Tobacco Documents Online

AVW Smith, Lyons, Torrance, Stevenson & Mayer Barristers & Solicitors l~atent & Trade-mark Agents arc pleased to announce the ope:nlng of their office in KIEV, UKRAINE Pred~lavynskaja Street, 38 Su|te 175, 5th Floor Ki~v 25200(5, Ukraine Telephone and fax: (044) 268-4181 The filer office will represent Canadian and International cliches in commercial d~aling~ in Ukraine anti other E,~ste~n European countrlea arid will provide advlc~andl-°,sistance to the Ukrainian Go'~:rnment and oUlcr major UKrainian institutions. Hark Y. I~walsky will be the resident Canadian la~yer. ~uppor~ed by a team o| local Ukrainian counsel Bol~an ~, Ony'~chuk. ba£,ed in our Toronto office. Is the partner in charge. Smith. Lyons Is a member of Smith Lyons Lanc, llois Robert. one o1" Canacla's large~.t national and Intert~ational levi service organizations, offerin~ a comp~hensive range of legal services to Canadian and inten~ational cllenl~ .Ivl e m b e r of Smite Lyons Lazz/~lois ]~obert Qu<,bec Montr~.! Ottawa Toronto Vancouver Hong Konl~ Ta, ipei Kiev

UKRAINE Marketing Summary. 1. Present market situation Total demand in Ukraine is difficult to assess. Best estimates indicate a total consumer demand of 60 to 80 bns cigarettes per annum. The market has been short-supplied for several years caused by shortages of basic raw materials and this situation is assumed to continue for some years. It is expected that a good deal of the existing factories will end up in the hands of our competitors and that the multinational cigarette industry will try to claim their share of the existing market as well as the potential market. BAT is currently best placed to establish itself as the first and leading international tobacco company in Ukraine. Once the international industry is established, supply shortages will quickly disappear. The filter segment suffered most from shortages and it halved in the last 5 years from 30.8 bns in 1987 to 15.8 bns in 1991. It is assumed that once a JV is formed filter tow can again be brought into the country and that the smokers will only be too happy to go back to the habit of smoking filter cigarettes. The filter segment is therefore expected to grow to 5: 60% in the next 5 years and to 80% in the next 10 years. Consequendy, the plain segment will decline to some 40/20% over the plan period. Trademark ownership is problematic in Ukraine and will continue to be so, as none of the factories owns important brand names. Even if it were possible to attach a device to the pack-designs of the brands made by CPM, something worth trying as a short term solution, long term the JV can only support brands which it owns. New brands will have to stand out, not only because of design and trademark, but also in overall product presentation. Also, they should respond to the taste of the Ukrainian consumer. It is assumed that PMI and.RIR will enter the market, in the first 2 - 3 years with imported products, but once the local production can manufacture cigarettes as per international standards these brands will be produced locally. There is an opportunity for the IV to take the lead in launching and promoting II:B's as soon as possible. O

2.1 2.2 2.3 2.4 2.5 The brands strategies for the JV therefor~ witl be as follows: To introduce and actually promote new ~ter brands owned by the Fq using Acetate filters and pack designs which give the brands an air of internationalism, whilst still not moving too far away from present brands like Cosmos. Existing blends gI~l'd be used and they s/gafld retail at affordable prices. Market research will indicate brand name preferences and price leeds. To continue selling Cosmos etc. maintaining present product-quaLity, so that the new brands mentioned under 1. will clearly be perceived as bettor products. It ~j~'be econsidcra~tm to continue using.paper filter, as presently done. To improve the product quality of the brands owned by CPM, LUG and PRILUKSKIE, after assessing their present brand image, consumer profile and markct potential. To introduce one IFB Category 2 as soon as product quality allows local manufacture. This is expected in year ~., _" . .u~q~a~~. t~ To introduce one IFB Category 1 as soon as product quality allows imported and marke~.d at a premium in order to establish brand Pricing and Excise Cigarettes axe extremely cheap in Ukraine. With product shortages prices are assumed to move up and only in the course of the plan period will prices start to stabilise. Retail prices will therefore increase above inflation in the ftrst 3 years and afterwards they will increase in line with inflation. Excise at present is fully ad valorem and not applicable to plain cigarettes. A presentation to the Government was held in the week commencing 4th May 1992 and it is assumed that the Government will introduce a mix structure ofad valorem and specific per 01.01.1993, together with the introduction of an excise on plain cigarettes. The present excise levels are assumed to apply in the furore, but using the

o mix structure, which is beneficial to filter cigarettes and premium priced brands. Distribution Distribution of C-bl-F's current brands is erratic. C-MP's brands are mainly distributed in the region around the factories. Distribution of CPM products in main cities like I(iev and Odessa is low. The J'v' will follow a distribution strategy which will aim at obtaining national distribution for existing and new brands, though initially concentration on main conurbations may have to be considered. The present passive_distribution system will change into a dynamic, active system with C/V~using 4 regional sales depots and up to 180 salesmen on the mad. Marketing Organisation C,--M9 lack any sense of commercial direction and experience and therefore a major activity of the new JV will be to introduce Marketing and Sales/Distribution concepts. It is planned initially to bring in four expatriates and to diminish this to two in year 3. The Sales/Distribution force will be built up from 52 in year 1 to reach full complement of 185 in year 3. A central marketing office in Kiev will be required and regional sales offices in three other main cities. A. van Waay AvW/DET 5th May I992