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. Last Updated: 07/27/2016

Draw, or Repulsion, of Russian-Made Smokes

ST. PETERSBURG -- A casual observer visiting the Portik outdoor cafe on Nevsky Prospekt might think it belonged to a U.S. tobacco company: Portik's tables are protected by Camel umbrellas and decorated with Camel ashtrays; smokers can choose only from RJR Reynolds' brand cigarettes such as, well, Camel.


The Camel paraphernalia was donated to Portik, said Valery Rudoi, the cafe manager. In return, RJR asked that the cafe sell only RJR cigarettes, he said. "The umbrellas are nice, but it really hasn't changed the business," he said.


International cigarette companies, under attack in the West over smoking-related health problems, have long looked to the East for their new markets. RJR, Philip Morris and Rothmans have all located manufacturing in St. Petersburg and in other parts of Russia.


One key marketing question for these cigarette manufacturers is whether consumers will remain biased against products made in Russia. In the past, Russian-made products have carried the stigma of shoddy quality.


Rothmans, which opens a new factory in St. Petersburg this month, made a point of testing that consumer perception, said Richard Moore, director of the company's local operations.


"We were concerned about consumer reaction. There's this myth that anything made in Russia must be bad," Moore said.


As it turned out, the consumer rejection didn't happen, Moore said. Smokers were more interested in the brand name then in the fine print saying the product was manufactured locally, he said. In fact, there was an increase in demand because production in Russia meant that the cigarettes produced were cheaper than those brought in from abroad.


British American Tobacco has also recently launched a new Russian-made brand, betting that smokers will buy Russian (See story, this page).


But James Brady of Deloitte & Touche, which has done marketing research for Rothmans' competitor RJR, said he thought the "Made in Russia" label might indeed turn off cigarette consumers.


"Western-made products sell for more and are sought out by the people who can pay for them," he said. "Consumers will look at the fine print. Hopefully, that impression will decline but consumers will have to be convinced. Right now, they don't believe the quality is as high."


Vasily Gorlov, general manager at the Polo marketing company in St. Petersburg, agreed. The perception that Russian-made products are different from imported products of the same name is true, he said.


The Camel cigarettes produced in Europe, Russia and the United States are all different, Gorlov maintained. RJR, which manufactures Camels, has also hired Gorlov's agency to push its locally manufactured brand Peter I; Gorlov said the Peter I's major selling point was that it was a mid-price cigarette, cheaper than foreign imports but much higher quality than Soviet-era brands.


As for his own choice, Gorlov smokes Gitanes: "I like the fact that they're made in France."


For Rothmans-Nevo -- Rothmans' Russian joint venture -- the first foray into locally manufactured brands turned into a well-publicized flop in June 1995, when the company launched a new cigarette brand, called Hermitage.


The name was chosen because "it means something to Russians," Arkady Smirnov, marketing and distribution manager of Rothmans-Nevo, said in an interview at the time. Rothmans-Nevo spent $600,000 in advertising and promotion for the product, testing the cigarettes with about 1,000 smokers.


Whether the name meant anything to smokers is unclear, but it certainly meant something to the State Hermitage Museum, which threatened to sue. The brand was quietly withdrawn.


More recently, Philip Morris Co. ran into problems with its Marlboro kiosks, which are prominently located on Nevsky Prospekt and in other prestigious regions of the city.


When they were established in 1992, the kiosks were intended to sell only Philip Morris cigarettes, and were both a marketing gimmick and an innovative answer to the difficulties of arranging distribution in post-Soviet Russia.


Now owned by the Baltika company, the Marlboro kiosk network has since widened its mission to take in other brand names. A Marlboro kiosk outside the Gostiny Dvor metro station, for example, sells not only Marlboro but also Rothmans' Dallas and Pall Mall cigarettes.


According to local business weekly Delovoi Peterburg, some Marlboro kiosks no longer even carry Marlboro.


Yury Galibov, external relations director for Philip Morris, said the distribution system for the Marlboro cigarette kiosks would be changed this year, but he would not elaborate.


In 1992, at the same time that Marlboro kiosks were introduced to St. Petersburg, the Marlboro man also made his appearance in metro stations and on billboards -- and at the time, only Lenin was more ubiquitous in public places.