Indian government may consider plain packaging for cigarettes

An edited version of this story first appeared in DNA Money edition on Thursday, September 6, 2012. 

The Indian government is considering plain packaging of cigarettes in line with new Australian laws that ban all logos and brand descriptions, a top health official in New Delhi said on Wednesday.

"It is a good idea and can be pursued," Amal Pushp, director of tobacco control at the health ministry, told AFP. "We are watching the developments in Australia with interest." His comments came after Australian and Indian health experts presented a report by the University of Melbourne that found 275 million Indians use tobacco, leading to nearly one million deaths a year. India's health ministry welcomed the report and said that plain packaging as adopted by Australia could be taken up.

The approach, industry experts said, though aimed at curtailing consumption of cigarettes, will not really serve the purpose. Avi Mehta, analyst, IIFL Institutional Equities, while noting the concerns / impact of plain packaging norms on cigarette volumes and in turn on valuations of Indian companies, feels volume growth is unlikely to be impacted.

"With around 70% of sales made through loose cigarettes in India, we believe volume growth is unlikely to be impacted materially by any such potential changes. Further, multiple tailwinds (reducing price elasticity of cigarette volumes, launch of sub-65mm cigarette) would aid volume growth. This was seen in first quarter (1Q) when cigarette volumes were flat year on year (YoY) despite a sharp 12-15% increase in prices," Mehta said in his recent note on ITC Ltd.

Starting December 2012, tobacco products in Australia will be sold in drab, uniform packaging with graphic health warnings in a ground-breaking move that has attracted worldwide interest. In plain packaging, graphic warnings are retained but all colour, imagery and corporate logos are taken off to reduce the appeal of smoking, especially among youngsters. Manufacturers, however, will be allowed to print only the brand name on the pack in a limited font size.

Though a similar legislation is yet to hit India, industry experts said that it is not really a new phenomenon and that cigarette companies were completely aware of something like this coming by for a while now. While there have been increasing restrictions on promotion and marketing of tobacco products, companies have and are trying various things to compensate or cope with this reality.

“If you look at ITC, it's not just a cigarette making company anymore and has processed food, personal care, fast moving consumer goods (FMCG), packaging, hotels, stationery etc as part of its business. So while a large part of the company's profits still come from cigarettes, revenues from other verticals will eventually compensate for the decline in profits from the tobacco / cigarettes business,” said a top official from one of the leading FMCG companies.

However, the question to ask now is that as things get more and more stringent, what will be its impact on the business and what will these companies do to deal with it?

Anand Halve, co-founder, Chlorophyll (a brand and communications consultancy firm), said, "As packaging becomes more and more uninviting, the brand image premium will collapse. However, the human beast wants to smoke, drink, have sex and gamble and, these businesses are not at all going away," he said.

It's a fact that people are completely aware of the harmful effects of consuming things like tobacco, alcohol, drugs etc. They seek such products for various reasons including to beat stress / seek relaxation, as a style statement, considered part of growing up, machismo etc. "If somebody want to consume alcohol or smoke a cigarette, s/he will have it, come what may and that's the reality," said a marketing / branding official from a leading domestic firm.

Attempts are ongoing for many years to create awareness about health concerns arising from use of these products from government and non-government organisations. As a result it has also been observed that there is a long-term trend wherein the consumption of such products is declining. However, it is known fact that people are still finding it very difficult to give up completely.

"The tobacco industry uses attractive packaging and aggressive marketing to lure people," K Srinath Reddy, president of independent research group the Public Health Foundation of India (PHFI), told AFP adding that, "India must initiate legislation on plain packaging, which would have tremendous public health impact."

In 2009, India began printing graphic health warnings on cigarette packets and other tobacco products. One image attracted widespread publicity as it used an apparent picture of England footballer John Terry with a superimposed set of blackened lungs.

Santosh Desai, MD and CEO, Futurebrands, feels a legislation (similar to those proposed in Australia) if implemented will certainly impact the desirability of smoking as an overall category in the long run. "However, will it really change the competitive landscape by acting more strongly against the dominant brands and whether that is what the regulation should be all about is an open question," said Desai.