Smoking out the competition

Top tobacco firms rally behind an advertising ban that would jeopardize emerging brands

Lebanon’s days as a liberal haven for tobacco advertising may be numbered, in light of a petition signed by 10 MPs that urges the parliamentary health committee to outlaw all forms – above- and below-the-line – of tobacco advertising. However, established industry giants – such as Philip Morris, British American Tobacco and Japan Tobacco International, widely regarded as the ‘big three’ players in the global tobacco game – are fighting back as they seek to engineer a partial ban. They agree with outlawing tobacco advertising on television as part of their commitment to “responsible marketing” but stand accused of constructing a strategy that will harm emerging brands. If they get their way, the market leaders will be able to continue with almost all below-the-line activities and a handful of above-the-line ones (such as limited print and cinema advertising) to ensure a continued presence in the local market, while effectively curbing the challenge of those companies that rely on TV for successful brand building. “If you are losing market share to new competitors, the best way to counterattack is to say: let’s ban advertising so that you can use whatever awareness you already have in the market to try to increase your market share while preventing the others from becoming known to the consumers,” said an tobacco industry executive, who spoke on condition of anonymity. “It’s a sort of gentleman’s agreement, disguised as a responsible marketing campaign, which has been struck between key players in the industry to stop advertising on television.” He explained that the leading tobacco companies have lost a significant market share in recent years. “In the tobacco business, when you lose a 0.2% market share, heads roll. Imagine losing 1%, or 10%, or even 20%.” Five or six years ago, the ‘big three’ controlled about 90% of the market; now they make up less than 50%. They have lost about 20% to 22% market share to local cigarette brand Cedars, which used to have a share of only 2% to 3%. French cigarettes Gauloises and Gitanes have gained around 10% and Davidoff about 3% to 4%. In addition, a host of lesser-known, cheap brands, such as German-produced Three Stars – which sell at LL1,000 a pack – have made small but meaningful inroads. The solution? Cut off the supply of oxygen. “If you stop advertising, these people are going to reap the benefits,” concurred Joe Ayache, associate managing director of ad agency Impact BBDO.

However, even before there was talk of a tobacco advertising ban, industry leaders had begun to move into below-the-line activity to prop up their declining market shares. A few years ago, Philip Morris – which owns Marlboro – was spending less than 50% of its advertising budget below-the-line. That figure has since risen to more than 80%. Things are no different at British American Tobacco (BAT), another leading tobacco company with brands in the Lebanese market. “We are focusing our efforts on the point-of-purchase,” acknowledged Zeid Nadhim, BAT regional manager. He said BAT’s above-the-line ad expenditure had plummeted from about 75% a few years ago to less than 5% today.

“Tobacco advertisers have been affected by the economic situation and they don’t care about the reputation of the brand. This is why media advertising has dropped so drastically,” said Mounir Torbay, secretary-general of the World Federation of Advertisers’ Lebanon chapter. “They need the ‘push’ and not the ‘pull.’ They want people to buy more, to switch from one brand to another. This is very difficult to do through media advertising.”

Marketing executives of Lebanon’s the ‘big three’ insist they favor regulation for moral reasons. “The shift towards below-the-line advertising and our voluntary abstention from television advertising is definitely not driven by business reasons,” stated Elie Moukarzel, area manager for Kettaneh, which represents the marketing interests in Lebanon of leading cigarette manufacturers Philip Morris. “It is purely responsible marketing.” Continued below-the-line as well as various kinds of above-the-line advertising are not at odds with the ‘responsible marketing’ mantra. “We support restrictions on tobacco advertising but we don’t support a total ban. We believe below-the-line advertising should be preserved because this is where you can limit communication to adult smokers who have gone in to make their choice of brand,” said Bechara Baroudi of Marlboro Lebanon. Nadhim, however, believes that tobacco advertising should be permitted in various publications without a significant young readership.

But tobacco companies’ efforts to ruthlessly milk media advertising before any demise, and their determination to block the prohibition of almost all below-the-line, and some above-the-line advertising lend fuel to the suggestion that the ‘responsible marketing’ slogan, in Lebanon at least, is a façade.

“The people who are saying we should delay this, or never do it, are people who are trying to protect industries and their interests,” said Ghattas Khoury, a member of the parliamentary health committee seeking to implement a ban.

Industry efforts to delay and condition a ban are apparent in a May 9 Philip Morris document obtained by EXECUTIVE, entitled COMMENTS ON THE LAW PROPOSAL SEEKING TO BAN TOBACCO ADVERTISING IN ALL MEDIA IN LEBANON. The document says any law prohibiting tobacco advertising should contain a number of exceptions, including: · “Advertising in any publication that has at least 75% of its readership over 18 years of age.

· Outdoor advertising that is not closer than 100 meters from any point of the perimeter of a school attended by minors or in close proximity to playgrounds or other facilities frequented particularly by minors.

· Advertising in cinemas, when at least 75% of the audience is over 18 years of age.

· Communications to consumers at points-of-sale tobacco products.

· Tobacco product sponsorship until December 1, 2006.”

If implemented, these suggestions would conveniently ensure that companies like Philip Morris retain the means to market their products, while depriving emerging competition of their most important brand-building platform: television.

Khoury, who favors a total above- and below-the-line ban, is finding his position untenable. His foes include advertisers, advertising agencies, and MPs from South Lebanon’s tobacco farming heartland.

Some tobacco giants, ad agencies and advertisers argue that a complete, immediate ban is unsustainable for economic reasons. “If you deprive our ailing advertising industry of tobacco advertising expenditure, it will be a blow for an industry that is already struggling to survive,” said Torbay.

But Khoury said this was just a cynical business ploy. “They have played a very intelligent game here,” he said. “They are hammering us with the idea that we are kicking people out of jobs. But in fact they are motivated only by increasing sales,” he said. A current tobacco advertising ban draft law appears to accommodate the interests and views of Khoury’s foes. It does not call for an immediate or total ban, although above-the-line advertising would be completely banned as of January 1, 2006, as would the distribution of free promotional gifts. Below-the-line sponsorship of sports and cultural events would be prohibited starting from January 1, 2008 (allowing Marlboro to sponsor another three Lebanon rallies), while most other forms of below-the-line advertising would be tolerated.

Asked if it was likely that all below-the-line advertising would be banned in the near future, Torbay chuckled: “I don’t think that is a clear and present danger.” (BOX)

While alcohol does not face a ban on above-the-line advertising, distributors are under a different type of pressure. Hit by the current recession, they have been forced to cut costs and are shifting ad spend below-the-line, despite the potential harm this does to long-term brand image. “There has been a real shift towards promotional advertising,” acknowledged Carlo Vincenti, of Bacardi Breezer and Johnnie Walker distributors G. Vincenti & Sons. “This reflects the economic climate. The consumer no longer wants just his favorite brand. He wants it with a special offer. And for us, it is less expensive than any main media campaign.” Vincenti said his company’s below-the-line spend had risen from less than 15% a few years ago to 35%.

As a product of the depressed advertising market, there has also been a move within above-the-line alcohol and tobacco ad spending from television to outdoor, such as billboards – which are fashionable, easier to create and, most importantly, cheaper. The emergence over the last few years of competition-enhancing ready-to-drink (RTD) beverages, such as Bacardi Breezer and Smirnoff Ice, has increased overall alcohol ad spend in Lebanon but has also contributed to the rush to below-the-line spending. Smirnoff Ice and Bacardi Breezer control over 85% of the RTD market share.

“The market is growing and consumption of whisky is down because of the economic crisis,” said Hadi Kahhale, business manager at Fattal, which distributes Dewar’s, Jack Daniel’s, Absolut Vodka, Bombay Sapphire, and Kefraya (in which it has a share). “There is pressure on us to increase volume of sales, and one safe way to increase volume is through promotions.” The lion’s share of alcohol ad spend is now being funneled into in-store, point-of-sale activity, promotion and sponsorship by zealous marketing directors. Supermarket shelves are stacked with alcohol-related ‘special offers.’ “There has been a lot of sales pressure on the marketers, who cannot compromise on price. So they had to undertake promotions,” said Ayache.

The transferal of alcohol advertising spend to below the line has been hastened by intense inter-brand wars, particularly over whisky, which accounts for over 85% of spirits imports into Lebanon and 45% to 50% of spirits sales in the country. Over the last few years, above-the-line ad spend on whisky has decreased by more than 60%, from more than $10 million in 2001 to $4 million today. The battle is most passionate between Dewar’s – distributed by Fattal – and Johnny Walker – distributed by Diageo. Dropping whisky consumption rates have raised the stakes in the fight for market share. Between them, Johnnie Walker, Dewar’s, and William Lawson (distributed by Fattal) control over 80% of the whisky market share. Fattal has just spent $500,000 re-launching Dewar’s.

The below-the-line alcohol brand war is being fought primarily at “off-trade” locations, such as supermarkets, groceries and mini-markets, which account for 95% of sales, and 70% of below-the-line spend at Vincenti & Sons. The rest goes to “on-trade” locations such as hotel bars, restaurants and nightclubs.

Alcohol distributors say that although they know the practice is bad for long-term brand image they are compelled to follow a trend no one admits to initiating, but all blame on the changing demands of consumers financially sensitized by the country’s economic woes and the need to protect their revenues and market shares. “You have to observe what’s being done and you have to be a part of it,” said Vincenti. “It’s a vicious circle. Everyone’s doing it, so you have to do it.” He acknowledged that below-the-line spend should not exceed 20% over a year, although his company’s currently stands at 35%. The trend towards below-the-line alcohol and tobacco ad spending is mirrored in the advertising industry as a whole. In four years, total above-the-line advertising spend in Lebanon has dropped by almost 50%, from around $130 million. Alcohol- and tobacco-related advertising used to account for between 20% and 30% of total spend. It is now less than 10% – of which two thirds can be attributed to alcohol, and one third to tobacco.

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