Tobacco StrateLT Review Team
The eleventh meting of the Tobacco Strategy Review Team was held on
20th March 1959.
Present: Mr. P. Sheehy, Mr. E.A.A. Bruall, Mr.'X-D." Bramli7y;"'
Mr. R.J. Pritchard, Mr. U. Herter, Hr. L.J. SaboLa a Silva,
Dr. R. Salter (Secretary)
Mr. H.P. FrLgoo, Dr. H. Erichson and Mr. P.J. Rombauc also
attended the meting.
1. The aLnutes of the meeting hold on 31st October 1988 were agreed.
2. It was noted that SAT (UX A Z). Brown 6 W1,11ismoon sad BATCF were each
selling independently Into Turkey and that there was also a separate
tuLtiative to Investigate the potential for an Investment In the country.
It was agreed that It would be advantageous for these efforts to be
pursued on & more co-ordLeated basis and Mr. gramley was asked to report
back an this. He was also asked to artangesonts for co-ordlastLag the
Group's efforts in respect of China and Thailand.
3. It was noted that further evaluation of the APEX, expanded tobacco
process had led to the conclusion that an ai-t;-rnitive approach using nab
Velocity DryLog would be likely to be more economic. It had been Intended
to cnaplate the toxicology testing of APEX before suspending development.
However, this would cost 190,000 and In view of the doubts about the
viability of the process. this expenditure could not now be justified. It
was therefore agreed that the toxicology tests should not go ahead.
4. The Chairman asked for a progress report an Xxtradod Tobacco to be
prepared for the next meeting.
S. Mr. Pritchard reported an the withdrawal of this RJR PMIU product.
brown & Willisason's market research had shown that the main objection to
the product by consusers was the poor taste. Although it was believed
that this might be overcome, a further objection was that the product was
too technical for consumers, requiring a butane lighter for ignition and
offering advantages chat were not fully apprecLated. An added problest was
that the product was difficult to dispose of after use and was not only
objectionable from an savLronwrLtal point of view but also contained
capsules that could be harmful to children. More fundanontally, It was
still not known whether the product would be classified by the FDA as a
drug delivery system. Although the product had been withdrawn, there was
still pressure an the FDA to rule on this and an adverse ruling would
virtually *Iiutnat* PREHIZR-typo products from the market.
6. Reporting on A11305, Mr. Pritchard said that further work had shown
that the RJR patemits were a more serious constraLat. than lied previously
been thought. There had also boon severe probleas in developing a
satisfactory prototype based on an alternative BAT system. As a result.
It had been decided to suspend the development sad to investigate
alternative systems, IncLuding catalytic reactions. A $1 *Lllloo
proSrame of basic research had been sat up at Southampton to pursue these
approaches.
7. The Chairman emphoalsed the importance of agreeing approprLst* guidelines
before embarking on this programs. using the best available marketing and
legal advice. toy requirements were that the product should have a
perceived boneffe (e.g. reduced sIdestrasm), and should not present
disposal problems aftev use. It was also essential that the product
should be classified as a cigarette rather then as a drug 4elLV*Vy system-
Mr. Pritchard was asked to report on the InternatLocal views on the
principles to be applied to the classification of PREMIER and similar 00
products. C>
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8. It vat noted that a product based an the GRZZWDOT development. using
TI tobacco was due to be test marketed In the USA In the 4th Quarter of
1989. Southampton were working to a similar timetable but not using Yl
tobacco. The Chairman asked Mr. Pritchard and Mr. BramLey to provide a
review of progress *a new product developments for the next meeting of the
to&=.
9. Mr. Bromley presented a report on the rationalisation of Leaf BuZins
In 3kTCo- It was noted that progress had been made in i-4-roving
co-operation with BATCF an buying and, more generally, in reducing stocks;
by transferring leaf from companies where there had been shortfalls
&Sailisc forecasts of demand and by moving stocks off balance sheets In
Europe through increasing holdings by merchants. However, there had been
less opportunity to do this outside Europe where companies war* more
dependent on local supplies. In addition, In some countries (including
Brazil) leaf stocks could be a hedge against inflation and might be
preferred to holding cash.
10. The Chairman omphasised the Importance of rebuilding the Group's financial
resources following the Farmers acquisition. Mr. Pritchard was asked to
sot up a study using Mr. Schaeabacker and Mr. Cabral to pcovido financial
advice on the optimum stocking and financing policies for leaf from the
USA and Brazil, taking Into account the need to ainimise the balance sheet
effect of these stocks but also beating In mind the need to meet the
operating requLroont to guarantee the availability of sufficient leaf of
the quality required for a satisfactory and product. Options to be
considered might be arrangements for Uniting the number of places where
core stocks are held and considering whether these eight be hold by
dealers. Also, whether arrangements might be made to process dealers'
stocks. Another issue to be considered would be the additional operating
costs that would be Incurred In achieving the desired balance sheet
effect. Mr. Pritchard was asked to provide an Interim report for the next
meting and Mr. Stanley was asked to consider what night be achieved in
those countries which are largely dependent on domestic leaf.
21. It was noted that BAZ=T Is continuing to progress in those markets
where It has been launched. However. the future of the product both in
these markets and In potential now markets such as Korea. will be
influenced by the outcome of the forthcoming ISO decision on whether or
not Cho current testing method is applicable to channel filter cigarettes.
Although an initial vote of th* participating countries was In favour of
excluding channel filtor cigarettes. the majority was Insufficient for the
exclusion to be introduced. Countries had been asked to consider the
question further and to report back. Indications at present are chat Cho
chacces of & decision to exclude channel filter cigarettes have receded
since the first vote. It was also noted that separate discussions with
Philip Morris on a test method which they would be prepared to support are
going well and the compromise method averaging reading* with blocked and
unblocked ventilation may be acceptable to them.
12. Despite these favourable developments, it was agreed that the consequences
of an adverse outcome are such that it is necessary to have contingency
plazo in place against the possibility that the 'ISO decision is
uu!svourable (e.g. consideration should be $Ivan now as to whether. If the
ISO decision resulted in Barclay being excluded from the Belgian market.
we should be prepared to contest this in the courts).
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13. 1: was noted thee CAPRI was continuing to make progress to the USA,
Japan and the Middle East. However, the response had been disappointing
In all European countries except Italy. Initial reactions to the
3-azillan launch, at the highest price level in limited markets in Rio and
Sao Paul*, had been favourable. The Chairman emphasised the importance of
c3ntinuing the efforts to penetrate those "rkets where success so far had
been limited; trying alternative promotions to gain acceptance;
concentrating particularly an the longer versions of the product and
promoting reduced sidestream as a socially acceptable feature.
14. Mr. Bramley reporc*d progress by the team set up under Mr. Brookes to
recommend how $ATCo- should deal with the challenges and opportunities
&rising from the European Single Market initiative. It was noted that
the paper circulated before the meeting gave background information only
and that Mr. Brookes' team was due to submit its first recommendations In
'uly.
Issues to be covered would include the most effective structure for
SATCo. in Europe, the potentleA. for marketing and production co-ordLuation
throughout the EEC and the optimum sourcing for exports out of Europe.
15. no Chairman suggested that the and object of the study should be to
determine how 3ATCo- could better satisfy Its European markets. It should
also identify the main areas of risk &rising from the projected changes.
He also suggested that while It is not expected that restructuring will be
achieved immediately, there should be an alm to have this completed within
two years. It was noted that there was some disquiet about the possible
implications of this restructuring but all thee could be said at present
vat that no decisions would be made pending completion of the study.
16. Mr. Bruall presented a review of R.J. Reynold's activities in gurope
It was noted that although the acquisition of theme interests could
strengthen the Group's existing position in Europe. there war* doubts as
to whether the main Camel brand was progressive. The legal position in
:he key German market would also need to be explored to assets potential
problems with the Cartel office. It was agreed thac the Information to
does vat not such as to justify active consideration of a potential
purchase of these activities. However, the Group should be In a position
to react rapidly if RJR's European interests were offered for sale or if
another company were to sake an offer for then. Mr. Bromley was asked to
decide with 4r. Pritchard and Mr. Harter whet additional information
should be obtained and by whom to determine:-
(a) The Likely legal position If SAT were to bid for some or all of
RJR's European interests.
(b) The possible synergistic Sales. the mechanism for obtaining these
sted the time period to gain a not benefit.
(c) The additional action necessary to stimulate enhanced growth.
17. Mr. Pritchard presented a review of the Group's cigarette exports. It
was noted that this was an interim report and that a further report would
be prepared for the next meeting of the team. A central issue for this
further report will be to determine the arc&n$emnts for exports which
will result In the optimum result for the Group In terms of profits and
the returns on the relevant Investments. Specific questions to be
considered will Include the optimum sourcing for exports to order to
provide the required quality; lovose-cost production; the optimum use of
surplus capacity and the arrangements for brand owners as well as
manufacturers co be respoosIble for justifying any investment required in
now capacity. The &Lm of the report should be to determine the
arrangement that would be most appropriate for the Group in the 1990's and
to recommend the optimum progranme of action to move cowards this.
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15. Mr. bramley presented a paper recoesendinS enhanced Involvement with the
QSSK in order to position the Group to take 4kdvsntaSt of potential
opportunities expected to arise from the *or* open regime In the country.
It was noted that the Group already exports to the Eastern Slat fro*
Germany and the USA but it was suggested that &AT was expanding sales more
slowly than competitors. However, It was also noted that these markets
are opening only slowly and there is a danger. therefore. that there might
be limited benefits to be S&Lnad from increased efforts in the market. It
was therefore agreed that unless there Is an official approach froa the
USSR Involving a major project, the current strategy of developing through
SATCY and SWIT is cho most appropriate line for the Group to follow.
19. Mr. Stanley presented a report, recommending criteria for @*letting
personnel for LoW.-company transfer and detailing post* which it
might be appr4rf c to fll In this way. It was agreed that the review
provided a Sood bass for extending chatis transfers. However, Ic was
suggested chat the criteria should be amended to extend the system to
cover personnel of all &$as rather than considering people above the
preferred age* of 25-35 or 40 only by exception. It was also suggested
that less emphasis should be placed on linSuisclc ability as a
qualification for a person to be considered for a transfer. It was noted
that transfer& would be initiated and managed by Individual companies but
It was asked that the personnel function at B.A.T Industries (Mr. Crosby)
should be kept Informed when novas are arranged.
20. It was suggested that the senior managers who had agreed the review report
should "at again to agree a mechanism for implementing the monsedations
(a.&. through mestings of the respective personnel managers and by
inceStatLon with succession planning). keeping B.A.T Industries informed
of progress.
21. Mr. IrsaLey presented the Compendium of 1214mdelogleol Studies.
containing abstracts of scientific papers domoostrating the anomalies and
Isconstatenclee In the published work an epidemiology. relating to the
allagad effects of smoking on health.
A summary of the Compendium had also now been prepared, entitled 'Smoking
and Health, the Unresolved Debace". It was proposed *.aat this document
should be made available for external discussions with politicians,
regulatory bodies, scientists, etc.
The Chairman asked that each company should consider the document to
datemLne:-
(a) Ulhather the summary compendium Is the beat document available to
present an objective view of this Issue.
(b) What us* should be made of Lt.
(c) What opposition it night arouse and the ways to which this might be
dealt with.
(d) Wh*cb*r the copyright can be protected (to avoid quotations out of r%J
context). CD
Whi Is doLaS this, each company should start to use the document in -@J
appropriate circumstances and should consider the justification for
translation Into other languages.
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22. Mr. 3razley also circulated an Internal strategy document for use as
background In preparing for public debate on environmental tobacco smoke.
and a further document ancitled "Environmental Tobacco Soak*: the Science"
which could also be made available for external use.
23. Following the meeting. Frofesmor ?*Instal* o- Yale presencod a general
review of the lialtations Of aplaeaL.Logy.
RSIWA
19th April 1939
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