Marlboro Man Passes Japanese Cigarette Maker on Ride to Asia

Philip Morris has long associated its leading product--Marlboro cigarettes--with the craggy cowboy who thrives in the Western frontier.

Today--faced with restricted marketing in the United States, growing anti-smoking sentiment and declining domestic consumption--tobacco companies such as Philip Morris are turning increasingly to less restrictive commercial frontiers in Japan and Taiwan. As a result, the Marlboro man is beginning to round up larger sales in the Far East.

Buoyed by recent accords that give U.S. tobacco companies greater access to Asian markets--trade agreements between the United States and the governments of Japan, Taiwan and South Korea--firms such as Philip Morris and R. J. Reynolds are fighting for shares of a changing tobacco market. Meanwhile, a Japanese tobacco company is launching a bid for a bigger portion of the U.S. market.

Segmented Market

“Western Europe is still the major (overseas) market for R. J. Reynolds,” said Ronald J. Field, spokesman for R. J. Reynolds Tobacco International. “We look to the major markets of the Far East for long-term growth. . . . The international market is highly competitive but it’s more open than it has been. The long-range prospects for a company like ours in the international arena are good.”

Explaining his optimism about Asian markets, Field cited recent sales figures. Reynolds’ sales in Asia soared last year--rising from 7 billion cigarettes in 1986 to 9.9 billion in 1987, an increase of 42%.

Of the U.S. tobacco companies operating in the Orient, Reynolds ranks second in sales to Philip Morris, the Asian sales leader. Salem cigarettes is the top-selling Asian brand for Reynolds, and Marlboro, the world’s top seller, is also the leading Philip Morris brand in the East.

The efforts of U.S. tobacco companies in Asia worries Japan Tobacco Inc., which ranks second only to Philip Morris in world cigarette sales. JTI, the leading cigarette company in Japan with its Mild Seven brand and a major force in the cigarette markets of Hong Kong, Thailand and Singapore, is now planning to boost its marketing efforts in the United States, according to Yuji Abe, president of Jatico, the company’s U.S. marketing arm.

“It takes time to make a name big,” Abe said. “We’re still in a segmented market. Gradually, we will step up the promotion.”

Jatico’s primary markets have been Los Angeles, San Francisco, New York, Chicago and Honolulu--cities with large Asian and Asian-American populations, Abe said. JTI, which established U.S. sales operations in 1983, has had relatively small sales volumes. However, the trend has been positive; the company sold 65.8 million cigarettes in 1985, 103.4 million in 1986 and 154 million in 1987.

Potential for Expansion

U.S. cigarette makers have been a lot more successful in Asia, where their sales rose a whopping 91% in 1987. In all, 34.5 billion U.S. cigarettes with a value of $657 million were sold in 1986, compared to 66 billion cigarettes and $1.24 billion in sales in 1987, according to the Agriculture Department.

Most of the increase is the direct result of trade pacts that eliminated costly tariffs and restrictions on the distribution of U.S. cigarettes, according to Verner Griese, an agricultural economist at the Agriculture Department. Griese said much of the growth can be traced to the 1986 agreement with Japan that eliminated a 20% tariff and made the price of U.S. cigarettes comparable to domestic Japanese brands.

Previously, U.S. cigarettes sold for about 20 to 25% more than domestic brands in Japan. Since the agreement, the U.S. companies’ share of the Japanese cigarette market share has gone from about 3% to 10%, with Philip Morris, the U.S. leader in Asia, holding about 58% of that.

“I think Asia has the biggest potential for expansion,” Griese said. “U.S. cigarette sales (in Japan) could well be between 12% and 15% of the market by the end of the year or by sometime next year.”

Japan, where 60% of the adult men smoke, has been called a smokers’ paradise. Japanese cigarette packs carry only a mildly worded caution: “For your health, Avoid Smoking Too Much.” Cigarettes in Taiwan carry a similar message. Also, Japan has no laws mandating the establishment of no-smoking sections in public places such as restaurants.

However, Japan has a small anti-smoking movement movement that is growing. Transportation companies have been most receptive to anti-smoking groups. Japan Air Lines reserves 50% of seats for nonsmokers on most domestic flights and bans smoking on some short flights. In addition, Japan subway authorities banned smoking at all stations earlier this year. Smoking is also banned in some short-distance commuter train routes.

But with about 33 million smokers and a consumption level of about 300 billion cigarettes annually, Japan is an alluring commercial target, according to Donald Harris, spokesman for Philip Morris International. Harris said: “It’s the second largest (cigarette) market in the non-communist world . . . and almost everyone has disposable income, so consumer products like cigarettes are available to people. In that sense, it is quite important.”

Harris said Philip Morris and other U.S. tobacco companies boosted their advertising budgets significantly in an attempt to capture portions of the Japanese market. Unlike the United States, cigarette advertising is allowed on television in Japan, and Philip Morris, R. J. Reynolds and other U.S. tobacco companies have used the medium to tout their products.

Big in Taiwan

Televised cigarette ads are not allowed in Taiwan, but U.S. tobacco companies are now spending more money in other media to reach the Taiwanese. Before tariffs and restrictions were lifted in January last year, there was little reason to advertise in Taiwan: U.S. cigarettes were more than three times as expensive as the domestic brands, and foreign cigarettes accounted for less than 1% of sales in Taiwan.

Cigarette advertising was a major point of contention in the landmark New Jersey trial in which a federal court jury last week found that Liggett Group wrongly implied cigarettes were safe in its advertising before 1966. Executives at major U.S. tobacco companies with marketing operations in Asia said the verdict has no bearing or affect on their plans for advertising abroad.

Foreign cigarettes now hold about 18% of the Taiwanese market and U.S. tobacco companies have about 15%. In all, U.S. cigarette sales rose from 4 million in 1986 to 119 million in 1987--proof that there was a demand for U.S. products and evidence that the U.S. government effort to eliminate Taiwanese tariffs was justified, according to Harris.

However, the U.S. government role in opening Asian markets to more cigarette trade is a cause of concern for the American Lung Assn. and other health organizations. The association’s board of directors has approved a resolution asking the federal trade representative to exclude cigarettes from the list of trade negotiation items.

Cigarette advertising by large U.S. companies in Asia can unduly influence potential cigarette customers abroad because “they often do not get information on why they should not smoke,” said Michele Kling, a spokeswoman for the lung association’s national office in New York.

“What we’re most upset about is that federal officials and elected officials are acting as marketers for the tobacco industry,” she said.

Not Promoting Product

However, Gary Holmes, a spokesman for the Office of the U.S. Trade Representative, said such negotiations do not make the U.S. government a proponent of smoking.

“We have a responsibility to represent all U.S. industries and companies abroad,” said Holmes. “We’re not promoting cigarettes or anything like that.”

Japanese cigarette makers, on the other hand, plan to make a bigger promotional push. Jatico currently advertises in only two markets--Los Angeles and San Francisco. About half of JTI’s customers in the United States are of Japanese descent, said Abe, who expressed interest in expanding his marketing activities and customer base.

Major Push in U.S.

With less than 1% of the U.S. market, Jatico’s initial goals are modest--”more than 1%,” is the target, Abe said. Jatico may reach that goal by focusing its promotion efforts on the Mild Seven brand and by emphasizing the “quality” of the cigarette, which has a tobacco mixture that includes some U.S.-grown tobacco leaf, Abe said.

“U.S. companies are making massive efforts to increase exports to Japan and Taiwan,” Abe noted, “so naturally, Japan Tobacco has to change its policy. . . . Considering our position in the world market, we have to step out of our homeland and go into international markets just as the U.S. companies are doing.”