Apr 2017 Financial News

Witco's managing director: Smokers trading down due to economy

Apr 13, 2017

Managing director of West Indian Tobacco (Witco), Jean-Pierre du Coudray, says that the domestic economic climate is forcing tobacco consumers to consider their purchase patterns more carefully.

Speaking to media after Witco’s annual general meeting (AGM) at the Hyatt Regency hotel last Friday, du Coudray noted the impact this was having on business.

“The demand for our lower-priced products has been increasing because of the economic situation and the disposable income pressures that people are feeling.”

For its financial year ended 2016, Witco generated just over $1 billion in revenue, down 3.3 per cent from its 2015 revenues of $1.05 billion.

The company’s after-tax profit also remained flat between 2015 and 2016, coming in at $515 million in 2016; effectively registering no growth year-on-year.

Commenting on this performance, du Coudray noted at the AGM: “Last year (2016) was a year of economic uncertainty and I thought 2015 was the toughest year I had managed in the company. The challenges continued into 2016 and, at this stage, I see no immediate change to this outlook.”

The Witco executive listed five primary reasons for the company’s tepid performance.

“Government battled for revenue: we were impacted through increases in corporation tax and excise tax.

“The average consumer battled for value for their money. They struggled to pay for their usual brands, not just in the tobacco category but across all segments.

“Consumers battled to enjoy themselves safely at night; they sometimes simply stayed home instead.

“Our factory battled to remain competitive in the Caricom context and creative entrepreneurs battled for opportunities to survive. They built new businesses, importing—some with no regard to quality and trade rules—and sold at very competitive prices.”

In spite of the company’s decline in revenue, du Coudray maintained that he believed the actual market for tobacco products might have grown with consumers simply switching to other options; some of them illegal.

“We don’t think the market has shrunk. What we think is happening is a migration away from legal product to illegal products because of the price that they’re in the market for. In fact, if you ask me, the kind of prices that they’re selling at, actually consumption might be increasing because it’s now more accessible than it was before,” du Coudray said.

He added that the profile of consumers of tobacco products had been changing to cope with the realities of the prevailing market environment.

“We are dealing with an evolving customer —savvier, with affordability issues and more willing to try new things.”

To cope with the challenging environment the company has been rolling out new products to attract customers.

In 2016, the company launched duMaurier Switch and duMaurier Boost—flavoured cigarettes—and a new tube technology in its Dunhill brand.

The company also reintroduced its Mt Dor brand to cater to the lower spectrum of the market and in recognition of customers financial constraints.

“People were saying they prefer duMaurier, it’s my brand of choice, it’s the brand I’ve been with for years but, at this point in time, it’s difficult to pay the price so I’m willing to explore other options,” du Coudray pointed out.

Questioned about the effect of alternative nicotine delivery systems (e-cigarettes) on Witco’s business, du Coudray said the impact was negligible and customer migration toward this type of product also provided commercial opportunities for Witco to explore.

“We think there is potential for Witco to be a part of this market. Without making any concrete predictions, I think in the next five years we will have a footprint in that market.”

 

Source:
ANDRE WORRELL
andre.worrell@guardian.co.tt
Business Guardian, BG6
Thursday April 13, 2017