Australasia Case Study Gt Group

8/19/2019 Australasia Case Study Gt Group

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Global Tobacco – AUSTRALIA, ASIA PACIFIC REGION (AASP) James Meino !olis

“The impact of the Plain Packaging Bill in Australia has had nil e ect into our sales”, said James Meinoupolis to the WH representati!e" “#f an$thing, despite our forecasts, sales ofour leader %rands &e%enham and 'resh, ha!e gro(n" Ho(e!er, illicit products from )hina,are slo(l$ starting to pick up”" After a $ear of the implementation of the Plain Packaging Billin Australia, James (as still asked all the time a%out the Bill" This time, it (as to the WHreps, (ho (anted to e*pand the contro!ersial Bill into other countries+ ne*t (eek, it (as asguest speaker at the &e%enham s -lo%al .teering Team /&-.T0 ne*t (eek" The Bill (asde1nitel$ the hottest topic in the industr$" Ho(e!er, the Bill (as not o!er" nl$ the 1rstphase had %een implemented" 2o( he needed to com%at gro(ing illicit trade, and therotating health (arning images on pack" He needed to manage the transition so thatconsumers did not think that their high 3ualit$ products had changed alongside the packchange" His %iggest challenge (as to ensure the high pro1t margins for the )ompan$" Hehad a (ell earned leadership of the industr$ /Ta%le 40, speciall$ in Australia and Japan, %ut ifthe Bill (as to further e*pand, he needed to control costs" But ho( (ould he do that in themarkets that did not allo( communication5

The Australia, Asia Pacific Region (AASP) The AA.P 6egion had al(a$s %een considered one of the star performers for -lo%al To%acco/-T0" The )ompan$ had gro(n its presence through the ac3uisition of local market7leading

To%acco 1rms, and (as slo(l$ consolidating its portfolio /Ta%le 40" #ts com%ination of marketsmade it one of the most %alanced 6egions, (ith mature highl$7pro1ta%le markets such asAustralia, .ingapore, and Mala$sia, gro(ing markets like Japan, 8ietnam and #ndonesia, astate7of7the7art research center in .ingapore and three factories reliant on cheapmanufacturing costs in Phillipines, 8ietnam and Thailand" The 6egion (as the secondlargest pro1t contri%utor to -T"

Ho(e!er, the de!eloped markets in the 6egion /Australia, Japan, .ingapore, 9orea0 (ere alsonotoriousl$ kno(n for %eing hea!$ handed (ith to%acco legislation" 'or e*ample, in the :; s,the$ had implemented ceilings on tar and nicotine deli!eries, (hich had led local consumersto prefer <ight and =ltralight products" #n some of the markets, e!en the so7called full >a!orproducts, had such lo( tar deli!eries /less than 4;mg0 that the$ (ould %e classi1ed as <ightsin other markets" To cater to local consumer s, -T s e*pertise on cigarette technolog$ (as atthe forefront" That is (h$ 'resh (as the &e%enham s <ights and =ltralights (ere the6egion s top selling .9=s /.tock 9eeping =nits0" The %lends that (ould (ork on <ights, didnot necessaril$ (ould (ork on higher deli!er$ products, as their taste could then %ecometoo harsh" Their %lend portfolio (as comple*" #f the$ could reduce or consolidate the num%erof %lends, their manufacturing costs could %e lo(ered and their pro1t targets achie!ed"

The Plain Packaging Bill



Australia s Plain Packaging Bill /Ta%le ?0 had come to a ect the 6egion s pro1t performance" The constant retooling of manufacturing to 1t the Bill s re3uirements had resulted in hugedrain of resources" .o had the engagement (ith Authorities and generic communication toconsumers /Ta%le @ Bill in!estment costs in Australia0" He had had to pull resources fromother markets such as Japan, 8ietnam and 9orea, and had also recei!ed funds from other6egions /The &.-T had contri%uted a signi1cant amount of resources to 1ght the Bill0" B$

the end of 2o!em%er, a ne( set of -raphic Health Warnings had to %e implemented" This(ould ha!e $et another impact to the 6egion s pro1ta%ilit$"

Ta%le ? Australia s Plain Packaging Bill e*ample

The WH (as considering adopting the Plain Packaging Bill as the minimum re3uirementacross all countries re3uesting funds to the organi ation" The total cost of engagement (iththe WH (as A=&CD;;,;;;" This (ould need to %e funded %$ the -lo%al teams"



The impact of the Bill (as contro!ersial" riginall$, it (as thought that !olumes for local%rands (ould decrease signi1cantl$" The forecast (as that the legal industr$ (ould half, andthat the !olume (ould >o( into illicit products" <uckil$ for -T, its t(o leading Brands/&e%enhams and 'resh0, had maintained their market share" =nfortunatel$, all their otherBrands had reduced their share" #t (as no( %elie!ed that in a dark market (here no

communication to consumers (as allo(ed, the leading, (ell esta%lished %rands (ouldcontinue their performance, %ut those 1ghting on price, (ould see their sales a ected" 'orthat reason, James (anted to further impro!e the %lends in its ke$ Brands" He consideredthat in a market (here packaging and communication (as restricted, the product had tospeak for itself" He had historic research results for alternate %lends /Ta%le D 6esearchresults0, and he %elie!ed that there impro!ed %lends, ho(e!er, at a higher cost" The issue of%lends (as contro!ersial" .ome %elie!ed that in a market as dark and litigious as Australia,the %est (as to go into a “milking” strateg$ the product (ill %ecome a commodit$, so lo(ermanufacturing costs %$ consolidating or lo(ering 3ualit$, as $ou cannot communicatean$(a$" An alternati!e (as to consolidate %lends across '', <ights and =ltralights" Ho(e!er,research indicated that using the same %lend across .9= s (as diEcult to achie!e"

He had recentl$ recei!ed the results of the -lo%al &e%enham s research stud$ /Ta%le F0,conducted in Australia and Japan" And he (as sure that the &-.T (ould (ant to mo!e fromB4G to M@D" He had agreed to this mo!e despite the upcoming packaging change" He (asnot a fan of changing t(o things at once, %ut it (as a compromise in e*change for furtherBrand support"

Ta%le F 6esearch results Australasia

6 -=<A6 =. 6. 2on =. 6.)ountr$ JapanPanel ''

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)o(=.B

44mg

M@D=.B

4;mg Test

B4G8ir

4;mg)ur

)o(=.B

44mg

/a0 /%0 /c0 /d0 /e0 /f0Base 4DD 4@I 4?F 4D4 4@@ 4@I

!erall accepta%ilit$ GG ?4a ?Ga ?D ?F ?D



.moothness ?4 @Dac ?? @G @K @F'la!ourful @:%c @4 ?G ?4 G: ?@e#rritation G: GG ?@ac 4: 4I GDde

nd of da$ aftertaste 4D 4@ GGa% 4K 4I G4dHard to dra( 4: 4K 4D 4D 4F [email protected] stream smoke 4D 4G 4? 4@ 4F 4?Burns fast 4D 4: 4F 4K 4I 4F

6 -=<A6 =. 6. 2on =. 6.)ountr$ JapanPanel <ights

M@D=.BFmg Test

B4G8ir

D"Dmg

)urre

nt

)o(=.BKmg

M@D=.BFmg Test

B4G8ir

D"Dmg

)ur

)o(=.BKmg

/a0 /%0 /c0 /d0 /e0 /f0Base 4D: 4@G 4F; 4?G 4@: 4D4

!erall accepta%ilit$ GG G@c 4: 4:e 4:e 4@

.moothness 4I GDac G; G4 GKdf 4I'la!ourful G4%c 4F 4K GGf 4: 4D#rritation 4@ 4D 4Ia% G4 4I G:de

nd of da$ aftertaste 4; I 44 4G 4? 44Hard to dra( : I 44 44 : 4G.ide stream smoke GGc GDc 4: G?f G4f 4KBurns fast 4D 4: 4K 4: 4I G4

L A letter to the right of a num%er denotes a statisticall$ signi1cant di erence at IDcon1dence le!el

After the meeting, he had discussed (ith his perations team and had %een informed thatacross Asian markets, there (as a “DD minimum local content re3uirement” for all to%accoproducts manufactured in Asia" The %lend used mainl$ .(iss to%acco that pro!ided itsheritage claim" Ho(e!er, to mo!e it to Asia, local lea!es (ould %e used" This (ould mean

that the on7pack print (ould need to transition from “Made in .(it erland” to “Made in NO/Asian )ountr$0”" )ould this possi%l$ ha!e an e ect on consumers5”

F"es# S$ee"in% Team Lea&e"s#i!He had recei!ed a phone call from .haun Tullidge, his former apprentice" He had not %eena%le to take the call as he had %een %us$ (ith the Packaging issues" .haun had mentionedthat it (as a%out 'resh" He kne( .haun from %efore" His former apprentice (ho had %eenpromoted to the post he had %een after, and .haun had claimed some of James %usinessideas as his" He (asn t sure if he could trust him again"

'resh (as the strongest %rand in AA.P, and the second largest in urope" Ho(e!er, it usedan riental %lend of to%acco, (hich (as more e*pensi!e than the =.B %lend that (as %eingused across the (orld (ith &e%enhams or 8irginia Blends used in all cheap products" Based

on 'resh s !olume sales in Asia /Ta%le K0, if the %rand also transitioned to a =.B %lend, themanufacturing cost per mille for &e%enham s (ould %e reduced %$ achie!ing economies of



scale" This in turn, (ould allo( rein!estment of manufacturing costs into marketing anddistri%ution acti!ities"

As simple as this sounded, the idea had its potential issues 40 With the upcoming packagingissues in Australia, the change (ould %e done completel$ (ith ero communication toconsumers" Would the change %e accepta%le5+ G0 Australia s !olume, one of the largest'resh markets, needed to change, %ut to launch it, it (ould need to 1t alongside a packagingchange" Traditionall$, changing to marketing mi* !aria%les at the same time (as not (elllooked on" ?0 Ho( (ould consumer s react to the %lend change5 #f the$ disliked it, could the$turn to illicit riental products5+ @0 riental %lends had not traditionall$ %een good tode!elop menthol products" 6esearch and de!elopment (as needed to the amount of=.&CGmillion" This (ould need to come from 'resh s glo%al %udget"

He needed a good night s sleep %efore %oarding the o!ernight >ight to <ondon" The -lo%alteam had re3uested the slides earlier" He had not had the time" He (ould need to organi ehis ideas and prepare the slide set on %oard"

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Australasia Case Study Gt Group