High Demand Makes Ukraine Attractive to Global Tobacco Majors

UKRAINE

The Lviv Tobacco Factory, whose aggressive marketing techniques have attracted criticism from global tobacco manufacturers.

High Demand Makes Ukraine Attractive to Global Tobacco Majors

Prices in its local market are among the cheapest in all of Europe?

By Eugene Gerden, TI Russian Correspondent

Global tobacco producers are making moves toward strengthening their positions in the Ukrainian tobacco market. They are attracted by the recent change of power in the country and the existing high demand for tobacco products among the local customers.

Recent statements of producers and industry analysts suggest that in recent years, Ukraine has become one of the most attractive post-Soviet states for doing business for global tobacco majors, many of which were able to significantly increase their profits from the local market.

Favorable legislation One of the reasons for this was the liberal anti-tobacco legislation.

Although the excise tax on tobacco products has been regularly increasing in Ukraine since 2008, at present, prices in its local market are among the cheapest in the whole Europe.

According to Konstantin Krasovsky, head of the department of tobacco control of the Ukrainian Ministry of

Health, global tobacco producers have perfectly adapted to the realities of doing business in Ukrainian, implementing their pricing policies.

“This is mainly reflected by the gradual increase of prices for their products,” he says. “The companies simply calculated that an immediate increase of prices might force local customers to consider stop smoking. However, in the case of gradual increases, the growth of a final price may go unnoticed by the majority of customers.”

Decline in smokers The last year when a package of anti-tobacco laws was approved in Ukraine was 2012. At that time, the local parliament (Vekrkhovhnay Rada) imposed a ban on the advertising of cigarettes in the country. In addition, it decided to prohibit smoking in restaurants, and it obliged producers to place health warnings on cigarette packs. That resulted in the decline of the number of smoking people in the country.

However, the situation has changed in recent years, and there has been growth in demand for smoking in the country. That was partially due to efforts taken by global producers to more actively promote their products in the local market.

However, the situation has changed in recent years, and there has been growth in demand for smoking in the country. That was partially due to efforts taken by global producers to more actively promote their products in the local market.

According to a recent survey conducted by the Kiev International Institute of Sociology, about 42.2 percent of men and 9.4 percent of women regularly smoke in Ukraine at present. Analysts expect these figures may further grow in the next several years, as the demand for smoking in Ukraine remains stable.

E-Products Introduced According to Tatyana Andreeva, Ph.D. Medicine and one of the Ukrainian leading anti-tobacco activists, “In order to prevent Ukrainians from leaving off smoking, global majors have recently introduced new e-products to the market, which are positioned by them as ‘less harmful’ or helping to stop smoking.”

Andreeva has also said some producers used the same techniques in the U.S., without success.

“While this is not proven, the FDA had banned Philip Morris International in promoting iQOS to indicate that this product is less harmful. We believe a similar ban should be imposed in Ukraine.”

In the meantime, the Ukrainian Parliament and the local government are aware of the current weaknesses of the domestic anti-tobacco legislation and plan to strengthen it.

In the May, Parliament had already considered an anti-tobacco bill, which was supposed to introduce additional restrictions on the doing of tobacco business in Ukraine, such as placing of cigarettes on shop windows and stalls and the ban on smoking in the buildings of offices, enterprises, hotels, hostels and train stations.

In addition, the new law should have created conditions for the resuming of checks in restaurants and cafes into allegations of a breach of anti-tobacco legislation. Finally, the bill involved the introduction of a single penalty for smoking in the wrong place, up to UAH 340 (US$13.47).

A couple of months ago representatives of major global producers asked the Ukrainian government to raise the minimum sale price for cigarettes in the local market. According to their plans, the adoption of such initiative should have withdrawn local tobacco producers from the market.

Bill blocked Still, after its consideration in the Parliament, it was blocked, which became mainly due to strong opposition from the Ukrainian tobacco lobby.

In contrast to neighboring Russia, where the share of global majors in the local tobacco market is close to 100 percent, Ukraine still experiences some competition from local producers. As a rule, most of these companies operate in the low-priced segment of the market and can offer their products at prices significantly lower than those of global majors.

Photo: GBS Brand Solutions

The key? Price The price factor remains important for Ukraine, considering low purchasing power of local customers.

One producer, which in recent years has been able to seriously compete with global producers is the Lviv Tobacco Factory.

At present, sales of the company in the domestic market remain stable, despite a relatively limited range. In recent months, the business of the Lviv factory has been faced with a number of attacks, which, according to some local analysts, were mainly initiated by some of their global competitors and affiliated with them local corrupted officials.

For example, a couple of months ago representatives of major global producers asked the Ukrainian government to raise the minimum sale price for cigarettes in the local market. According to their plans, the adoption of such initiative should have withdrawn local tobacco producers from the market. However, this proposal was rejected by the government.