Tobacco Strategy Re~iev Team 2
The ninch meeting of the team sec up to review
thelstrategies for the-Group's
Tobacco activities was held on 5th November 1987.
Present: Hr. P. Sheehy, Mr. G.L. Dennis, Mr.
E.A.A. Bruell,
Mr. D.L. Slobom, Dr. R. Salter (Secretary).
Mr. B.P. Garra.ay was unable to attend the
meeciag.
Mr. A.L. Heard and Dr. R.E. Thornton attended for
items 1-7.
1. The minutes of the meeting held on 7th April
were agreed.
2. It was noted that:-
(a) The DIET plant in Berlin was to be mothballed
and would be sold after
the patents expired in September 1988.
It had been hoped that it mighc be sold to Souza
Cruz but owing to
Brazil's import restrictions this was
impracticable. It was now hoped
that it mighc be possible to arrange a sale to
China.
(b) The APEX development was proceeding but
progress was delayed pending
completion of inhalation toxicology tests. These
were expeczed to be
successful but had been held up by problems at the
testing laboratory.
(c) An offer had been made to the ocher
shareholders in Skandinarisk but
this had been rejec".ed and no further progress is
possible at present.
However, the offer has been left open and it may
be possible to re-open
negotiations at some time in the future if there
is a change of attitude
by any of the other shareholders.
(d) Good progress was being made in increasing
sales in the Japanese
market. Details of this were given in a brief
report which had been
circulated.
(e) It was still hoped that it might be possible
to invest in Turkey but
this project would not be progressed until after
the elections. In the
meantime, exports to the country were being
promoted and a trial order
for 500 cases of Barclay had been received.
(f) Progress on manufacturing rationalisation was
continuing and
negotiations were in hand with the Unions
regarding the closure of
Ahrensburg. Once these agreements were in place,
further changes would
be considered. The review by Mr. Slobom, of the
options for
manufacturing rationalisation in Europe would be
complete by the end of
the year. A special meeting would then be arranged
at which these
options could be evaluated.
(g) Progress in promoting a more rational view of
the effects of passive
smoking had been limited but it was hoped to
organise a conference on
low risk epidemiology in March 1989. In the
meancime, efforts to
influence public opinion towards a more objective
view would continue,
concentracing on providing reasoned criticism of
the work purporting to
link passive smoking with health problems. Mr.
Bruell also intended to
organise an internal Group seminar on the subject.
RhD/RJR. Smokeless Cigarette
3. The significance of the new 'smokeless'
cigarette developed by R.J. Reynolds
was discussed. It was noted that this was being
taken extremely seriously by
RJR who, in addition to investing in new
production equipment, had also
approached the Surgeon General to obtain his
reaction to the proposed
marketing of the product. This had apparently led
to advice that it should
be evaluated by the American Health Foundation.
Q-7-
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4. Mr. Heard believed that the design of the
product was such that the nicotine
was derived from the tobacco and hence the product
was likely to be
classified as a cigarette rather than as a drug.
He believed that the
product could have a major i.pact on the market
and that BAT should build up
research effort specifically aimed at competing
with this initiative.
5. Mr. Heard presented a paper proposing a
programme of basic research for the
BAT Group. similar in cost and content to the
programme presented last year.
However, he also suggested that, in addition to
this basic programme costing
&2 m in 1988, there should also be a supplementary
programme to provide a
competitive response to the RJR smokeless
cigarette. Initial estimates were
that this would cost a further Elm in 1988, E1.8m
in 1989, L2.7m in 1990 and
E2.5m in 1991.
6. It was suggested that the funding of the E3m
programme in 1988 should be
shared between the 'CAC' companies with the USA
providing E0.9m, the UK
L0.75m, Germany and Canada E0.57m each and
Australia E0.21m.
7. Both the research programme and the proposals
for its funding were accepted
as a reasonable basis on which to proceed. It was
also noted that the next
review of R&D would be in the autumn of 1988, at
which time a progress report
would be presented on the work related to the RJR
smokeless cigarette.
Barclay
S. Mr. Bruell reported continuing good progress
with Barclay in most European
countries. However, Germany continued to be an
exception.
It was intended that the Spanish monopoly would be
offered both this product
and Capri under licence, during Mr. Pritchard's
visit in December.
9. Mr. Bruell would also discuss with Mr.
Pritchard whether an approach should
be made to Gallahers, offering to licence the
product to them. Assuming
Mr. Pritchard agrees, Mr. Bruell would then sound
out Mr. Cameron to see
whether an approach would be welcomed by
Gallahers.
10. The Chairman reported the current view in the
USA which was that although
there was considerable goodwill in the Barclay
name, the credibility of the
actron filter offer would be difficult and
expensive to revive. Brown &
Williamson were no- likely to promote an
ultra-slim version of Barclay but
this would not be pursued until Capri had been
exploited to the full.
La~
11. Regarding Capri, the Chairman had already
reported to the Board on progress
in the USA, which continued to be encouraging.
12. Mr. Bruell reported that progress on launching
the brand in European markets
was up to schedule and, following trial shipments
in December, Capri would be
launched nationally in Belgium and Holland in
January 1988, using supplies
from Germany. In Germany itself, the brand had
been launched in Munich under
the name Caprice and early sales were up to
expectations. Elsewhere, the
only set back had been in Italy where the Mayor of
Capri was objecting to the
use of the name. The Germans believed that this
problem could be overcome by
using the name Caprice but Mr. Bruell believed
that the problem should be
faced directly and the arguments against the use
of the name should be opposed.
13. Mr. Dennis reported that Capri was to be
launched in Australia and the
Chairman again emphasised that he believed the
product should be sold at A
full or premium price.
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14. The Chairman asked Mr. Dennis to check on the
position in Canada and to
report back to him on this.
15. Mr. Bruell reported that the testing of the
special properties of Capri was
still in hand. Attempts were being made to obtain
agreement to a standard
test for sidestream smoke. In addition, the
development of a chromosome test
by, an external laboratory was also being
monitored as being potentially
useful.
16. The Chairman again emphasised the importance
of taking full advantage of the
ideas that have been developed in the USA for the
promotion of the brand.
Rationalised Leaf Buying
17. The paper by Mr. Bruell on.the rationalisation
of leaf buying for Europe was
noted. Commenting on the time period proposed for
integrating the buying
requirements of BATCF, the Chairman suggested that
the aim should be for
BATC7 to be is fully integrated by the end of the
1989 buying period, rather
than allowing 2-3 years for this to be completed.
EuroDean Tax Harmonisation
18. The progress report by Hr. Bruell was noted.
Commenting on the paper, the
Chairman thought that it was unrealistic to expect
immediate agreement on Tax
Harmonisation from those countries which would
suffer major changes in the
carket price and/or tax revenues from cigarettes.
While it was obviously necessary to continue to
push for the optimum system,
BATCo. would need to plan on the basis that only
the major countries were
likely to be amenable to either the Commission's
scheme or the modified
scheme proposed by BAT.
ReDresentation in Italy
19. It was noted that Brown & Williamson, RATCF,
RAT (UK & Export) and Henri
Wintermans had all expressed satisfaction with the
quality of service and
coverage of the Italian market provided by
Italtabacchi.
20. However, the Chairman was nor convinced that
the company provided the depth
of distribution that might be provided by an
alternative distributor. In
particular, he questioned whether the assessment
had been sufficiently wide
ranging, considering non-Tobacco as -ell as
Tobacco based companies as
alternative options.
21. Mr. Bruell agreed to reassess the options for
Italy during Mr. Pritchard's
visit at the end of the year, prior to visiting
Italy to assess the situation
at first hand, early in 1988.
Team ComDosicion
22. The Chairman informed the meeting that he was
considering changes to the
composition of the team to increase its
effectiveness through more direct
representation of Brown & Williamson, BATCF, and
possibly of the other major
Tobacco subsidiaries.
A paper would be prepared for the CPC and the team
would be informed in due
course 3f any changes that had been agreed.
RS/DJA
20 th November 1987
c-,
BAT Industries document for Province of British
Columbia 25 October 1999