IT'S party time for smokers of foreign cigarettes in India. Those who are hooked on to Benson & Hedges and State Express 555 can now get the 'real stuff' from local paanwallas. And it will bear a made in India stamp. Last month, ITC officially launched Benson & Hedges, and 555 is likely to follow suit shortly.
The two premium international brands already have a strong following in the Indian market. While 555 is the highest selling foreign cigarette in the country with more than one lakh smokers patronising it, Benson & Hedges commands a loyalty base of over 20,000.
So far, these brands, owned by the UK-based BAT Industries—parent of ITC—have found their way into India through the smuggled goods route, a cause of great concern to ITC. "Smuggled cigarettes have cornered 20 per cent of the king-size premium segment estimated at Rs 1,130 crore and sales are booming," explains Kurush Grant, executive vice-president, ITC. Now, the company hopes to wean away these smokers from the grey market by making the cigarettes available through the official route.
"Customers find the brands on local shelves on an average of one-and-a-half years after production. By this time, the cigarettes have turned old and stale. But now smokers can be assured freshness as the products will be locally produced and the date of manufacturing will be clearly printed on each packet," says Amal Pramanik, group brand manager.
But industry sources point out that getting customers away from the grey market may prove to be tricky, as smugglers are unlikely to surrender their turf meekly. "Initially, there may even be a spurt in the grey market as paanshops and other distribution channels can stock smuggled 555 and B&H along with the legitimate products and pass them on to the less discerning buyers," explains Amit Sengupta, former CEO, Duncan Agro. The smugglers may also push other foreign brands not currently being made in India—Marlboro, Rothmans and Dunhill—that may spark off intense competition in the premium segment.
Also, pricing promises to be a challenge. Smugglers enjoy a pricing leeway of about Rs 30 per packet that they can play around with while pricing their ware. Taking this into account, ITC has launched Benson & Hedges at Rs 50 for a packet of 20, at par with the price of smuggled cigarettes.
Will ITC's gamble pay off? After all, several made-in-India foreign brands like Rothmans, Pall Mall and Chesterfield have had to bite the dust. But market sources point out that none of these brands had the marketing and distribution muscle of ITC, which dominates the Indian cigarette market and controls 80 per cent of the filter king segment with its four brands: India Kings, Classic, Gold Flake Kings and Wills Natural Lights. Hence, the comparison, ITC feels, is not appropriate.
And how does the ITC plan to ensure that the Indian-made cigarettes don't go the Scotch brands way, where buyers still prefer the smuggled stuff in spite of rampant adulteration? ITC is confident that the blame for the failure of Scotch brands lies squarely with the Scotch bottlers, who have been promoting their lesser known brands. "Better known brands such as Teachers are faring much better than the rest," points out Pramanik. "ITC is in no such danger, as it is promoting the two top BAT brands," he adds.
Company officials point out that strict quality control will ensure that the two brands being made at its Bangalore factory do not deviate in any way from the standards of the international product. "All ingredients such as tobacco, paper, filters, and packaging are being sourced from the same suppliers that service BAT products," elaborates Pramanik.
Also, as back-up, ITC has entered into a long-term licence agreement with BAT for the two brands that will give it the resources to cover the huge promotional costs for establishing them. According to the 1996-97 balance sheet, ITC spent Rs 173 crore on advertising and promotional expenses, mainly on cigarettes. The promotion of the new brands is likely to raise advertisement spend considerably. Last week saw a mega promotional blitzkrieg with Shaggy and his band enthralling the Mumbai glitterati.
Much hype. But whether it really helps sell or just leaves smoke in the air remains to be seen.
