Cheap smokes have Alberta gov't fuming
Mar wants Ottawa to close legal loophole that is allowing manufacturers to sell 'economy' cigarettes at $2 less per pack
The Edmonton Journal, August 21, 2003
EDMONTON - A flood of discounted cigarettes from Canada's major tobacco companies is hitting the shelves in Alberta, and the province's health minister wants it stopped.
Alberta raised tobacco taxes significantly last year and spent $11.7 million over the past 18 months in an apparently successful effort to reduce tobacco consumption. Sales are down 24 per cent and there are 44,000 fewer smokers in the province, according to Statistics Canada.
Now those gains are threatened by the emergence of tailor-made cigarettes sold at roll-your-own prices, including some brands that are $2 cheaper per package.
Alberta Health Minister Gary Mar says the move violates the intent, though not the letter, of the federal Tobacco Act.
"They've found a loophole, and efforts by the tobacco companies to lower their prices through loopholes in the legislation should be stopped," Mar said Thursday. "The most price-sensitive individuals are adolescents, so they are the ones most likely to be affected.
"The federal legislation needs to be changed and I'm sure that (Federal Health) Minister (Anne) McLellan will feel the same way."
A federal Health spokesman said there are no plans to change the act, however.
"We're confident we have one of the best tobacco reduction strategies in the world," said Alex Swann, a special assistant to McLellan, who is attending a two-day Liberal caucus retreat.
The Tobacco Act is only part of that strategy, Swann said. The goal is to reduce consumption, and statistics show it is working well, he said. If evidence emerged that price reductions are changing that trend, then measures would be taken, although not necessarily involving the act, he said.
'ECONOMY' CIGARETTES, NOT CASH REBATES
The act prohibits discounting by offering "cash rebates" for cigarettes. But Rothmans and Imperial Tobacco have found a way around that by reclassifying certain brands as economy or "value-for-money" and reintroducing them at much lower prices.
In Edmonton, that means about $2 less per pack. The cigarettes and packaging haven't changed, but the companies insist the move is not a sale or a "cash rebate" because the lower prices are not temporary.
Rothmans moved first in February, selling its Number 7 brand for less in Quebec and the Maritime provinces. The other companies followed, changing prices in Ontario a few months later and now finally in the West.
Edmonton retailers contacted by The Journal say they've seen an immediate market impact as many smokers switch to Number 7 and Peter Jackson.
"They're selling faster of course," said Francis Chung, manager of Epcor Centre Smoke Shop. "You can get 25 for the price of a pack of 20. People are switching to save money."
Al Somji, owner of two Golden Oak stores, said the change was swift as word spread among smokers.
"A number of customers are trying them out," he said. "Some have returned to their old brands but a majority are staying with them because of the price. Sales went up pretty big on Number 7, until the Peter Jacksons came in, and then some went over to it because it's about 30 cents cheaper a pack, at about $7.70 after taxes."
He said a typical regular brand would sell for around $9.50. Prices vary from store to store depending on how much the cigarettes are marked up.
JTI Macdonald has taken a different tack. The company has created two new economy brands, Legend and Studio, and is selling them through an exclusive marketing agreement with regional retailers. In Alberta, they can only be purchased at Mac's convenience stores.
Les Hagen, executive director of Action on Smoking and Health, calls the move a callous attempt by the companies to recruit teenagers and hold on to their shares of the dwindling smoking market.
"We know that price influences consumption, particularly with young people," Hagen said. "They know it and they're going after it."
He said the companies were badly hurt by recent stiff federal and provincial tax increases and they're willing to sacrifice some short-term profits to grow their industry.
"So they make a little less for a couple of years, or as long as it lasts," he said. "What's a little lost profit when you're going to recruit 15-year-olds for the next 40 years?"
Political action is required, he said.
"They're exploiting a loophole in the legislation. I think both the federal and provincial governments should act to stop it. They should ban discounting, repricing or whatever they choose to call it. There should be a set minimum price they can't go beneath and we shouldn't allow new brands at a lower price. Unfortunately, the tobacco industry has a throng of lawyers to find loopholes."
Rothmans Inc. spokesperson John McDonald said the company was only responding to consumer demand created by massive tax increases.
"I want to make it clear that this is not a limited time offer," he said. "It is not a discount. It's perfectly legal. This isn't the first time that anti-tobacco people have made these kinds of allegations that are entirely false."
McDonald and Christina Dona from Imperial Tobacco said their companies are competing with regional businesses, mostly on native reserves, that are producing economy priced tailor-made cigarettes.
"People are looking for a cheaper alternative," said Dona. "The value-for-money category has become very competitive. Some people call it a price war. We call it price competition."
Neal Mednick of JTI Macdonald challenged Hagen's contention that people start or quit smoking because of price. The major change when prices go up is that black marketing increases, he said, noting the recent seizure in Vancouver of $9.3 million worth of counterfeit cigarettes from China.
"Anyone who doesn't think there isn't a growing black market has their head in the sand," he said.
PRICE VERSUS TASTE
For some smokers, brand loyalty goes out the window for the sake of a couple of dollars.
"I've been smoking Player's for 20-some years and then, when they went up to $10, I decided I was going to quit," said Al Kaye, who works in the insurance industry.
"I tried several methods of quitting and it just didn't seem to work and I was just tired of paying $10 a pack. Then (Number 7) came along so I've been smoking these."
To Kaye, the nearly $2 savings was enough incentive to switch brands.
"A cigarette's a cigarette. I've been smoking for 30 years and my taste is probably so screwed up it doesn't matter anyways."
Adolf Seiler, another former Player's loyalist, said his motivation for switching brands was equally simple.
"Seven dollars and forty-eight cents, plus tax," he said, which is the cost of a pack of Number 7s.
Ran with fact box "Price versus taste", which has been appended to this story.
© Copyright 2003 Edmonton Journal