A proposed smoking ban in country would outlaw cigarette advertising and eventually limit tobacco use in public areas. The move could hurt Philip Morris International, a major player in the region.
Philip Morris International (PM) has become a major player in Russia, but a strict proposed smoking ban threatens to tar its business there.
Philip Morris is one of four big tobacco companies in Russia, with 26% of the market, and has been furiously lobbying against the proposed ban, but with no luck. A bill that bans cigarette advertising and limits smoking in restaurants and other areas is set to go to parliament on Nov. 1 for a vote early next year, The Wall Street Journal reports.
It’s a major cultural change for Russia, the world’s No. 2 market for cigarettes. Nearly 40% of Russians (and 60% of the men) smoke, The Journal reports, and half of the smokers go through at least a pack a day. Even though the U.S. has twice Russia’s population, Russia still goes through 20% more cigarettes a year.
You can buy a pack of Marlboros for about $2 in Russia.
The government began pushing for change after watching growing numbers of residents die from smoking-related diseases. Nearly 400,000 residents, including 23% of Russian men, die from the effects of smoking, and the Health Ministry estimates the habit’s economic damages are equal to about 6.3% of the gross domestic product, Bloomberg reports.
The bill would immediately ban all cigarette advertising. It would ban cigarette kiosk sales and smoking in public places by 2015. Separately, Russia’s Health Ministry wants to place fairly hefty new taxes on cigarettes, taxes that some analysts estimate could cut smoking by as much as 20% by 2015, Bloomberg reports.
Tobacco companies have been fighting the bill, hiring “very expensive lobbyists” to change government minds, one Moscow expert told Bloomberg. Japan Tobacco is the leader in Russia, with about 37% of the cigarette business, followed by Philip Morris with a 26% share,British American Tobacco (BTI) with 21% and Imperial Tobacco Group (ITYBY) with 9%.
The bill comes just as Philip Morris has seen business boom in Russia. In a July 19 earnings call, Philip Morris’ recently retired chief financial officer, Hermann Waldemer, said Russia was leading the company’s strong results. He said the Russian cigarette market may have grown in the first half of 2012 as the economy improved and foreign workers returned to construction jobs.
Philip Morris’ sales volume in Russia rose 8.7% in the second quarter, Waldemer said, as smokers traded up to the company’s brands. The company launched the smoother-tasting Marlboro ClearTaste in Russia in June and raised prices on its cigarettes in July.
Investors seem unconcerned about the impact of the smoking bill. Philip Morris shares have been on fire over the last year, rising to $92.08 Wednesday from the $66 range a year ago.