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June,
2004

Government Affairs:

If Cigars
Were
King

While cigarette consumption continues a slow but long-standing decline, cigars in North America are experiencing gains. If anti-tobacco groups see this red flag as the next battleground, is the industry prepared to launch an effective response?

By Luc Martial

Tobacco industry stakeholders who wish to remain and succeed in the market need not look too far to consider the obstacles and opportunities before them. With 95% of Canada's population right on the American border, it is without question that emerging regulatory interest and action in Canada has and will continue to greatly impact interest and action in the U.S.

More to this point, Canada has long since established itself as a dangerous testing ground for "world precedent-setting" regulations on tobacco and - by implication - a safe and prosperous haven for some of the world's most successful and innovative extremist groups. Consequently, Canada can safely be looked to as an accurate yardstick for eventual anti-tobacco/industry initiatives in the U.S. and abroad.

Case in point, many European stakeholders had long dismissed the impact of Canadian labeling initiatives on their markets - only to wake up one morning and find a very real and threatening issue before them. At this time, EU warnings largely replicate Canada's initial foray into labeling issues (c.1989). In a few years, unless effective action takes place, they too will be printing more aggressive, shocking and shameful health warnings on their products. Similarly, while the U.S. has since postponed this inevitability, there is no reason to sigh any relief. There is substantial work which needs to be done to effectively gauge and respond to emerging obstacles before U.S. stakeholders. But more on this later.

In terms of foreshadowing things to come, Canada can equally be looked to as an effective yardstick for behavioral trends (in response to emerging regulatory initiatives). Further to recently obtained internal documents, under access to information legislation, it appears quite clear that a resurgence in the cigar market is materializing. Despite a significant decline in the Canadian cigar market over the last 30 years (from approximately 597 million cigars sold in 1973 to 130 million cigars sold in 2000), the numbers are now apparently picking up. Government data for 2001/02 show a significant increase of approximately 60% in this market, to over 210 million cigars. Granted the Canadian market may be comparatively small (our population is smaller than that of the State of California, and with only about 5.5 million smokers) but the behavioral trends nonetheless remain quite relevant.

Government research suggests a renewed interest among current cigarette smokers - faced with an increasingly difficult and harsh social environment - who are now looking to alternative products. For them, cigars provide an ideal compromise between perceived risk and actual pleasure. Government data indicates that consumers view cigars in a much more flattering light (socially) and as a safer alternative to most manufactured cigarettes (i.e. healthier since the smoke is seldom if ever inhaled; healthier as a result of the manufacturing process, etc.). On a side note, for many confirmed cigarette smokers, there also appears to be a trend towards additive-free, 100% tobacco products.

In the end, consumers seem to be sending an increasingly clear message to tobacco manufacturers, distributors, and retailers. The only real question is...are these manufacturers, distributors, and retailers listening? More to this point, are they prepared to supply, nurture, and protect this emerging market for quality tobacco products?

Cigars are making an important and promising comeback. To what extent, however, will largely depend on how the international cigar industry positions itself on the well-known and long-standing social and legislative issues. If cigar were king today, the coronation, I fear, would be short-lived. The necessary mechanisms to ensure shared stewardship, meaningful consultation, and public accountability on the tobacco file simply don't exist at this time. As importantly, the mechanisms to ensure necessary public dialogue and actual debate on these issues are also nowhere to be found. In effect, the cigar industry is currently a sitting duck.

Still, cigar manufacturers cannot be expected to shoulder all of the blame. While they would do well to learn from their predecessors' mistakes on this public file (cigarette manufacturers), the onus may actually be on retailers and distributors to ensure that effective action takes place. Cigar and fine-tobacco product retailers/importers must not become complacent with the current advantages their products enjoy. Comparatively (to cigarettes), cigars as a product remain largely unobstructed by government regulations. That being said, governments worldwide will increasingly move - and more aggressively so - towards placating this market. Since 2002, the government of Canada, for its part, has been actively monitoring the market for cigars and fine-tobacco products. Their research and survey data will inevitably be used to provide the foundation for government action against the industry. At the shallow end of the pool, some of the most aggressive and successful anti-tobacco/industry groups in the world have geared themselves for this eventual fight. Their arguments, while easily anticipated, will nonetheless require strategic and effective response from all industry stakeholders.

In a nutshell, extremist groups don't want you to smell, see, or even taste tobacco products. While they actively promote gambling on their websites, tobacco is altogether another story. They can't fathom anyone actually enjoying a good cigar, or even "choosing" to smoke as a lifestyle decision. While perhaps well meaning, they have since lost touch with reality. Still, coupled with their publicly-paid legitimacy and credibility on the tobacco file, they remain formidable and very dangerous adversaries.

For cigar retailers and distributors, the task at hand is clear. Protecting your current and emerging markets will require that your suppliers increasingly and proactively address the obstacles before the them. As their business partners, you will need to insist on after-sale services which include the necessary government, public, and media relations activities in support of your investment. More specifically, you should insist on manufacturers providing you with relevant and comprehensive support in the following areas:

  • Capacity Building - providing necessary resources for sustainably monitoring and understanding the tobacco file; anticipating emerging regulations and initiatives threatening your investments; and voicing your concerns in a meaningful way;

  • Coalition Building - providing the necessary structure and support which would allow all stakeholders to work together in a concerted and well-organized manner;

  • Government Relations - actively engaging, not enraging governments who will be pressured to act by a very influential, successful, and international anti-tobacco lobby; and

  • Media and Public Relations - actively engaging them in straightforward, honest, and transparent dialogue on the social/health issues at hand.
Cigar manufacturers would do well not to sit on their laurels. Having flown largely under the government and anti-tobacco lobby radar - especially over the past decade - things are set to change. Unless effective action is taken, their eventual plight (and yours) will mirror that of the cigarette manufacturers worldwide.

SMOKESHOP - June, 2004