The economy may be in bad shape, but consumers are still purchasing "affordable luxury" items, such as cigarettes. Jean Pierre de Coudray, managing director at West Indian Tobacco Company Ltd (Witco), pointed to its nine-month report released in November, which showed a profit after tax of $196 million, which represents a three per cent increase compared with the same period in 2009. De Coudray said the boom years are over and people have had to cut some of their more expensive habits, but there are some habits they will still spend money on.
"In T&T, we have had four or five very good years from 2003 to 2008. People developed certain habits and lifestyles that they got accustomed to. Then went things went south; in 2009 and 2010, people were more in tune with sacrificing the big ticket items, like a vacation in New York or a new car, but they would continue with the affordable luxuries. That's where we have been able to benefit from this mindset." He said they are seeing are more people moving up to more expensive brands and Witco's premium brands are doing well. "Because of the strength of our brands, our volumes are not as impacted as some of the fast moving consumer items on the market. We are seeing more and more people uptrading to our premium brand, Dunhill, which a lot of young professionals buy."
According to him, Dunhill has established a very strong presence in the market. "It's our strategy to go premium and bring value to our consumers. Du Maurier is still the number one brand in the market and, of course, it is a strong brand and very nationalistic. When you ask Trinis the top three of four brands that represent Trinidad, Du Maurier is always captured in that statement. Then, at the top, we have Dunhill, which is growing and this brand was launched in 2006. We've brought innovation to the market and the consumers have reacted very well to this." He pointed out that at the counter, Dunhill sells at $19 a pack while Du Maurier sells at $17 and Broadway at $16. Recently, Witco launched its Super Premium brand, which is the Dunhill Fine Cut, which sells at $23.
World markets impact price
Du Coudray said the demand for tobacco on the international markets has seen an increase, which led to a rise in prices. "For the last 18 months or so, it has been a commodity under pressure and demand has been higher than supply. In a situation like that, the price is going to go up. There has been an increase in raw material cost, especially with regard to plastics and marketing." This has led to them to raising prices at the counters for two consecutive years. "In 2009, we took a price increase to offset an increase in raw materials cost in the tobacco leaf and packaging materials. These costs continue to rise and, for this reason, there was another price increase a month ago. As a result, we have been able to offset an increase in cost."
He said consumers are aware production is impacted by what happens at a global level and they are also aware a lot of the commodities in the world are going up. "I don't think the increase came as a surprise to our consumers." As for the rest of the Caricom market, Du Coudray said T&T is the manufacturing centre for the region, but each country is responsible for its own distribution and marketing. He still believes that Witco, which employs about 200 in Trinidad, is the best market in the Caribbean. He said that 65 per cent of what Witco manufactures is exported to the rest of Caricom while the balance is sold locally.
According to Witco's nine-month report for 2010, its profit after-tax was $196 million. Compared to the same period for 2009, this represented a three per cent increase. This is all based on its sole manufactured product: cigarettes. "Because those markets are so dependent on tourism, because of the global economy, we are seeing decline in those markets. I think T&T's strength is that we are not dependent on tourism and we are a lot more diversified," he said.
Doing business In T&T
Doing business in T&T is "tough" in the middle of the current economic climate, Du Coudray said. He gave the example of the traditional costs, like labour, transportation and electricity. In recent times, security has been an additional cost. "We've had a couple incidents like last year when one of our vans was hijacked. It cost us a lot to do business. The cost is now more when our salesmen are on the road with cigarettes. That means more money in security, GPS and others things to protect our direct employees." Despite this, du Coudray believes T&T remains the manufacturing hub of the Caribbean. "I think the cost base in T&T is more competitive than Barbados, for example, whether it is in electricity costs and utility costs. We are the leaders in Caricom because we have economies of scale. We are one of the bigger islands." Du Coudray said T&T also being an energy producer makes doing business easier. "Having natural gas and oil locally is obviously going to be cheaper for us."
Economic impact
Despite high profit margins, he said the economy still poses challenges. "Of course, the economic decline is affecting us like all the other companies in the country. What we are seeing is because of the resilience of our brands and strength of our distribution. "Also, the investment we've made in the factory over the last five years has put us in a position where we have achieved productivity gains." Looking at ahead, he said things would be "tough." "I wouldn't say that we are optimistic. We are obviously very mindful of the history of the economic cycles and we are part of that. Next year, 2011, will be tough." Within these conditions, he believes that the same factors that made them successful in 2010 will ensure Witco's success in 2011. "We will maintain a very strong brand portfolio, a very comprehensive distribution system, continuous improvement in cutting costs in our factory and our most important asset is people. We have a very sound team on achieving our objectives."
Legislation
When the Tobacco Control Act legislation–which effectively banned smoking inside public buildings–was passed and implemented in February, this came as no surprise to Witco because of the planning it had started since the begging of the decade. He said as early as 2001, Witco started to cut back on advertising and limiting its advertising to only certain segments of the population. "We were already in line with certain points of the legislation. In other areas, we adjusted," he said. He complained that when similar legislation was passed in other countries, people were people given a "grace period," but when it was passed in T&T, it was implemented almost immediately. "It was today for tomorrow. There was a lot of confusion about what was possible and what wasn't. We had to help people understand the law but, months later, people are now comfortable with it."
