THE EAST EUROPEAN TOBACCO MARKET "is there for the taking - and it will be taken" by Western tobacco multinational corporations, says Roy Burry, senior vice president with the Wall Street firm Kidder Peabody. Burry and other analysts predict that within a few years, the massive East European demand for tobacco will be met entirely by Western companies, led by Philip Morris, R.J. Reynolds and British American Tobacco (BAT). With perhaps a couple exceptions, the state-owned monopolies which once supplied more than one half trillion cigarettes to the region annually will all be privatized and bought out by Western companies, producing licensed Western brands or shut down, they believe.
For the tobacco giants, it is a dream come true. The sudden opening of a huge market with consumers who are already ardent smokers combined with the dramatic deterioration, and, in some cases, collapse, of the enterprises which once met the market's demand has created a vacuum the Western multinationals have rushed to fill. Sir Patrick Sheehy, chair of BAT industries, told the Financial Times one year ago that because of the changes in Eastern Europe, as well as the opening of Asian markets, "These are the most exciting times I have seen in the tobacco industry in the last 40 years."
But the industry fantasy is a nightmare for health activists. East Europeans already suffer from a very high rate of smoking-related diseases due both to their high smoking rate and the high tar and nicotine content of the cigarettes they smoke. With the tobacco multinationals moving into the region and using sophisticated marketing techniques on a promotion-naive population, health activists fear the situation will only grow worse.
The health effects of smoking are poorly understood in Eastern Europe. The insufficient health warnings issued by the region's old governments may have actually encouraged smoking, according to some observers, because it made smoking appear to be an act of defiance, however small.
The tobacco multinationals understand this situation, and believe they can profit from East Europeans' ignorance. Their optimism about the region is predicated on East European citizens "not being well enough educated to have health" concerns about smoking, says Kelly Metcalf, a research associate with Sanford Bernstein, an investment management firm. Perhaps "fifty years from now, they will realize that it is bad for you, and consumption will drop then," she says. "Until then, [we] look for growth."
The multinationals move in
The tobacco multinationals are looking excitedly to Eastern Europe to fuel their expansion. Burry says Eastern Europe is "massively important" in terms of growth. New markets like Eastern Europe are of critical importance to the tobacco multinationals, because the tobacco market is mature in the United States and most industrialized countries, and the tobacco companies are struggling to stem declines in those countries' smoking rates.
Metcalf says industry analysts now expect to see the tobacco multinationals' East European sales increase 6 to 8 percent annually, a marked increase from expectations a couple years before, when analysts projected 4 to 5 percent growth. She expects that, within five years, East European sales will account for 15 percent of Philip Morris's sales and probably that much for R.J. Reynolds as well.
The multinational tobacco corporations have quickly moved to take over, or enter into joint venture or licensing agreements with, existing East European tobacco enterprises.
Determining exactly what sort of relationships the multinationals' will establish in Eastern Europe in the near-term is difficult because there is so much uncertainty about the region's future. One particularly acute problem delaying investments is the region's shortage of hard currency.
RJR sees Eastern Europe as a "very important ... area of opportunity," according to Brenda Follmer, director of public relations at R.J. Reynolds Tobacco International, but finds that it is still difficult to do business in the region. A previously announced Reynolds joint venture in Leningrad (now St. Petersburg) has fallen apart, she says. Another joint venture with Alma Ata Integrated Tobacco Works in Kazakhstan has an uncertain future. It was tied to the American Trade Consortium, a group which linked U.S. corporations with enterprises in the Soviet Union and which itself has an uncertain future. Darienne Dennis, Philip Morris manager of communications, says the situation in Eastern Europe is "so fluid we can't adequately comment" on it.
But the long-term picture seems more focused. East Europeans "will be smoking Marlboros at the end of the day," says Burry.
With the possible exception of Bulgaria , the world's second largest cigarette exporter (after the United States), Eastern Europe's former state-owned tobacco enterprises are relatively feeble and likely to be privatized, falling mostly, if not entirely, into the hands of the Western multinationals. As the East European economies collapsed, the cigarette industry deteriorated along with the rest of the region's manufacturing sector. Production and distribution systems broke down. Most countries' factories are equipped with old and decaying machinery, and many countries are unable to meet consumer demand.
The production crisis has been most severe in the former Soviet Union, where, in summer 1990, disgruntled smokers in many cities protested the shortage of available cigarettes. Moscow Radio labeled the protests in one city, where demonstrators occupied and barricaded the town center, "the tobacco rebellion." The protests led to the personal intervention of then-president Mikhail Gorbachev and a deal to import 20 billion Philip Morris and 14 billion R.J. Reynolds cigarettes.
Eastern Europe meets Madison Avenue
Tobacco already exacts a huge toll on the citizens of East European countries. According to Richard Peto, Alan Lopez and Claire Chollat-Traquet of the World Health Organization's (WHO) consultative group on statistical aspects of tobacco-related mortality, more than one-third of all deaths among middle-aged East European men in 1985 were due to tobacco. The rates were highest in Poland and the Soviet Union, where 40 percent of male middle-aged deaths were attributable to tobacco.
The high mortality rates are due to two factors: the high smoking rates, particularly among men (Poland has the fourth highest per capita smoking rate in the world); and the high tar content of most cigarettes produced in Eastern Europe.
Though Western cigarettes have lower levels of tar and nicotine, health advocates fear the widespread introduction of Western cigarettes will actually worsen the situation in Eastern Europe by increasing the number of cigarettes people smoke. The smoother taste of Western cigarettes may increase smokers' tobacco consumption, and lower levels of nicotine - the addictive component of cigarettes - may also prompt them to smoke more cigarettes. Of most concern, perhaps, is that, as Greg Connolly, director of the Massachusetts Office for Nonsmoking and Health and an expert on international tobacco issues, says, "For every milligram Philip Morris reduces tobacco content, it will bring in two milligrams of advertising."
The multinationals are experiencing little difficulty introducing advertising into the region, since many of the numerous restrictions formerly placed on tobacco advertisements in East European countries have been repealed or are poorly enforced.
Advertisements for the cigarettes made by the tobacco multinationals are mushrooming throughout the region. Witold Zatonski, head of the department of Cancer Control and Epidemiology at the Maria Sklodowska-Curie Memorial Cancer Center and Institute of Oncology in Warsaw, says, "The Marlboro Man is at every corner" in Poland. A similar situation prevails in Hungary. Michael Wood, chair of the International Union Against Cancer's Tobacco and Cancer Program, says that "in Budapest, literally every yards [a storefront] is done over as a Marlboro or Camel" advertisement. Wood reports that even the driver's cab on a bus commissioned for a WHO seminar in Budapest displayed a Marlboro ad.
Advertising, however, is just one major component of the fundamental "transformation of the market" that Connolly says the tobacco multinationals will impose on Eastern Europe. He points to the change to lower tar cigarettes, expansion of cigarette distribution systems and the introduction of promotions as other aspects of this transformation.
One insidious example of the promotions Connolly fears occurred in December 1991 in Hungary, where Philip Morris sponsored a rock concert at which women clad in red-and-white Marlboro outfits gave away free Marlboros. Those who smoked the cigarettes in front of the women received free Marlboro designer sunglasses.
Wood says the multinationals are pursuing marketing strategies with "absolutely no constraints." The companies are even skirting laws requiring health warnings on cigarette packaging, according to Zatonski. He says that Marlboros smuggled into Poland do not carry the required health warnings or the mandated listing of dangerous ingredients (i.e., tar and nicotine).
The net effect of the influx of Western brands and promotions will be an increase in demand for tobacco, health advocates agree. The replacement of "decaying state monopolies which could barely meet demand [with multinational corporations and their] sophisticated marketing will encourage the expansion of demand," contends Connolly. Zatonski states, "There is no question that, if [a company] promotes something or advertises something, consumption will go up," and cigarettes are certainly no exception to this rule.
Of particular concern to health activists is the effect the Westernization of the industry will have on consumption by women and young people. Smoking rates among women in Eastern Europe are much lower than among men, and anti-smoking forces believe the multinationals will target women, as they have done in the United States for at least two decades.
Children, the market segment where health activists would hope to break the smoking chain in Eastern Europe, may be particularly susceptible to multinationals' marketing techniques. The problem goes beyond the strategies the companies use to push tobacco to the young in the United States [see "Addicting the Young"]. "At the moment, young people [in Eastern Europe] are switched to Westernization," says Wood, "so the attraction is to [slickly promoted Western brands], not to the dull packaging of the state monopolies."
The growing influence and market penetration of the multinationals is just one of a series of obstacles facing East European health advocates who want to address the region's epidemic of tobacco-related disease.
The public attitude and openness to the multinationals is another. Connolly contrasts the situation in Eastern Europe with Asia, the other region of the world where multinationals are seeking to expand dramatically. In Asia, he says, there is fairly widespread resistance, based on both health concerns and nationalism, to the multinationals' efforts to enter the market and introduce new marketing techniques. In Eastern Europe, he says, "populist sentiment sees the Marlboro Man as a symbol of freedom and liberty, and power and wealth." The effort to communicate a public health message which contravenes that of the tobacco multinationals becomes that much more difficult.
Finally, health activists are underfunded and inexperienced. Government health ministries are making good-faith efforts, says Wood, but they are led by "brand new ministers who are extremely inexperienced" and operating on "very small budgets." The new government health officials cannot even adjust to their jobs by administering old programs. Old legislation was geared to control the old, state monopolies, Wood points out, and regulating the industry in its new form requires new legislation.
Poland, with probably the worst smoking problem in the region, is at the forefront of efforts to enact new tobacco controls. A bill which would ban all tobacco advertising has passed Poland's upper chamber and is now moving to consideration by the lower chamber. Passage of the law, though beneficial, will certainly not be a panacea. Wood says he is skeptical of the government's ability to enforce such a law. Metcalf of Sanford Bernstein says that market analysts do not pay attention to existing advertising bans and restrictions in Eastern Europe because they "have so little effect."
Non-governmental anti-smoking activities are also on the rise. Poland has had two smokeouts, modeled on the American Cancer Society's "Great American Smokeout." And in Central Europe, groups are forming to participate in the 1992 Columbus Day project, an event planned to mark the 500th anniversary of Columbus's voyage by symbolically returning tobacco, a plant native to the Americas, to the United States.
It seems unlikely, however, that activities like these, or even Poland's tobacco control legislation, will substantially interfere with the eastward march of the Marlboro Man and his colleagues.
Wood acknowledges he is pessimistic about the short-term prospects for tobacco- control legislation in East Europe, but expresses more hope about the long-term. For one thing, he says, international health lobbyists are now better organized than ever before, and they can provide information and advice to their colleagues in Eastern Europe. As new health ministries and non-governmental organizations get their feet on the ground, presumably they will be able to act on this information with ever more effect.
The desire of Poland, Hungary and the Czech and Slovak Republic to join the European Community (EC) will also encourage smoking controls. Gaining admittance will require that these countries bring their regulations in line with those of the EC, including a tobacco advertising ban expected to be approved shortly and other tobacco-control regulations, and that they enforce them.
In the meantime, Philip Morris, R.J. Reynolds, BAT and the other tobacco multinationals are likely to work to expand their foothold in the Eastern European market by any and all means, with deadly consequences of immense proportions. One of the few consolations for health activists will be, as Peto, Lopez and Chollat-Traquet of the WHO consultative group on statistical aspects of tobacco-related morbidity note, that, since so many East Europeans smoke, even a minor decrease in their smoking rates will have a dramatic impact and save many thousands of lives.