We use cookies to provide you with a better experience. If you continue to use this site, we'll assume you're happy with this. Alternatively, click here to find out how to manage these cookies

hide cookie message
RSS FeedRisk

‘Plain packaging’ should worry big tobacco, says Fitch

Measures proposed in NZ and adopted in Australia 'risky' for industry

Article comments

Plain cigarette packaging, of the type proposed this week by the New Zealand government and already adopted in Australia, could be particularly damaging to manufacturers' pricing power if replicated in other countries, according to Fitch Ratings.

The ratings agency said plain packaging legislation is the "biggest regulatory risk" facing the tobacco industry even though it is still unclear how many other countries may follow suit.

"We believe the biggest impact if bigger tobacco markets were to successfully introduce similar rules would be on manufacturers that sell premium and above-premium cigarette brands. As all tobacco packages would look the same, their added appeal would fade, potentially reducing the price difference between brands," said Giulio Lombardi, senior director of corporate, at Fitch Ratings.

Loss of pricing power would be particularly concerning for tobacco companies as it is the ability to increase prices that has allowed them to maintain growth despite falling volumes. "Another effect that is difficult to predict is the risk of a widespread pickup in illicit trade, as packages become more vulnerable to being forged," Lombardi added.

Fitch said any similar rules in major European markets would be likely to have the biggest impact on Philip Morris International, because its portfolio is skewed towards premium brands, and Imperial Tobacco, which has lower-priced brands but relies on Europe for a bigger overall proportion of sales.

The ratings agency noted that politicians in many European countries could be in favour of introducing plain packaging. But any attempt to do this would be met with multiple legal challenges similar to those being brought against Australia; the first country to implement rules of this type in December 2012.

The extent and speed with which other countries might follow is therefore unclear and would depend on the extent to which the courts or arbitration panels could see plain packaging as an infringement of companies' intellectual property or a breach of trade agreements.

However, Fitch noted that plain packaging rules are unlikely in the US in the short to medium term, after the success tobacco companies had in fighting a less severe challenge to intellectual property such as graphic warning labels.

"Any change is likely to be very slow and our ratings therefore only factor in expectations of falling pricing power for the relatively small Australian market. However, they do factor in other regulatory pressures that are more certain. These include the gradual extension of smoking and advertising restrictions and higher excise regimes in the developing markets of eastern Europe, Asia and Latin America," the agency added.

These pressures in emerging markets will be more than offset in the short term by the trend for consumers in these countries to move on to more expensive products and brands, Fitch concludes.



‘Plain packaging’ should worry big tobacco, says Fitch

Hidden risks in the supply chain

Hidden risks in the supply chain

An unforeseen disaster can halt production and lead to share price falls and reputational damagemore ..

Taylor Wimpey CFO warns against UK withdrawal of EU

The group FD said "barriers would go up" and that would have an impact on Taylor Wimpeymore ..

RBS fined for IT failures after £25m trading losses

Hong Kong regulator fines bank £450,000more ..

Bank of England plans new round of cyber tests for banks

The Bank is to focus on individual banks’ security systemsmore ..

Energy risk: How data is eating up all the energy

Any failure in energy supplies to data servers can result in severe consequencesmore ..

Why BYOD needs to be on every CFO’s agenda

The Software Alliance explains why BYOD can be a legal nightmare for businessesmore ..

Send to a friend

Email this article to a friend or colleague:

PLEASE NOTE: Your name is used only to let the recipient know who sent the story, and in case of transmission error. Both your name and the recipient's name and address will not be used for any other purpose.

In Depth
Do you have what it takes to become a non-executive?

Do you have what it takes to become a non-executive?

The benefits of board service for CFOs more ..

In Depth
How M&A teams can create value by challenging the CEO

How M&A teams can create value by challenging the CEO

A typical “hold” period of nine to 18 months can generate increased sale value more ..


* *