Western Tobacco Hits Jackpot With Patriotism

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The lines separating foreign and domestic cigarettes blur on closer inspection. The most popular Russian labels are actually produced by Western companies. At the same time, most foreign brands sold on the domestic market were made locally.

The confusion over cigarettes nationality is intentional. Western tobacco manufacturers have purposely taken on Russian trademarks whose names appeal to consumers patriotism and low prices to their wallets.

The nations leading cigarette brands in the second quarter of 2000 were Prima, Pyotr I and Yava Zolotaya. COMCON market research agency puts their market shares at 25 percent, 21.4 percent and 21 percent, respectively.

All three Russian-sounding brands are owned by Western tobacco companies. Thirty-year-old Prima is produced at the Liggett-Ducat cigarette factory, which British company Gallaher Group PLC purchased last August. U.S. tobacco giant RJ Reynolds produces Pyotr I. Yava Zolotaya, named after the old Soviet brand Yava, has been produced by British-American Tobacco since 1997.

U.S. tobacco corporations have invested a total of $2.5 billion dollars in domestic production, Expert magazine reported last month. The heavy investment is not surprising given that Russias tobacco market is the fourth-largest in the world.

Masha Vakatova, public relations director of market research firm COMCON, said Russian name brands moved to market dominance following the 1998 financial crisis.

"One of the trends [that emerged from the crisis] was the switch to local brands or brands with Russian names," she said. "The companies that picked up on this trend of awakening national pride and exploited it succeeded in occupying whole segments of the market."

Immediately before the crisis, American brands L&M and Marlboro led the market with respective shares of 35.5 percent and 29.8 percent, according to surveys conducted by COMCON. But after August 1998, the popularity of American brands plummeted, and in the first quarter of 1999, Prima lead the market with 29.91 percent, followed by Pyotr I with 25 percent.

Marlboros market share fell steadily, from 17 percent in the first quarter of 1999 to 11 percent in the second quarter of 2000.



A survey conducted by independent research center Romir in December 1999 suggests that price was also a strong motivating factor for Russian smokers to change their brands after the 1998 crisis.

Cigarette brands with Russian names cost several times less than the best-known Western brands. Prima sells for only 2.5 rubles a pack, which is much less than Western brands Marlboros cost from 21 rubles to 30 rubles a pack.

RJ Reynolds and BAT were able to begin producing cheaper brands, like Pyotr I and Yava Zolotaya, because they launched operating factories in the Russian cities of Krasnodar and St. Petersburg.

The range of Western cigarette brands offered in Russia will likely increase as more companies move their production to Russia.

Expert magazine reported that American tobacco giants have moved their production facilities to Russia and other countries in reaction to mounting costs from U.S. lawsuits brought on by sick smokers demands for compensation. Diminishing profitability has compelled Philip Morris, RJ Reynolds and Brown & Williamson to build factories in countries where taxes and production costs are considerably lower than in the United States.

In 1999, Philip Morris established Marlboro production facilities in the Leningrad region. According to Philip Morris, 95 percent of the Marlboros sold in Russia are produced by plants in this country. Data from Business Analytica indicates that Marlboros produced in Russia cost 10 percent less than imported Marlboros.

There is some question whether the quality of Russian-made and American-made Marlboros is the same. Many smokers, who have sampled both Russian and U.S.-produced Marlboros, say the Russian variant is considerably stronger.

Samantha Davis, a British student studying in Russia, said Russian-produced Marlboros "give you more of a cough especially when you smoke too many. The taste can also vary depending on where you bought them from."

However, Pyotr Lidov, the Moscow spokesperson for Philip Morris, denied in an interview with the radio station Ekho Moskvy that Marlboros produced in Russia are inferior to those made in America. He claims that in taste tests conducted in the United States, Marlboro smokers were unable to distinguish between those cigarettes produced in the United States and those in Russia.

Western companies look set to continue their dominance over the domestic market. Kommersants Dengi magazine reported in October that light cigarettes represent the biggest fad to come to Russia in recent years.

Western tobacco makers monopolize the national market for light cigarettes, simply because local producers lack the technology to sufficiently lower the nicotine and tar content in their cigarettes. According to international classification, light cigarettes contain no more than 0.85 milligrams of nicotine and no more than 10 milligrams of tar.

Light cigarettes share of the Russian market is expected to rise to 40 percent in 2000 from 5.8 percent in 1999, according to Business Analytica. A total of 16 billion to 17 billion light cigarettes were sold in Russia in 1999. That figure is expected to rise to 29 billion cigarettes in 2000.