Examination of Witnesses (Questions 1040
- 1059)
THURSDAY 27 JANUARY 2000
MR MARTIN
BROUGHTON, MR
PETER WILSON,
MR GARETH
DAVIS, MR
DAVID DAVIES
AND DR
AXEL GIETZ
Mr Austin
1040. Mrs Wise has mentioned the issue of health
warnings and whether they are voluntary or not. Dr Gietz was actually
saying one of the drawbacks of banning advertising would be that
it would prevent his company giving information about a more healthy
product. Turning to the other witnesses who are here, it has been
clear to us from the evidence we have from the advertisers that
the last thing that you want to do in your advertising is to associate
the product in any way with any health risk. For example, in the
Marlboro advertisements, the pack does not appear, suggesting
that it would be negative to have the pack showing because overtly
selling is worse as it prompts health concerns; or evidence that
the Sovereign advert—pressure was put on The Mirror
to put it on a different page so it did not go opposite a page
on health issues because again the product might be associated
with a health risk. In your advertising strategy, it seems several
of your companies want to dissociate your products from any health
risk rather than informing the consumers that it is a very dangerous
product.
(Mr Wilson) Let me take that Sovereign example. I
think that is a very good example of the tobacco industry being
criticised whatever they do. If we had put a Sovereign advertisement
opposite a health advertisement or an anti-tobacco advertisement,
we would have been criticised for trying to undermine that anti-tobacco
advertisement. The fact that we try to go the other way—then
we get criticised for trying to dissociate our product from the
anti-tobacco advertisement. We do advertise Sovereign and we do
put a significant health warning on the advertisement. There is
no way that I want to undermine the health warning or support
it in our direct advertising. The health warning is there in our
advertising. If others want to advertise against tobacco, it seems
to us entirely appropriate but these are totally separate things
which ought to be separated, just as I would not want one of our
advertisements to appear alongside one of his advertisements on
the same page.
1041. You would not want to prompt health concerns?
(Mr Davies) I am not familiar with the evidence you
refer to. The fact is that wherever we are allowed to do so we
like to put the pack in our advertisements because it is a very
clear, consistent communication to those who smoke our brand and
to those who smoke competitive brands. My understanding is that
there were restrictions here in the United Kingdom on our ability
to use the pack in our advertisements, but we do so very consistently
in every market where we are permitted to do so.
1042. The exact quote from your advertising
is: "Overtly selling is worse as it prompts health concerns".
(Mr Davies) Clearly, it is not an objective of a product
attribution communication to address health issues per se.
All advertising which is placed by Philip Morris does carry a
health warning. As I said two weeks ago when we testified, we
are very committed to doing what we can to ensure that the public
health community's message is heard. I think that is perfectly
appropriate. Our advertising plays only a small role in that by
virtue of the warning which is placed, whether it be by voluntary
agreement, whether it be by regulation or, where that is absent,
we do so voluntarily. That is true throughout the world.
Mr Hesford
1043. I want to ask about pricing initiatives,
particularly pricing aimed at the cheaper end of the market. It
is a well known correlation that low income and relative poverty
are strongly associated with ill health. Do you have any qualms
therefore, given that distinct correlation, about aiming your
tobacco products at low income groups?
(Mr Wilson) Tobacco products in the United Kingdom
are I think just about the most expensive in the world. Let us
start from that premise. It is also a very competitive market.
Because of the very, very high prices attaching to tobacco products
in this country, the search by consumers for lower price products
is not confined by any means to lower income groups. It is a highly
competitive market. There are all sorts of restrictions that we
operate under and pricing is a tool that is available to us. No,
I do not have any qualms because cigarettes are so extraordinarily
expensive in the first place.
(Dr Gietz) I do not think we specifically address
certain products or product categories at certain income brackets.
It is all about choice. We have a market where the adult consumer
is free to choose between a range of products that differentiate
themselves amongst each other in one way through the price. He
will choose. What relative part of his disposable income he will
spend on cigarettes, or anything else for that matter, is his
decision.
(Mr Davis) I also think it is a matter of choice.
We are selling tobacco products to informed adults who have chosen
to smoke and they should have that choice and price range which,
in reality, is relatively narrow compared to many other countries
in the world because of our specific taxation system.
(Mr Broughton) The implication of the question was
that low income groups should be deprived of the choice of smoking,
which I find very strange. It seems to me that low income groups
have the same right to make a choice as any other income group.
(Mr Davies) I do not disagree with what my colleagues
have said. For us, Philip Morris is largely a premium brand company.
We are viewed as such and we are perfectly happy being so.
Mrs Gordon
1044. If I could go on to young smokers, despite
your consistent claims that you do not direct adverts at young
smokers and that you are directing them at adult smokers, the
fact is that under age smoking is increasing so your strategy,
accepting that there are other pressures on young people, peer
groups etc., is not actually working unless you totally deny that
your adverts have any influence on young people which I would
think would be pretty naive, given some of the evidence that we
have seen. Anyone who lives near a school or walks through a town
centre sees groups of young, under age smokers. I find that very
depressing. Where are they getting these cigarettes from? One
of the areas is that the papers submitted to us by the advertising
agencies make plain the importance of independent retailers to
your distribution network. Research has consistently suggested
that most child smokers buy their cigarettes from this source,
the local store or corner shop. Could I ask all of you what steps
you are taking to stop this trade which is illegal? These independent
retailers are important to your distribution network. Do you take
any action to stop this trade?
(Mr Wilson) You are absolutely right. I agree with
you totally that it is depressing to see these young people smoking.
It is our view that children should not smoke, but they choose
to do so. I do not accept that that is a consequence of our advertising.
The reasons why children smoke—I think we discussed some
of them last time but I can only repeat them—are largely
due to peer group pressure and parental influence is probably
the single—
1045. Your adult smokers?
(Mr Wilson) Yes indeed. Children are more likely to
smoke than not if their parents smoke. There is always the element
of forbidden fruit about it but what do we do? We have tried a
number of campaigns to support retailers, to make certain that
they understand that it is wrong to sell cigarettes to children.
I cannot remember the specific details of all these campaigns
but there have been a number of campaigns that the industry has
promoted throughout the retail trade, obviously emphasising signage
all over the place to ensure that it is well known that it is
illegal to sell cigarettes to children. Probably to me the biggest
thing of all is the most recent proof of age card that we are
very actively supporting, because retailers do find it difficult
to identify the age of young people these days. We think that
this proof of age card which we are actively supporting and others
are supporting—and it is terribly important that it gets
widespread support—will be a very important tool to assist
the retailer not to sell cigarettes to children. We would support
that wholeheartedly. Children should not smoke.
(Mr Broughton) Chairman ,I sent through this morning
to the Committee 20 structured suggestions for how we might take
this whole process forward. Nine of those related to under age
smoking, access, control and understanding more about it. One
of the things this Committee can most do is to take up some of
the suggestions we have made and work together. I endorse everything
Mr Wilson said, particularly on the proof of age card, which is
a very important aspect. One of the points which you covered is
a vitally important one. I think insufficient information is known
as to why children take up smoking. I think it was said by you
Chairman last time. We all know at the 11 or 12 age fundamentally
children are anti-smoking zealots and somewhere in the 13, 14
and 15 age a lot of them convert from that zealotry into smokers.
One of the things we should be trying to do together is to fund
high quality, independent research as to why children are into
smoking, alcohol, illegal drugs and various other things at that
age. It is in everybody's interests to have that research done.
We would not want to be involved with the research because you
would allege the wrong motives for that, but we would like to
see it done because I think it is very important to understand
what causes it and are there things that can be done. I do not
think we can eradicate it, but there are things that can be done
and I have made a number of suggestions which I think can improve
the situation. Everyone at this table I think is highly supportive
of taking those suggestions forward.
1046. Can I get back to the retailers? If they
are prosecuted by local authorities because they have sold cigarettes
to under age children, do you have any sanctions as the suppliers
of those goods, for instance, as a group? Do you ever take away
their licence to sell your cigarettes?
(Mr Wilson) They do not have a licence to sell.
1047. Do you just not supply them with cigarettes?
(Mr Wilson) That is a very hard one because the whole
essence of the distribution channels will be different from company
to company. I believe that there are something in excess of 80,000
retail outlets selling cigarettes in this country today. My company
has a total of about 1,400 direct customers, including the wholesale
trade, so many of these outlets are supplied through the wholesale
trade and then you have the multiple grocers, so we do not have
that sanction available to us.
1048. Are you informed of any that are prosecuted
by local authorities? Do you have that information passed to you?
(Mr Wilson) I cannot answer that. We will be aware
of it if it is in the newspapers but whether there is any other
mechanism for getting the information I would not know.
1049. Would you be prepared to take sanctions
against them?
(Mr Wilson) It is hard to know what sanction one can
take against someone that we are not directly supplying.
(Mr Broughton) We would be prepared to sit with the
authorities, whoever are the designated authorities, to work out
an appropriate mechanism for meeting the suggestion you are making.
First of all, we do not supply them directly so it is not actually
within our remit. Secondly, we might find that we are breaking
the law by refusing to supply a legitimate retailer. That can
be against the law for competition reasons. We do not wish to
do something and then find we are contravening the law by doing
it. In principle, the answer is yes, we would be prepared to sit
down with the authorities and work out a mechanism for the industry
to withhold supplies on an approved basis from transgressors.
(Dr Gietz) The example you mention, the retailers,
is a perfect illustration of the fact that this is a very complex
and difficult societal problem. There are many links and many
agents, if you like, involved. We will do what we can. I am just
as appalled as you are, personally, when I see under age people
smoke. I have children; I do not want them to smoke. Maybe we
have not done enough in the past. Maybe no one can ever do enough,
but we certainly want to offer whatever we can contribute to jointly
working at solving this problem, but we cannot do it alone. For
my company, our objective is zero consumption among minors, end
of story.
1050. We have heard in the evidence that we
have had that some children go into a local shop and they just
say, "It is for my mum." They are sold cigarettes. Has
your association at any time ever put out information to the retailer
saying, "You never hand over a packet of cigarettes to a
child for whatever reason"?
(Mr Wilson) We had a whole campaign largely geared
round that called the no excuses campaign and that is precisely
what the words "no excuses" meant.
1051. I personally have not seen that information.
If you have a pack, I would be quite interested to see it.
(Mr Davis) I think it is in the submissions.
1052. This is obviously still going on. Children
are being sold cigarettes for spurious reasons. Perhaps I could
go on to the reverse of the disincentives and talk about incentives.
What methods do you use to encourage loyalty amongst independent
retailers? For instance, papers that were submitted by the advertising
agencies suggested that gifts and incentives are important. We
have heard a lot about brand loyalty and retailer loyalty. I just
wondered if you could tell me if you actually give incentives
to your retailers and if you do what gifts and incentives you
offer them.
(Mr Wilson) We have a set of trade terms which will
differentiate in price depending on the volumes that they take.
We will run various trade incentives—I am not briefed on
the details—during the course of the year in order to reward
the trade for the business that they are doing.
(Mr Davis) My answer would be very similar to Mr Wilson's
on that. We have a term structure and I am sure there are other
aspects of incentives at times.
(Mr Wilson) Remember that we are only talking about
the very major wholesalers and the multiple customers. Of all
these outlets selling cigarettes in this country, we have very
few direct customers.
1053. We would need to ask them if they give
gifts or incentives to the local retailers?
(Mr Wilson) That would be a matter for them.
Dr Brand
1054. Each one of you has been very keen to
stress that you always operate within the law. We have an interesting
document from Saatchi in the evidence we were given which came
from Gallaher, the Amber Leaf Campaign, which appears to be targeted
specifically at bootleggers so that more of the Gallaher products
would be bootlegged than anybody else's product. I would like
your comments on that.
(Mr Wilson) I would be delighted to comment on that.
The tragedy and the extraordinary thing about this whole situation
is that we are here faced in the United Kingdom with the fact
that four out of every five packets of hand rolling tobacco that
are consumed in this country are sourced from outside this country.
That is 80 per cent of the market sourced from outside the United
Kingdom, predominantly Belgium and Holland. This is a direct consequence
of the enormously high duty attaching to hand rolling tobacco
here compared with Belgium. I think it is five times higher in
this country than it is in Belgium. As a consequence, a pouch
of hand rolling tobacco in this country which costs close to eight
pounds will be available in Belgium for two pounds. That has led
to a situation where 80 per cent of the market is sourced from
outside this country and it leads to the ridiculous situation
where the only way that you can develop distribution for a brand
in this country is by making it available in Belgium.
1055. You specifically are working with illegal
operators to bring this stuff into the country.
(Mr Wilson) Not true. We do not work with and we do
not sell to illegal operators.
1056. You target the bootleggers. Your own document
says "Trials through bootleggers. Adoption by bootleggers.
We must make sure they are chosen by the bootleggers."
(Mr Wilson) We will sell our hand rolling tobacco,
along with everybody else's hand rolling tobacco, to retailers
in, let us say, Belgium. Those retailers have a wide range of
customers ranging from the United Kingdom tourist, the day tripper,
holiday makers, and they will sell just as happens with wine,
spirits and other products, including, yes—it would be ridiculous
to deny—a lot of people who are buying these products to
bring them back and sell them in the United Kingdom.
1057. You are saying it is difficult for you
to differentiate working with your retailers in Belgium as to
what is going to be bootlegged and what is not?
(Mr Wilson) It is impossible to tell, but we do not
target, we do not address, we do not speak, we do not supply bootleggers.
1058. I can understand that as an explanation.
I am also though a bit confused about what happened in the principality
of Andorra in relation to tobacco. Presumably, you research your
markets and you have some idea what a reasonable level of sales
of your products would be for a particular population and its
normal visitors?
(Mr Wilson) Andorra was a strange situation. It is
a very small market. We have distribution there. The volumes and
the demands by our distributors started to grow. It was very hard
and indeed you cannot differentiate as to—
1059. I think you can differentiate in this
case. It is quite interesting that the market was growing extraordinarily
until there was a European Commission inspection during 1997 which
visited the various organisations dealing with your products.
It was quite interesting that within a year the sales dropped
again to the more normal levels. Clearly, a law enforcement agency
forced you to do things which I would have anticipated you could
have foreseen yourself. You must have known that you were fuelling
an illegal activity. If I look at your 1997 annual report, "Increased
tourist demand from the Canary Islands and higher shipments to
Andorra contribute to an increase in sales to Iberia of around
37 per cent." I do not believe that successful marketing
will suddenly drive up your consumption by 37 per cent if it is
all legal.
(Mr Wilson) It could well have done but I am not saying
that—
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