Pazorama Interview in Brazil with Peter Taylor and
Tc= Long of Souza Cruz Industria.
211 Take 1
PT hir Long, how important is the Brazilian market
in
world-wide terms?
TL Well, the Brazilian market in 1979 Was about
135
billion cigarettes which puts it slightly ahead of
the
LTK market. At the same time, of course, the
population
of 120 million in Brazil is something like two and
a
halt times the size of the UK so it is quite an
important'
mazket.
Is it a growing market?
TL It is a growing market, yeA.
PT 'Whit sort of opportunities does it give a
company like
So-:~a Cruz?
TL Well clearly to accompany the growth rate of
the market
which we have been quite successful in doing over
the
pas-. 10 years and of course to inevitably
increase our
maz,e't share, while we are doing that.
P11 Ec-.; important is Brazil to BAT?
TL I am not sure what percentage of profits it
accounts for.
0 ~ course you know that Souza Cruz is 75 per cent
owned
by BAT. The investment is very important in Brazil
in
that it is 40 per cent of total British investment
in
B:": z-; 1 .I think it is true to say that in
sales terms
Sc*:.Z; Cruz is now the biggest company in the BAT
Group.
B,-,-- prcfits, I am afraid I don't have that
figure.
PT Wh=- are the particular attractions to a
company like
So-.:za Cruz of the Brazilian market?
Well. we have been here a very long time. BAT came
he:-2 in 1913 and we have learned to live in the
Brazilian
e=viron.ment. Brazil is a very challenging
country, r
t*_,~zk it's a young country, it is a country that
is
mc--ing ahead very rapidly from an under-developed
state
in7o where I guess it is nowon the verge of
becoming a
de7eloped country. It very clearly has been very
a-67ractive to BAT and to Souza Cruz to be
associated
v- that sort of development and that sort of
growth.
PT H2_= the advent of your American competitors
had much effect
ir- the market place?
TL Well yes, I would say th.-t the advent of two
competitors ,
wha are very much first division stuff,has made
Souza
C~,z a much more efficient company to staft with,
and
so -,his has resulted in a much more competitive
si:uation in the market. AS 2 result of which, a
much
be:zer range of products and a better service has
been
offered to the consumer.
(_77
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November 1999


- 2 -
PT Do you welcome the competition?
TL Oh yes indeed, I think it tightens everybody
up. I
would hate to be in a monopoly situation.
PT What difference has their arrival made to Souza
Cruz?
TL I think in general, we have just had to become
a much
more efficient operator. In fact we have increased
our market share from 70 per cent to 83 per cent
in the face of very stern competition. We've
improved
our standards of management very substantially,
and I
believe we are a much better company as a result
of
competition.
PT Has their arrival affected your marketing and
adverti-
sing?
TL I think inevitably that sensible competition
will
affect ones own marketing strategy. They have, by
and
larte, not been successful in shooting at our
large
volumb brands. ..But of course they have been
looking
for segmentation in the market, where they could
pick
up some market shares penetration. Equally,
obviously,
we are not prepared to give our market share away
and
we are going to defend it.
PT How important is tobacco to the economy of
Brazil?
TL Well I think it has a very substantial
importance.
Firstly I could mention the amount of excise and
sales taxes
Souza Cruz paid last year, something in the order
of .
E500 n; which accounts for something like nine per
cent
of the total federal tax revenue, a very
bubstantiil figure.
Tobacco exports, $300 m last year of which Souza
Cruz
contributed $67 m Again, I think, in times. of
substantial
balance of payments problems a very significant
contribution to Brazil. I think also, one can look
at
the more nebulous areas of improvement of
management
standards which has come as a result of belonging
to a
large international group. I think one can look at
the
re-investment in tobacco and in other industries.
Job
creatior; a very substantial importance to the
economy.
There are a lot of people apart from the direct
employees
of the tobacco industry who are indirectly
connected.
We calculate them somewhere between two and a half
and
three million people who have some marginal
connection
and who benefit from the tobacco industry.
PT What are your relations with the Government
like?
TL Relations with the Government are extremely
good, we have
been here a long time as I said, and we are very
closely
integrated with Brazil and clearly, as the biggest
company
in the private sector in Brazil, we have very good
and
very close relations with the Government
BATCo document for Province of BritiSh Columbia 5
November 1999


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PT The World Health Organisation is trying to
discourage
the growing of tobacco in Third World countries,
is
:hat a campaign which is likely to have any impact
here in Brazil?
TL I wouldn't like to hazard a guess as to what
the
Government reaction would be to that campaign, but
I would say this, that if the campaign did meet
with
any success, I think it could have a very serious
impact
on the tobacco growing areas in the South of
Brazil.
We are dealing with, or the industry is dealing
with,
something like 100,000 small tobacco growers. I
believe.
that apart from offering them a cash crop which is
very important to their own balanced economy we
are
also encouraging the reversal of the urban drift
which
is becoming a very serious problem in Brazil. We
are
encouraging farmers and their families to remaia
on
the land offering them a cash crop, offering them
export opportunities for their produce,and so I
beiieve that any reduction, large-scale reduction,
in tobacco growing would have a very serious
i--pact
on these people.
PT Is this something that you have discussed with
the
C.overnment , what the World Health Organisation
say?
TL No it is not.
PT Is it something that you will discuss with the
Government?
TL Obviouslv there are circumstances in which I
would
discuss it with the Government, if I felt that the
Government was going to encourage a reduction in
tobacco
planting.
P11 But the Government is very heavily dependent
on tobacco
for its revenue isn't it? Therefore it is unlikely
to do
=uch about it.
TL Well again, it is very difficult for me to
presqppose
what the Government might do. But I would say
that, as
far as I am aware at the moment,the Government has
quite
a positive image of both the cigarette and the
tobacco
market.
PT It's on your side.
TL I think it believes that what the industry is
doing
is in the benefit of Brazil. It is very much in
line
with Brazilian objectives as far as balance of
payments
is concerned, in as far as Government revenue is
concerned, in as ftLr as employment opportunity is
concerned and as far as fixing the farmer in the
rural
ambience is concerned.
PT When I spoke to tobacco farmers about this
problem
and I asked them what would happen if they cculd
not
grow tobacco they said there would be no great
hardship
they'd simply,grow other crops.
Ur"
BATCo document for Province of BritiSh Columbia 5
November 1999


TL Well, I wonder how many tobacco farmers you
spoke to
on that. Our view is that thi!; in fact, would not
be
so easy. Our average tobacco farmer has about 20
acres of land and he devotes sozelhing slightly
less
than 10 per cent of that to growing tobacco. He
nas a
small balanced economy on his land. Tobacco is
essentially the cash crop and his other crops are
very largely food produce, either animal or
vegetable.
This balance is actively encouraged by our
agricultural
instructors who are going round in the fields
during
the growing and harvesting period. Reforestation
is
another activity which we encourage and I would
say t1ut
any disturbance of the balance between the cash
side and
the ,':roduce side of the farmers economy would,
in fact,
be detrimental to him,and he would find it very
difficult, I suspect, to substitute tobacco.
PT The farmers said that perhaps they wouldn't
make as
much money if they didn't grow tobacco but there
would be no great hardship or suffering.
TL Well of course it depends what particular crops
the
farmers would consider. Our researches show that
possibly the only suitable alternatives to the
particular soil that is used in tobacco farming
are fruit
where market conditions are very cyclical and very
difficult, or chickens which is a very highly
capitiLl
intensive industry which is dominated by three or
four
large companies. We certainly don't believe that,
on
the four or five acres which is devoted to tobacco
farmers on a typical tobacco farm yoi; could plant
the
large scale crops- such as rice, such as
soya,where you
need very large areas of land and mechanisation to
make it a profitable operation.
(212 7ake 1)
VT If the WHO's campaign were to be sticcedsful
aren't the
people who would lose in the long term you, and
not the
farmers?
T L I think one would try to estimate,to answer
that
question. the exteat of the effect that any WHO
camP~Lign
might have on the growing of tobacco. In my view
the
first market to suffer would be the export market
and
that =2xket as I have said is $300 m in 1979, so a
very important market to Brazil. Really to imagine
the
cigaretie industrv failing seriously short of raw
material one would have to postulate an overall
retrac-
tion in tobacco growing which would seem to be
very
unlikely.
PT Why?
TL Because of the value of tobacco as a crop to
the
farmers. Particularly bearing in mind the
structure
of the small farmers with his 20 acres and the
enormous
importance of the cash crop to him
PT You think that is of greater moment than the
possible
C:)
(-r.
Ur.
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(pause) health hazards of the product?
TL I think that the two questions are unrelated.
PT Why are some farmers trying to boycott your
company?
TL I think, to put that question in perspectivewe
weren't
talking about 2 boycott. We were talking about
something
less than 10 percent of the farmers in the Santa
Cruz
area who were considering witholding delivery of
tobacco in the hope of getting a higher price.
Now,
on the question of tobacco price, I think it is
imDortant first of all to understand cigarette
prices
are very strictly controlled in Braziland this
clearly
establishes an upper perameter for what the
industry
can pay for its raw materials and for its imputs.
Specifically on tobacco prices there is every year
a
very detailed cost examination done of farmers
costs,
and the price indicator that comes.out of that
cost
study is then negotiated between the industry,
between
the farmers association and in the presence of a
government representative. That cost study sees
the
total improvement of agricultural productivity
being
passed on to the farmer, at the same time the
industry
is providing without charge all agricultural
advisory
services that are given to the farmers. So it is
our view that the farmers are being paid a fair
price
for the Droduct.
IT But the chances of any boycott being successful
are
fairly remote because the farmers have to sell
their
crop to repay their debts. You know that you can't
beal. the farmers. Sorry. You know that the
farmers
can,t beat you.
TL Well it's not a game where you've got a winner
and loser
real.ly because the farmers we have built up over
the
50 yea-rs we have been planting tobacco, we've
built up
a very substantial relationship between the
industry
and the farmers. It is totally true to say that
there
is no legal obligation to the farmers to sell to
Souza Cruz or any particular company because there
is
no legally binding contract for them to do so. The
financing barely comes into the question. What of
course is more important is that tobacco is a
perishable
crop and,as under any free market
mechanism,produce
has to be sold. Clearly, therefore, the farmer I
would
imagine prefersto sell his crop than to just let
it stay
in the land.
PT Now I want to come on to advertising and
mar-Lieting.
What are the attractions of television
advertising?
TL Television is the only true national media in
Brazil,
so in terms of our industry it is an economic
att=tion
of impact and value for money.
C)
Un
U1
BATCo document for Province of British Columbia 5
November 1999


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PT Do most people have television?
L I don't know the statistics. I wouldn't imagine
that
most people have television. What I said by
a'truly
national media' is that most newspapers and
magazines
are produced on a regional basis. Whereas
television
does have a national coverage.
?T What percentage of your advertising budget is
used for
television-advertising?
Well I think you would have to be satisfied by my
saying a very substantial percentage. Because if I
talked about figures, that could be of some
commerical
value to competition, but it is a very substantial
total.
?T Would that be 70 per cent and more?
M It could be around that ball park, yes.
PT Why do you put all lour money into television?
Why is
television so important to you? Why can't you
spend
more money advertisirg In newspapers and magazines
or
be thev local ones?
Because clearly the monomic basis for advertising
is to
me.asure the value of impact per dollar spent, and
we believe that televisior6 at the moment, is the
most
satisfactory media for this.
?7 And television has more imnact?
Yes indeed.
77 In what way? What can you do on television
advertising
that you can't do on the streets or in newspapers?
-7-4 Well, I think, clearly visual impact is
always greater o n
tel-evi-sLon. You're a television man yourself,
I'm sure
you know the impact of television and at the
moment
I believe that this impact comes over much more
strongly
over the box than in newspapers.
:_7 What is the image of Hollywood?
T L The image of Hollywood is of a traditional
brand that
has been on the market for a very long time and
has
been re-designed during its lifetime 2S indeed
happens to
many brIands: It is 2 medium priced king size
filter
with a strong urban appeal which represents value
for
money.
7- Whv is it associated with glairour and success?
C=)
(j,
(-n
C711
BATCo document for Province of BritiSh Columbia 5
November 1999


- 7 -
The use of the word success really I think has a
double meaning. Our understanding of the use of
the
word success associated with Hollywood is that
Hollywood is a very successful brand, and it is to
that
we are referring when we use it.
You think that's the way the consumer sees it?
7 L I couldn't tell you.
P7 Is is likely that the consumer,reads it in
those terms?
TL I would have thought so, we talk fairly
frequently to
the press here and certainly I have Said on many
occasions and our Marketing Director has said on
many
occasions that Hollywood is the biggest brand in
Brazil.
It is one of the biggest ten brands in the world
and it
has been a very successful braHd.
Why do you associate Hollywood with glamour?
IL I hardly think, glamour is a very subjective
word really
and ...
PT Fast cars, dune buggies, surfing, are they not
glamourous?
T 1 Glamour as I say is fairly subjective approach
to the
subiect. Our marketing strategy really,and I think
per&aps to explain it better, one should say that
there
is a ve-ry broad ran,,e of price in Brazil. The
most
exmensive brand is something like three times
the'pried of
the cheapest brand, that is 2 fairly unusual
situation
in the cigarette market I believe. So our
marketing
policy 4__-~ in fact, to make a whole range of
price options
available to the consumer to suit his pocket.
With respect sir you haven2A answered my question.
Which was are not fast cars, surfing, dune buggies
involv-
ing young people attractive? Beautiful people
smoking
cigarettes.Is not that glamourous?
It could well appeal to the people who like
smoking
Holly,wood.
27 Young people.
7- Young people, I think again, one has to put
that in context.
?T Well sir, they are not Mums and Dads are they?
7 L. Well I think that if you allow me to put that
in the
context of Brazil being a young country, 60
percent
of the population are 25 or under here. So perhaps
they
are Mums and Dads, I don't know. But at all events
we
are dealing with a fairly young population
profile.
PT Do you think that those particular
advertisements that
I have referred to are not glamourous?
U_J
C)
C=)
Vi
BATCO document for Province of BritiSh Columbia 5
November 1999


- 8 -
TL I really can't subjectively measure glamour. I
think
they are effective and that is what we are trying
to
achieve.
PT Do you direct your advertising at young people?
TL No, we quite specifically do not. You probably
know
that Souza Cruz is largely instrumental in
establishing-
the self-regulatory advertising code and this we
adhere to very strictly. The main provisiorsof
that
advertising code are that we do not appear on the
television until 9 o'clock.
PT ... Until 9 o'clock.
TL ... Until 9 o'clock in the evening.
PT But I saw Hollywood advertisements at 7 o'clock
in
the evening.
TL I t~_,ink that you are referring to a*Xpecific
sponsorship
which is provided for in the regulatory code.
PT It was the tennis.
TL Yes, correct, which Souza Cruz is sponsoritng.
The
general rules are that cigarette advertising does
not
appear until 9 o'clock so we are adve-rtising to
an
adult audience. We do not use models who are under
21 years of age and so we are quite specifically
not adverti-
sing to young people.
PT Would you describe the people in your
advertisements as
not being young people?
TL I would describe them as being typical of a
broad segment
of the Brazilian population. Which I have said to
you
is 60 per cent under 25 and being allowed by the
code
as not being under 21 years of age.
(213 Take 1)
PT What do you get out of sponsorship?
TL It's of course very difficult to measure what
we get out
of sponsorship but our believe is that in fact,
spons orship has greater corporate connotation
than it
does any particular brand connotation. We beliive
for
instance that projecting the image of Souza Cruz
as an important Brazilian company is probably the
main benefit of sponsorship.
PT So what would you get out of sponsoring the
Davis Cup?
BATCO document for Province of BritiSh Columbia 5
November 1999


- 9 -
TL Well I believe that tennis is a game which is
groxing
in the public interest in Brazil, and I think that
Souza Cruz would develop its favourable image by
helping
to bring a programme to Brazil which is of growing
interest.
(213 Take.1)
PT What is the image of Advance?
TL Advance is 2 low-delivery cigarette and, in
fact', the
lowest delivery cigarette on the market, and it is
this
image that we are projecting together with the
technological input of Souza Cruz which was
developed in
Brazil.
PT Does Souza Cruz's future rest with Advance or
Hollywood?-
TL Well, I -would be very unhappy to think that
Souza
Cruz future depended on any one brand, or indeed
on any
one activity, because, as you knog we are not only
in
tobacco but in other activities as well. However,
if
you mean by your question do we see a developing
growth
in the low-delivery segment, I think that the
answer
is that we do expect that, and we will continue to
invest
heavily in that segment.
PT Do vou believe that cigarette smoking is
harmful to
heaith?
TL As you know I am not a medical man and
therefore I
cannot offer medical opinion. I would be
incompetent
to offer medical opinion on that question. I am of
course awareand my company is aware;Ithat there is
a very substantial controversy in this area, but I
am
also aware that a very substantial volume of
research
is being dedicated to this area in which the
industry
contributes quite sigmifcantly.
PT Are you saying you don't know?
TIL That is exactly what I am saying.
PT Despite all the medical evidence?
TL The- medical evidence as far as I am aware is
of a
statistical nature, and it i4 as you know,the
industry's
view that no evidence has been produced to
establish a
causal relationship between smoking and any of the
diseases with which it has been associated.
PT If you believed that smoking were harmful, or
if you
had been told that smoking were harmful to health,
would you continue to market your products in the
way that
you do?
5 B I'm not sure that Is one of the question areas
at -all.
That's right out of line with the question areas
so will
you cut that?
PT Okay cut the film.
(The film was cut).
C-D
BATCO document for Province of BritiSh Columbia 5
November 1999


(Off recond discussion follows)- 10 -
NB What was the question again?
PT Well it was a supplementary.
h1 B What was it addressing, what part of the
answer was it
addressing?
PT That you don't know. You've said that you don't
know
you simply don't know whether smoking is harmful
to
health. I'm saying to you if you did know, or if
you
had been told,or that you believed or whatever,
that
it were harmful to health,would you change the way
in
which you marketed your products. In other words
...
N3 It's a hypothetical question
TL That is what I was about to say.
PT I think it's a fair question. Because I
appreciate
your problems over Advance and low delivery
but,low tar
brands are gaining an increasing section of the
market,
certainly in the UK and certainly in America.,and
it may
be one way in which companies react,shall we
say,to
medical evidence,if you like,or to the
controversy. I
will but it no more specifically than that. All
I'm
saying to you is, if you were to be convinced, and
what you're saying is that you don't know,right?
... and
if you were to be convinced that cigarette smoking
were harmful would you change the manner in which
you
operated. Now, I mean how you answer that is up to
you,
but I v~ould have thought that the fact that you
are
laying stress on Advance,and other companies are
laying great
stress. like Philip Morris,on Merit,may in a way
be
some kl:nd of reflection of that, all right? I
asked the
question because you said that you don't know,and
I
am saying that if you did know ...
TL I certainly understand the question. I think
what I
would propose to say to that,if you would allow
the
question Nick, is that firstly
(interunts) ... allow the answer...
TL ... Oh well, allow the answer, is that it is a
hypothetical
question,and we really cannot base our marketing
policies
on hypothetical questions. Secondly,that as far as
Advance is concerned we have detected in the
market
a small consumer demand for low delivery brands
and we
have launched Advance to meet that demand. Any
future
change in the pattern of consumer demands,
obviously
we will try and go along with.
Are you satisfied with that answer
TL Yes.
NB Okay.
C)
C)
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November 1999


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PT The reason I asked the question is because you
said
you don't know. Now as a journalist I am almost
bound to ask you what if you did know, supposing
you
did knowI mean that is why.
TL Understood.
PT All right, okay?
NB You accept the answer?
PT I accept the answer, yes. The answer is up to
you.
N-3 Okay.
p,. The question is up to me, and I put it because
you say
you don't know. I ask the questiopyou give the
answer,okay?
NB Okay.
(214 Take 1) - (Recording resumed)
VT If you did believe, or you had been told, that
cigarette
smoking were harmful would you change the way in
which
you marketed your products?
TL I think I would say straightaway that that is a
hypothetical question, and really we cannot fix
our
marketing policies on hypothetical possibilities.
But
if I ca.-refer to the launch of Advance, ..~
Advance
was 1 11 ched because we detected a small consumer
demand
for a ow delivery cigarette . Clearly if we see
the
pattern of consumer demand changing then our
marketing
policies will be adjusted to meet that demand.
PT Is Advance a less hazardous cigarette?
TL You clearly use the word hazardous in a medical
sense and as I
have said before, I am not competent to give a
medical
answer to that. It is a low delivery cigarette.
Under
English classification it would be in the low tar
sagm-ent, and perhaps you would be interested to
know
that in fact 97 per cent of our sales are in the
middle
iar or less catego3les in Brazil.
PT Do you foresee a ban on television advertising?
TL No I don't, at the moment. I think that the
industry
has adopted a responsible attitude to television
advertising through the code which I have told you
about, and I believe that if the industry
continues to
act in tune withBrazilian soci2.1 development and
trends in a responsible fashion then, in fact,
there
will be no need for the imposition of such
restrictions.
Do you see any further restrictions being imposed
upon C_4
marketing and advertising of your products in
Brazil?
LM
IT"
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November 1999


- 12 -
TL I believe again that it is a question of
responsible
behaviour.. Providing that the industry is acting
in
a way which is seen by the Government and by the
public
to be responsible,then I believe that these
restrictions
will be unnecessary.
PT How do you see Souza Cruz's future?
TL Well, Souza Cruz has been here a long time and
it has
been a successstory as part of the BAT Group.
Clearly,
in social and economic terms,the picture in Brazil
is changing and I believe that Souza Cruz will be
facing new challenges in the future. I believe
that
we shall be able to respond to those
challenges,and I
believe that Souza Cruz has a promising future in
terms
of its profitable membership of the BAT Group. I
think
that we have a very fine management. It is a good
company.It has a good tradition of working in
harmony
with the Brazilian authorities and I believe that
this
provides a very solid launching pad for our
continued
progress.
PT The future is bright.
TL The future is bright.
PT Thank you very much Sir.
The end of the interview.
PT Are you happy with that?
TL Yes
(215 Take 2) (For technical reasons some of PT's
questions were repeated)
PT How important is tobacco to the economy of
Brazil?
The World Health Organisation is trying to
discourage
the growing of tobacco in the Third World. Is that
ca=paign likely to have any impact here in Brazil?
PT All the farmers I spoke to said that if they
had to
stop growing tobaccothere would be no great
problem.
They would just grow something else.
PT If that were to happen wouldn't the real losers
in
the long term be you,Souza Cruz,and not the
farmers?
PT What are the attractions of television
advertising?
c::>
(-r-
BATCo document for Province of BritiSh Columbia 5
November 1999


- 13 -
PT Why do you associate Hollywood with glamour and
success?
PT Do you believe that cigarette smoking is
harmful to
health?
PT If you were to believe that cigarettes were
harmful,
or if you had been told that they were, would Siou
change the w2y that you market the product?
NB The phrase you used was" convinced."
PT Okay. If you were to be convinced that
cigarettes were
harmful to health. or if you had been told that
they
were . would you change the way in which you
market
your products?
PT Is Advance a less hazardous cigarette?
PT Do you foresee a ban on television advertising?
PT Do you foresee further restrictions on the way
in
which you advertise and market your products?
(The film was cut)
PT Now you will find that those were not exactly
what
I asked word for word. Right? Because 'when you do
reverses you don't memorise every single word
because
then they're not natural and theytre difficult
enough
to do anyway. Okay, so that means that they are
not
word fo- word but they are essentially the
questions
that I asked.
Ln
Crl
L14
BATCO document for Province of BritiSh Columbia 5
November 1999