Itc Plans Twin Strategy To Battle Grey Market

Tobacco major ITC Ltd has decided to draw up a major counter-move to take on the grey market for foreign cigarette brands which is currently locked in a battle with the ITC-produced Benson & Hedges.

Highly placed ITC sources told Business Standard that the company was examining the entire gamut of issues relating to the grey market and the impact of the smuggled brands on the launch of Benson & Hedges, the BAT brand produced by ITC under a licensing pact.

"We are discussing the issue and will see what steps need to be taken," sources in ITC told Business Standard.

 

Ever since B&H was launched in Mumbai, the grey market has been slashing prices of foreign brands, including smuggled B&H itself.

The strategy ITC is contemplating is two-pronged. On the one hand, the company plans to begin lobbying with the government to crack down hard on the grey market, so that the entry of the smuggled versions is checked. On the other, it plans to tell consumers about the superior quality of B&H manufactured by it.

Towards achieving both these ends, ITC plans to take up with the government the need to take stern punitive action against the grey market operators. The grey market is estimated at over Rs 300 crore. "It is not enough to merely slap duties. Strict punitive steps have to be taken," the sources said.

The company also plans to impress upon the consumers that the ITC-produced B&H is a better bet for them as it is fresh. It has been adjudged the best quality B&H produced anywhere in the world.

The grey market had been quick to react to the launch of ITC's B&H.

The B&H launch in Mumbai in February by ITC Ltd in two variants, B&H Special Filters and the new B&H Light, both priced at Rs 50 for a pack of 20s, had queered the pitch for all premium cigarette brands in the city, including the smuggled version of B&H. Prices for all the brands in the grey market, have been varying between Rs 55 to Rs 60 for a pack of 20s. The grey market costs the government anywhere between Rs 160-170 crore by way of lost revenues.

It also costs the government $50 million by way of lost foreign exchange.

In less than a month of the launch of ITC's Benson & Hedges version, the grey market slashed prices to bring them on par with the 'Made in India' version of B&H. Prices of all premium smuggled brands like Marlboro and State Express 555 also eased.

Retailers are now getting their supplies of all smuggled brands at Rs 42 making the margins comparable to those offered by ITC.

Prior to B&H's Indian launch through ITC, the brand was available in India only in the smuggled version. Costing around Rs 50 for a pack of 20s to the retailer, it was sold to the customers for Rs 57-60. It was the same for other brands like Marlboro, State Express 555 and other brands in the same category -- a Rs 7 to Rs 10 margin for a pack of 20s.