‘Cigarette War’ Lights Up in Japan
An American cigarette maker says there is competition now for the first time in the Japanese tobacco market and that his firm intends to be a major participant. Edward W. Whittemore, chairman of American Brands, said his firm will price its cigarettes as low as possible, starting with the introduction April 1 of “super-low tar” Carlton Filter Kings.
The price per pack of 250 yen, or $1.43, will “just barely” generate a profit, according to Paul T. Clark, director of international sales for American Tobacco Co., an American Brands subsidiary.
Clark said retailers will be given a 10% margin of 25 yen a pack (14 cents), more than any other foreign firm has offered to date.
Whittemore said: “Cigarettes are going to be sold pretty low while we’re going through this shake-up period (to see) what brands are going to survive.”
In the aftermath of a series of reforms in Japan’s tobacco market last April, foreign firms combined, Clark said, “are looking at 5% to 8% of the market in five years.” A year ago, the firm’s executives had mentioned only the possibility of a 5% market share for imports. In 1985, foreign cigarettes accounted for only 2.5% of the $17-billion Japanese market.
Whittemore, winding up a six-stop tour of Asia this week, described the introduction of Carlton Filter Kings as a second step toward a goal of capturing 1% of cigarette sales here for American Tobacco Co. alone.
Although high by American standards, the $1.43-a-pack price will make Carlton Filter Kings 30 yen (17 cents) cheaper than most other foreign brands.
After domestic tobacco taxes are raised here May 1, they will sell for only 17 cents more than Mild Seven, the most popular Japanese brand. Mild Seven is produced by Japan’s only cigarette maker, Japan Tobacco Inc. Whittemore said his firm will hold the line on the price even after new taxes are imposed.
At present, Philip Morris, the No. 1 foreign firm in sales, is test marketing a new brand in the Fukuoka region at 220 yen ($1.26) a pack, the lowest price for any foreign brand and the same price for which Mild Seven will be sold after the May 1 tax increase.
Before the Japanese government announced a series of reforms last April 1, including transformation of the Japan Tobacco Monopoly into a nominally private corporation, foreign cigarettes sold for as much as 80 yen (46 cents, at the current exchange rate) more than comparable Japanese brands.
American Brands, which had $7.3 billion in world sales in 1985, established a Tokyo office only last year and initiated an effort to crack the Japanese market. It started test marketing Carlton 100s in the Tokyo region last October. Clark noted that last year’s reforms had opened access to all 260,000 of Japan’s tobacco shops for foreign cigarettes, compared to less than a tenth of that number earlier. Access “was the No. 1 issue, and that’s been solved,” he said. American Brands’ products now are being sold in about 9,000 outlets after only six months on the market, he said.
Clark praised the reforms that allow foreign cigarette firms to advertise freely, to do sampling and to conduct promotions, “things we couldn’t do before last April.” Both Clark and Whittemore, however, complained about a continuing ban on foreign firms manufacturing here and said a complicated system of tax collection had prevented American Tobacco from setting up its own distributorship. The firm has been forced to rely for distribution on a subsidiary of Japan Tobacco Inc., the former government monopoly.
“A similar situation in the United States would be if we had to distribute our products through Philip Morris or Reynolds,” Whittemore said.
Citing the manufacturing ban, taxes imposed on top of tariffs and other taxes, and distribution impediments, the U.S. trade representative’s office last Sept. 13 began an investigation of possible unfair trade in the Japanese tobacco market under Section 301 of the Fair Trade Act of 1974. Negotiations between the two governments are continuing on the complaint.
