The calm before the smoke storm: Myanmar’s changing tobacco industry

Myanmar’s tobacco market is set for a shakeup following the return this year of the world’s second largest cigarette manufacturer, British American Tobacco.

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Published in The Bangkok Post on 9 December 2013

Cigarettes are often sold individually in Myanmar - particularly at beer stations like this one as well as in tea shops.
Cigarettes are often sold individually in Myanmar – particularly at beer stations like this one as well as in tea shops.

Myanmar’s tobacco market is set for a shakeup following the return this year of the world’s second largest cigarette manufacturer, British American Tobacco, which entered into a joint partnership to locally manufacture its once ubiquitous London brand of cigarettes. However BAT faces an uneasy coexistence among a thriving black market of duty-free cigarettes and renewed efforts by the Ministry of Health to enforce existing anti-tobacco laws and bring new ones into effect.

Smoking rates in Myanmar are relatively high, among men at least. According to 2012 data from Myanmar Survey Research (MSR), 30 percent of males in the two largest cities, Yangon and Mandalay, are occasional or regular smokers. An additional 15 percent of urban males smoke the traditional, hand-rolled cigars, known as cheroots. MSR said that the chewing of betel nut is far more prevalent in rural areas – where 70 percent of Myanmar’s population of an estimated 60 million resides – than any other form of tobacco because of its low cost. Yet the study found that only 1 to 2 percent of urban women smoke either form of tobacco on a regular basis – however this may be starting to change.

According to a Yangon tobacco retailer with 30 years of experience in the trade and who spoke on condition of anonymity, 10 percent of his customers are now young Myanmar women.

“I’ve noticed a big increase [in the numbers of women buying cigarettes] lately, which may be due to the emergence of a nightclub scene in Yangon.”

Local and international brands aplenty on display
Local and international brands aplenty on display

The retailer stocks more than 100 brands of cigarettes, which he buys from pilots and cabin crew flying in from countries such as Thailand, The Philippines, Vietnam, Singapore and Indonesia. He sells major brands such as Marlboro and Benson and Hedges for less than $2 because each carton was purchased duty-free.

“Supermarkets are also involved in the black market trade of duty-free cigarettes,” he told Asia Focus.

Whether cigarettes are smuggled across Myanmar’s porous borders or flown in on duty-free allowances, the likes of BAT are well aware of how illicit trade damages their chances of success among price conscious consumers in Myanmar.

Rehan Baig, BAT’s managing director in Myanmar told Asia Focus, “Duty-free cigarettes are meant to be sold through the travel trade channel [but] they are sold in the domestic market through illicit channels. BAT is willing to work closely with government and industry stakeholders such as law enforcement agencies, customs officials and international organizations, such as the World Customs Organization, to counter illicit trade.”

The retailer said that cigarettes from Singapore are by far the most popular because the packets don’t contain graphic warnings about the effects of smoking. It seems BAT has done its homework well: London cigarettes, which are already being manufactured in Yangon, contain a small written warning in Myanmar along the side of its packets, which also states that a person must be over 18 to buy cigarettes.

Yangon resident Khin Thanda, 30, who has been smoking since she was in her mid-20s, told Asia Focus, “I’ve never once heard of anyone being asked to prove that they’re 18 when buying cigarettes.”

Stricter controls

Local tobacco competitors Red Ruby, Nine and Premium
Local tobacco competitors Red Ruby, Nine and Premium

Myanmar’s Ministry of Health is starting to get tough on the blasé attitude towards the dangers of smoking. Anti-smoking seminars are currently being planned to take place in schools and a new by-law about tobacco is being drafted. There is even talk that a ban on smoking in public areas, such as bars and restaurants, is on the cards.

An expatriate hotelier from one of Yangon’s busiest hotels told Asia Focus: “There have been rumours for some time that a smoking ban in public indoor areas will come into effect in the next six months or so. Expats in Yangon seem to be the heavy smoker types, but we get a lot of complaints from tourists – particularly Americans – who resent others smoking around them.”

Another hotelier said that although he’d not received any information via government channels, a report in a Myanmar language newspaper two weeks ago stated that preparations to enforce a smoking ban in public areas are underway.

“Sure, it will hurt business, but we’ll all be in the same boat,” added the expat hotelier, who is not authorised to speak to the media.

In theory at least, BAT would endorse such a move. Mr Baig said, “We support sensible regulations which are based on sound evidence. We believe, by working together, we can develop effective regulations which meet public health objectives, but not damage the livelihoods of farmers and people who are related to tobacco business.”

However Mr Baig stressed the need for stakeholders to be consulted before any new regulations come into effect.

The introduction of a smoking ban – in addition to the ban on advertising tobacco products already in place – would be in accordance with the World Health Organisation’s Framework Convention on Tobacco Control, which Myanmar signed up to several years ago. Until recently, implementing such laws was problematic, if not outright impossible, because tobacco production was monopolized by two military-run companies, the Union of Myanmar Economic Holdings (UMEHL) and Myanmar Economic Corporation (MEC). According to Marita Schimpl, head of marketing research at MSR, “It wasn’t until 2010 that other companies had the right to manufacture and distribute cigarettes.”

BAT’s links to UMEHL caused its downfall a decade ago: the company was forced to leave Myanmar on the request of the British government, following an investigation by Burma Campaign UK establishing it was linked to the military-backed UMEHL.

Mr Baig said that BAT selected its new local partner, I.M.U. Enterprise Ltd (which is part of Sein Wut Hmon Group) because it “brings considerable experience and expertise in distribution and trade marketing of consumer goods across Myanmar, and provides the infrastructure and capabilities required to build a sustainable business.”

A young girl preparing betel in downtown Yangon
A young girl preparing betel in downtown Yangon

Indeed, London cigarettes are already saturating the market and BAT may soon achieve its goal to knock local brand Red Ruby off the top spot in mid-range cigarette sales.

According to the editor-in-chief of Myanma Freedom Daily, Thiha Saw, who is also deputy chief of the Myanmar Journalists Association, “The real money has always been in mid-range brands. That’s still true today, although mid-range cigarette companies are no longer in the hands of drug-lords.”

In Myanmar, a mid-range brand costs less than a dollar, while low-end brands can cost as little as $0.25.

Unfortunately for BAT, it seems that despite its “exhaustive consumer research” to “understand the preferences of adult consumers” in Myanmar, the London brand hasn’t struck the right cord among Myanmar’s smokers, who have a strong leaning towards heavy cigarettes.

“London’s not selling well – customers are telling me they’re too light,” the retailer said.

 

1 comments on “The calm before the smoke storm: Myanmar’s changing tobacco industry”

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