Japan Tobacco’s UK Unit Closing Gap On Imperial Tobacco

LONDON -Japan Tobacco Inc.’s (2914.TO) U.K. business is closing the gap on market leader Imperial Tobacco PLC (IMT.LN) and will retain its recent market share gains, despite pushing up prices at the end of this month, JT’s U.K. managing director said Wednesday.

Daniel Torras told reporters at a briefing in London that the company had increased its U.K. cigarette market share to 40.8% in September, up 1.8 percentage points on a year earlier. Imperial Tobacco’s share meanwhile fell 1.5 percentage points in the same period to 42.3%, he said.

“Since Oct. 2008, we’ve seen very dramatic share growth,” he said, “we’ve had share growth in every single segment.”

Torras said he was confident these gains can be retained despite the company’s planned price increases on Nov. 24. “We don’t expect any share loss,” he said.

He said the company’s momentum in the U.K. allowed it to take a lead with price increases rather than following Imperial’s pricing action.

A packet of Sterling will increase by 12 pence to about GBP4.47, while Mayfair will rise 11 pence and the company’s premium and sub-premium brands such as Silk Cut and B&H will rise by 10 pence.

Torras conceded that this represented a good opportunity for Imperial to regain its lost share but said JT’s strong brand equity would allow it to retain share.

The company is raising its prices to offset a rise in input costs - related largely to higher tobacco leaf prices.

He said Imperial was facing the cost pressure as JT and may therefore raise its prices too.

“They will be experiencing the same cost pressures,” he said, adding “we’re not pricing ourselves out of the market.”

However, he conceded that it would be very difficult to get customers back if they do desert JT’s brands for cheaper alternatives.

“We think the momentum is with us and we can do it,” he added.

“They are already fighting back,” he said, “but they are losing share and we are gaining.”

He said JT’s mainstream brand Mayfair had now overtaken Imperial’s Lambert & Butler to become the U.K.’s number on brand.

JT’s Sterling brand meanwhile was now the number-one value brand, he said, ahead of Imperial’s JPS.

This had been achieved through improved packaging and blend, better distribution and increase in the company’s sales force.

“Competitor brands have not been able to catch up,” he said.

The U.K. is now among JT’s top five markets following its acquisition of Gallaher in 2007. Torras said Gallaher had allowed its market share in the U.K. to slip since the late 1980s as it focused on short-term profit rather than long-term investment.

The company has invested GBP80 million in the U.K. market since the acquisition, expanding its sales force by 30%, upgrading factories and investing in training.

“We’re definitely closing the gap,” he said, “our goal is to be number one.”

By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected]

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