell.
Over 50 years after the "Marlboro Man" was banned from British TV, new laws are being slapped on tobacco. After a court ruling last week, all cigarettes sold in the UK will now be in drab brown boxes, with their brand name in white letters. "The muddy hue of the box is the least appealing colour that researchers could find," says Paul McClean in the Financial Times.
BAT, Imperial Tobacco, Philip Morris and Japan Tobacco have all challenged the legislation, but it has been upheld by the High Court, bringing it into force immediately. Shops will have a year to shift existing stock.
Without the colourful boxes, tobacco firms fear that consumers will switch to contraband. The drab boxes could also deter new smokers. "Glitzy packaging lures children," says Dr Penny Woods, head of the British Lung Foundation, a view backed up by leaked memos from Philip Morris: "It is during the teenage years that the initial brand choice is made". Packaging is "essential" to the industry's "identity", says Jamie Doward in The Guardian. Plain packets are its "last battlefield".
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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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Hardly, says The Daily Telegraph. Britain is the second country to introduce the law, following Australia,where sales initially rose after the ban. The tobacco industry has shrugged off TV and billboard bans, which have shut down competition by making it impossible to launch new brands.
Insurance group AXA has called tobacco a "sunset industry", but "smokers keep reaching for the gaspers", says Jim Armitage in the Evening Standard. Sales in Africa and Asia are growing, while e-cigarettes are generating new growth.
One in six high-school students now "vape" in the US, says Businessweek, offering a gateway to harder products. At its factory in Southampton, where BAT used to make 35 billion cigarettes a year, "men in white coats" are now peering down test tubes, looking for the "next big thing" in vaping, says McClean. The total number of "nicotine users" is now growing for the first time in a decade.
But cigarette volumes are still contracting. Since 2000, the prevalence of UK smokers has dropped from 16% to 11%. The same is true for volumes worldwide at BAT, but the contraction has been hidden from investors by higher prices. If plain packets encourage smokers to downtrade, companies will be forced to compete on price and the contraction will spread to their income statements. Sell.
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