THE best salesman, they say, is one who is thoroughly convinced of his product. For a nonsmoker, it is indeed a feat that he should be at the forefront of selling some of the world’s top cigarette brands in the Philippines.

Chris Nelson, managing director of Philip Morris Philippines Manufacturing Inc., an affiliate of Philip Morris International, has achieved just that. In an interview with BusinessMirror last week, he reveals that as a professional, he has not worked for any industry except the tobacco industry.

“It is a great industry,” he said, referring to the tobacco industry, criticized by many as one of the strongest lobbies in the world, peddling a product that is extremely hazardous to the health of smokers and nonsmokers alike.

“I’ve been in this industry for 25 years. I’ve worked for Philip Morris for 20 years, and another cigarette company for five years before that. It’s the only industry I’ve known since university,” said Nelson.

“I’ve never smoked. I’ve never had any issue with that.”

Nelson’s personal attitude toward smoking is resonant of the stance that Philip Morris as a company has taken in the last few decades—a corporate frankness that its flagship product, cigarettes, does cause harm to one’s health.

“We are very open as a company. We sell a product that is highly dangerous, and highly addictive, and if you go to our web site, it is very clear that it causes numerous diseases. And if you are at all concerned about smoking, you should stop,” Nelson said.

“And so within that we have to act, and we are acting, proactively and proudly.”  

Marlboro and Philip Morris, of course, are the two leading brands of Philip Morris. Other brands include Virginia Slims, Bond Street and L&M.

The cigarette packs that Philip Morris sells in the Philippines currently carry a warning in front that says, “Government Warning: Smoking Kills.” It occupies exactly a third of the front of the pack.

This warning is actually one of several rotating health warnings required by Republic Act 9211, or the Tobacco Regulation Act of 2003. The other warnings are “Government Warning: Cigarette Smoking is Dangerous to Your Health,” “Government Warning: Cigarettes are Addictive,” and “Government Warning: Tobacco Can Harm Your Children.”

Previously, these warnings appeared on the side panel of the cigarette pack, but beginning July 1, 2006, government required that the warning should appear on the bottom portion of the front panel of the pack, and occupy at least a third of the panel. “The text of the warning shall appear in clearly legible type in black text on a white background with a black border and in contrasts by typography, layout or color to the other printer materials on the package,” the law also requires. 

HEALTH concerns have, in fact, led to the contraction of the cigarette market in the United States, Philip Morris’s birthplace and its biggest market, and in many European countries. In fact, Philip Morris USA recently closed one of its two manufacturing plants in the US, and moved cigarette production for non-US markets to Europe.

Increasingly, cigarette consumption is declining in the US and Western Europe—the top five cigarette markets are China, the US, Russia, Japan and Indonesia.

In many places as well, smokers have started to feel like second-class citizens, asked to go to small, confined places whenever they need to smoke.

In the US smoking is generally banned in workplaces, hospitals, government buildings, schools and other public places. In some parts of the US, one cannot simply go to an open-air area to smoke—a southern city of California early this year banned outdoor smoking in streets, sidewalks, parks and playgrounds. In the UK, recently, smoking has been banned in all public places.

While there have been moves by local governments in the Philippines to regulate smoking in public, and an antismoking lobby remains active in its efforts, such market contraction for the product is not quite in the Philippine horizon.

In fact, the Philip Morris executive sees opportunities for further growth in the Philippines.

“When you look at the tobacco industry in its entirety, yes, in many places, it has contracted,” he told BusinessMirror. “The key is your position within that.”

“Philip Morris is the leading cigarette company in the world, and our job is to gain market share at the expense of our competitors. So even if markets are contracting, we can grow.”

In the Philippines Philip Morris is second to tycoon Lucio Tan’s Fortune Tobacco, holding a third of the Philippine market. Worldwide, the Philippines is Philp Morris’s 10th-largest market.

“Our share today is around 31 percent,” said Nelson. “And we are up against a formidable competitor, and one that we respect.”

To gain market share, Philip Morris—as any other company that sells products to consumers—would have to contend not only with the first-mover advantage of Fortune Tobacco, but also with the very geography of the country.

“Our focus is heavily into sales and distribution. One of the things that seem so self-evident is the fact that because the country has numerous islands, distribution is a key facet. There are a lot of barriers, and getting a 100-percent distribution is our clear objective.” 

DISTRIBUTION may yet prove to be the key to unlocking a greater part of the Philippine market for Philip Morris, especially in the light of tighter regulation of tobacco advertising.

Again due to the Tobacco Regulation Act of 2003, beginning January 1 this year, all tobacco advertising are prohibited on television, cable television and radio. Beginning July 7, all cinema and outdoor advertising were stopped. And beginning July 1 next year, “all forms of tobacco advertising in mass media shall be prohibited,” with the provision, however, that allows “tobacco advertisements placed inside the premises of point-of-sale establishments.”

Nelson, however, is not worried. “We withdrew from TV and radio voluntarily years before it was actually, officially prohibited by law. So, therefore, radio and TV stopping early this year had no impact.

“If we project forward, it means that we have to be increasingly more creative. But if you look within the law, we are still allowed to have point-of-sale advertising. And that includes anything in and around the tract of land where the stores are. So you still see stores with signage. And we can still do many things with the in-store promotions.”

In addition, Nelson is confident that his company’s cigarettes have strong brand equity. “I would say unabashedly that Marlboro is the most famous cigarette brand in the world. And Philip Morris, I’m happy to say, is the leading premier menthol cigarette. We still have a resonation,” he said.

“I think what it will do is make it much more difficult on increasing new brands, I’m not saying it will make it impossible, just more difficult.”

The popularity of cigarettes in this country, however, does not seem to wane—several new brands have entered the market in recent months, notably those directed toward women. And as some critics would point out, the youth market is becoming more and more of a target of cigarette companies.

Nelson, however, was explicit in saying that Philip Morris appeals in the first place to adult smokers. “We’re very clear. Our business is to attract adult consumers who decide to smoke and know the risks of smoking. And if that means people choose not to smoke, so be it,” he said.

“It might mean like it’s the end of the industry. However, we believe that we can compete for existing smokers, and we believe in our products, we believe in our people. And, therefore, it will be our job to gain more market share. That’s how we see the future.” 

PHILIPPINE excise laws provide for specific taxation on certain commodities, including cigarettes. In 2004 the Philippine legislature, through Republic Act 9334, increased the excise-tax rates on alcohol and tobacco products.

It provided for such increases every two years, the first taking effect in 2005, and the second in January this year. As a result of these increased excise-tax rates, prices of cigarettes in the country were driven upward. Two more such increases are scheduled for 2009 and 2011.

Because of these excise-tax increases, Nelson sees 2007 as a year of “fair to good” growth for Philip Morris. These increases are a continuing event that the company has prepared for.

“We took an excise-driven price increase in January, and obviously the consumer has to adjust to that,” he said.

“We’ve had various consumer promotions, trade efforts, to try to mitigate [the price increases], but clearly the excise-driven price increase will have some impact on consumption.

“These excise increases are part of the excise law, so it’s a constant pattern for us in business.”

In fact, in contrast to what a lot of businessmen feel about doing business in the Philippines, Nelson points to the clear provisions affecting the tobacco industry and cigarette companies in the country.

“When you are planning a business, one of the key things is to remove as many unknowns as possible. And here at least we know what to expect, what the tobacco regulation act is, we know what the excise is, therefore, we can plan around that.”  

PHILIP Morris Philippines recently invested $20 million to create its Asian logistics hub at the Subic Bay Free Port. The company and the Subic Bay Metropolitan Authority signed an agreement for Philip Morris to use a 9,000-sq-m warehouse, which will be refurbished to make it fit to store tobacco leaves.

The facility is actually a temporary site for the logistics hub, with the contract good for two years, after which the company would decide whether to locate a permanent hub here, or in Singapore.

Nelson pointed to an earlier investment the company made in 2003, to the tune of $300 million. The investment, he said, “is really a statement on the future as we see in the country. And we have not been disappointed. Things have gone well.”

And Philip Morris has given back to the country’s development. “As we are a local company, Philip Morris Philippines, we also have to act within the general community. We focus our community work in places where we have our factories, Batangas, [and] on the tobacco-growing areas—La Union, Ilocos Sur, Ilocos Norte and Isabela. Within that, we also work with farm education, schoolhouses, and we also work with many communities.”

Among the more notable contributions that Philip Morris has made, and one that Nelson is proud of, is the help extended to the Department of Education for the erection of schoolbuildings around the country. “This is clearly an area that needs continuous investment,” he said.

For Nelson, doing business, especially being a part of a controversial industry such as the tobacco industry, is an endeavor that must be carried out with eyes wide open.

“We want to be a leading company not only in tobacco, but be also known in other fields, in our corporate outreach programs, in our contribution to society as a whole. We want to make people proud of working in this company. And we are a respected business entity within the community,” he said.

“So that’s our vision. Whether we will get to be number one, we are certainly working to be there.”

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