British American Tobacco PDF
British American Tobacco PDF
British American Tobacco PDF
For nearly 100 years, British American Tobacco has been building an international
reputation for producing high quality tobacco products to meet the diverse preferences of
consumers. Being listed in the London Stock Exchange, it has an active business presence
in 180 markets worldwide. It holds strong market positions around the world and has
leadership in more than 50 markets. It has 86 factories in 64 countries. The Head quarter
The company –
Popular international brands are: Lucky Strike, Benson & Hedges, Dunhill,
Kent, Rothmans, Pall Mall, Viceroy, John Players Gold Leaf, State Express
555 etc. and regional brands are Star, Wills, Casino, Gold Flake etc.
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Works to reduce under age smoking
Is one of the world's largest tree planters outside the paper and timber
industries{PRIVATE "TYPE=PICT;ALT="}
Has completed the largest merger in the cigarette industry {PRIVATE
"TYPE=PICT;ALT="}
Spent £30 million last year on environment, health and safety
BAT Vision:
profit growth.
Latin America – Central and South America, the Caribbean and Mexico
3
Europe – comprises over 50 countries including Russia
Six countries USA, Japan, Germany, UK, China and France account for half of the world
market in retail sales value terms and Japan, Russian, Germany and Brazil account for
other half of the total world market in volume terms. Overall, global cigarette market
volumes have been growing slowly. Prior to the Asian economic crisis in 1997, the
highest rates of growth were in Asia. This growth has been partially offset by the more
mature markets of North America and Europe. In terms of volume, the BAT Group
expects the global cigarette market to stabilize over the short to medium term and to
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decline over the long term. However, even in the long term, it expects the market to
continue to grow in terms of value in retail sales due to increase excise taxes.
Tracing its‘ heritage back to a joint venture formed by the Imperial Tobacco Company of
the United Kingdom and The American Tobacco Company of the United States in 1902,
Recent past:
Europe.
B.A.T Industries.
1979: The company exported its‘ first batch of cigarettes to China and
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continued for thirty years since the nationalization of its operations.
Industries.
1981:
Trading profits from the tobacco operations had tripled over the
steadily increased.
1984-1988:
B.A.T Industries acquired Eagle Star in 1984, Allied Dunbar a year
1989:
Pre-tax profits increased by 24 percent to over £2 billion.
1990:
Economic liberalization and the break-up of state monopolies
1991:
The group sold over 560 billion cigarettes in 160 countries,
1992:
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The first acquisition in the emerging democracies of Eastern
1997:
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British American Tobacco UK is the parent company of BAT Bangladesh.
During 1980‘s BAT Group was the number one cigarette manufacturing company in the
world, but now it is in the second position and its biggest competitor is PMI (Phillip
Morris International. BAT's major selling markets are China and USA. In terms of
volume and value combination, BAT is using low value, high volume concept, as most of
its brands are regional brands. In terms of volume, BAT sales for VFM brands accounts
for 67% and for premium brand it is 33%. But in terms of profit, its‘ premium segments
British American Tobacco Group acknowledges the risky nature of the selling
products. The aim of BAT Group is to have a process of open and constructive dialogue
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and to respond to society‘s changing ideas of how a responsible tobacco company should
company with an objective of producing international high and premium quality brand to
dominate the market. The Company has its Head Office and the cigarette factory in
Dhaka, a Green Leaf Threshing (GLT) Plant in Kushtia and a number of Leaf and Sales
9
Product Offerings: International quality premium segment to
low segment. E.g. B&H, JPGL, SE 555,
London, Star etc.
The ―Board of Directors‖ and Executive Committee (EXCO) govern the overall activities
of the company. The ―Board‖ is composed of 10 members who are called Directors. The
Chairman heads the ―Board‖. Chief Executive of BAT Bangladesh is called the
Director of the company is the chairman of the Executive Committee. This committee
includes the head of all the functional departments. Head of every department (HOD‘s)
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carries out their functions with the help of the line managers. Different departments have
all over the world in it‘s own name. Later it was named as “British
operations of BATCo.
1929:
Armanitola of Dhaka.
1930:
Dhaka.
1947:
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1954:
To meet the demand of East Pakistan, PTC set its plant in
February 02, under the provision of the Company Act 1913 BTC
formed.
1977:
The godown at Armanitola was shut down.
1988:
On March 22, the name of Bangladesh Tobacco Company (BTC)
1998: was changed to British American Tobacco Bangladesh (BATB).
2000:
Company in 5 chapters.
12
Currently, BAT Bangladesh reports to the MESCA regional headquarters for its
performance review and strategic direction guidelines. But from January 1, 2002 BATB
will be part of ASIA PACIFIC and will report to respective headquarters in Malaysia.
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14
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Ownership Status of the Company:
BATB is listed in the Dhaka Stock Exchange (DSE). It has an authorized share capital of
Tk.400, 000,000 comprised of 40,000,000 ordinary shares of TK. 10 each. 65.91% of the
company‘s shares are held by Raleigh Investment Co. Ltd. UK; 26.99% by Investment
Brand Portfolio:
In its‘ brand portfolio, BAT Bangladesh has a wide range of cigarettes for different
consumer segments. It is catering into premium segment, mid segment and low segment.
It doesn‘t have any brand in the very low segment. In its brand portfolio, BATB has
international premium quality Benson & Hedges both lights and full-flavored (which are
produced international brands such as, State Express 555, John Player Gold Leaf
(Lights and full-flavored), and London (Launched recently on 3 st of Nov 2001) and also
Among BATB brands some are centrally managed, some are regionally and
others are locally managed. For management purpose, the brand team has segregated the
whole portfolio into two other segments: Strategic Brands and Tactical Brands. Due to
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BRANDPORT
17
resource constraints, as it is not possible to support all the brands at a time, the company
provides all its support to the strategic brand portfolio that has long-term business
potentiality.
development programs in the country. The company is also one of the highest taxpayers
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British American Tobacco Bangladesh has won many awards during the last 30
years. The awards are the 1st prize of Prime Minister’s National Award on Tree
Agriculture in 1975, Sports Journalist Award and FAO Award in 1998 and the National
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INDUSTRY AND COMPETITIVE
ANALYSIS
the relevant industry, as the character and structure of different industries are
significantly different. The basic economic traits in the tobacco industry are as follows:
Market Size: Total tobacco industry is segregated into two broad categories:
Cigarettes and other tobacco related products like, Biri, Chewing tobacco (Jarda),
Pipe tobacco etc. Dominating segment is the Biri, Jarda segment. Around 72.6%1
population who takes some kinds of tobacco products smokes Biri or takes other
forms of tobacco products. Cigarette Market consists of the rests 27.4%. Industry
27.4%
72.6%
1
Source: Retail Audit-June 2001
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Market Segment: The tobacco industry is divided into four-market segment:
Premium, medium, low and very low. Very low is the most potential segment in
volume terms, as this segment is the stepping-stone for up gradation from Biri to
cigarette segment.
37.74
35.34
40
30 21.83
Premium
20 Very Low Medium
Low Low
5.09
10
Medium
Very Low
0 Premium
Analysis: From the above graph it is clearly visible that the very low segment has
segment of holding 5.09%, medium share 21.83% and low segment share
35.34%.
21
Scope of Competitive Rivalry: National. Different tobacco related products
including cigarettes by different local companies are also available in the local
increasing gradually. Biri market and other tobacco products are in saturation
Market Growth Rate: Market size of the industry indicates market growth rate.
The industry growth depends entirely on the country economy and the amount of
annually. But this year (2001), cigarette market growth rate is about 8-9% and it is
there are more than 100 companies playing around. British American
Tobacco Bangladesh is the market leader in all segment of the market with
47% volume share and 70% value share, followed by Dhaka Tobacco Industries,
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COMPETITIVE SCENARIO
domestically and nationally. Apart from all the tobacco companies, one external
threat is very active in the market and that is transit products (smuggled one) that
Distribution Channels: Large companies in the industry usually have their own
retailers channel to access the buyers. In the cigarette industry, as market is huge,
consumers directly. In most of the cases, distributors are playing the vital role
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BAT Bangladesh is not an exception. It has 60 distributors operating all
over the country bridging the gap between the two extreme parties. Though
distributors are independent yet, BAT Bangladesh monitors and control their
distributors.
changes over time and experience. Brand image and internalization matters a lot.
To capture the target market and to sustain the existing one, tobacco companies
need to survey continuously about their product quality and taste whether it
matches with the expected level of satisfaction. The market leader BAT
Bangladesh conducts consumer product tests time to time and changes the
Ease of Entry and Exit: High capital requirements make entry and exit difficult.
Moreover, stringent government regulations are there for setting up new tobacco
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Economies of Scale: High. As a capital-intensive industry, product quality and
consistency are key factors for success in the business. So, achieving economies
Learning and Experience Curve Effect: High. It is especially important for those
scale and also competing with the international brands in the market. Consumer
tastes, preferences and choices are continuously changing. For instance, a shift
are required. Therefore, scale of economy can only be possible through learning
and experience.
Industry Profitability: Above par. But this is possible, only when the firms are
Question No. 2:What is competition like and how strong are each of the competitive
forces?
Michael Porter‘s five forces model of competition is very useful in analyzing the
competitive situation, and the strength of the competitive forces in the industry.
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The rivalry among competing sellers:
The main rivalry in the Industry is among the major competitors, which consist of
domestic manufacturers, and to some extent transit products in the premium price
segment in the market. Price and quality are the major determinants of rivalry
among competitors.
Demand by ASU 30 smoker group (Adult smoker under 30) for new
Therefore, rival firms in the industry are likely to approach for licensing
lower price segment of the industry, where consumers are in the trend of up
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Substitutability:
There are as such no substitutes for cigarettes in the industry. But price, quality,
performance, perceived value of the product and brand image are the key factors
In the premium price segment, quality and brand image are key aspects for
the substitution. Due to high brand loyalty among consumers, it is very difficult
In the mid-price segment, the key for the substitution is the cost as well as
price. Better product availability in terms of quality and cost creates extensive
competition for substitution. Therefore, product with more and new attributes can
For instance,
2.50 per stick, then transit London took a huge chunk of the
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In the very low and low price segment, readily available and attractive
Entry Barriers:
Entry barrier is a strong force in the industry as the industry is very attractive in
industry.
quantity.
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Possible way of entering into this industry is through merger or acquisition or
Power of Suppliers:
As cigarettes are classified as Fast Moving Consumable Goods and produced all
over the world, all the firms have the leverage to choose the wrapping materials
tobacco for premium priced cigarette is also grown in Bangladesh and around
80% high quality tobacco is imported from different tobacco growing countries.
Therefore, suppliers tend to have less leverage to bargain over price and
quality.
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Power of Buyers:
market.
In the low-priced and very low priced segment, buyers have high bargaining
power as different brands are available and they can choose according to their
taste and preferences. But in the medium priced segment, quality, price and
Question No. 3: What are the drivers of change in the industry and what impact will
they have?
Changes that occur in an industry‘s structure and environment are influenced by the
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Changes in long-term industry growth rate: There is a great potential of upsurge of
sales.
changing need, rivals in the industry are competing with each other by often
changing cigarette design, blends and launching new brands in the market.
It has been seen that there has been continuous shift of customer
choice from full flavored Virginia blend to low delivery cigarette (Lights
cigarette). Again, BATB’s JPGL Lights and Benson & Hedges Lights; Dhaka
Tobacco‘s Legend White etc. are all examples of low delivery cigarettes that
are now available in the market to satisfy consumer need and expectation
level.
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distributors. Segmenting the market in terms of its geographic coverage,
sale promotions are key success factors in the industry. For instance, Benson
& Hedges ―Star Search Program‖; JPGL‘s ‗World Adventure‘ are examples
of marketing these brands associated with the respective brand world to reach
industry. Advances in technology can make a breakthrough and can shake the
materials and other inputs including tobacco. This has reduced costs of
tobacco companies, which could have been high if it required importing those
Changes in social concern, attitudes and lifestyles: Attitudes and lifestyle of the
controversial industry. Anti-smoking group are playing very active role all
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over the world. Dark Market is coming in the future where no above the line
communication (bill board, tvc‘s, poster, newspaper clippings etc.) will take
timely basis. For instance, The three leading tobacco companies in the
world, BAT, PMI and Japan Tobacco has taken the initiative proactively to
follow some Marketing Standards globally to keep balance with the anti
Bangladesh with wide range of brand offering in different price segment in the market.
Most of its‘ brands are certified by its‘ parent company in UK. BATB’s core strength is
embedded within its brands. Its‘ vision of extending its leadership through world-class
performance refers to the ownership of all international brands with world class
standard compare to other competitors in the industry and thus sustain its leadership
position.
development (Dhaka Cigarette factory and Kushtia Green Leaf Threshing Plant), skilled,
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34
manufacture site and also long term partnership contract with suppliers) and global
access to International market research(R & D at their global head quarter) has given
the opportunity to have competitive advantage over other competitors in the industry.
BATB enjoys around 47% market share in terms of volume and 70% in terms of value
share.
market. But some international brands are available, which come through the border of
Bangladesh as transit brands. This transit share in the market is around 0.3% (including:
35
LIGHTS SEGMENT SHARE:
LIGHTS SHARE
Marlboro Lights 2%
Note: Consider total light segment as 100%
BAT Bangladesh faces competition in the low and very low segment.
Though BATB does not operate in the very low segment, yet it faces competition, as
opportunity exists for huge chunk of market share in this segment due to up gradation
from Biri to cigarette. Dhaka Tobacco Industries (DTI) enjoys the most market share
among the domestic manufactures, which is around 37% in low and 18% in very low
segment, followed by Alpha 12% in low and 5% in very low and Abul Khair Tobacco
Question No.5: What strategic moves are rivals likely to make next?
Competitor‟s strategy and their next moves: Being the leader in the industry and to
sustain leadership, BATB should not be complacent and should predict its rivals‘
tremendous potential in the low and very low segment of the market. Small companies
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are more focused on very low price segment where BATB does not operate. The major
introduce new brands in the market for a very short period of time,
absent.
Many small local competitors offer a good deal of trade margin to their
retailers to promote their brands. They even offer good deal for
industry.
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Better customer services.
market segment. The strategy they are going to adopt is the low cost
strategy as the consumer in this segment are more interested in the cost
they are paying for the product rather than the quality of the product.
Saver, Navy from Dhaka Tobacco has a very good market standing
compare to other available brands in the very low and low segment
respectively.
Who will be industry‟s major player: The industry trend shows that the major
players are likely to continue to retain their positions. The main rival companies‘
like Dhaka Tobacco Industries (DTI), Alpha Tobacco Industry, Abul Khair
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Question NO. 6: What are the key success factors for competitive success?
Key success factors play a crucial role in determining what an industry has to emphasize
to be competitively and financially successful. The KSF‘s for tobacco industry are –
features.
process.
Flexibility in manufacturing
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Quality of manufacturer with fewer defects, consistency.
Fast delivery.
Appropriate advertising
Attractive Styling/packaging
Merchandising skills
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Organizational Capability:
Convenient Location
processes.
Question No.7: Is the industry attractive and what are its prospects for above-
average profitability?
The tobacco industry is very attractive because of its above average profitability, its
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COMPANY SITUATION ANALYSIS
The stronger the market standing of a company, the more likely that it has a well-crafted,
Strategic Moves:
increasing trend. According to 1999 market share, BATB had 38.99% share
compare to 42.98%2 in the year 2000 and 47.92% in the current year 2001, a
growth of 10.24% and 11.5% respectively. During this span of time, the
1999, 20.44% in 2000 and 17.44% in the year 2001. DTI‘s declining trend and
company.
had the sales of 13.1 billion sticks (sales revenue worth of 23 billion taka)
2
Retail Audit June 2001
42
profit after tax 3Tk.236,722,000 in 1999 and Tk.476,591,000 in 2000 indicates
in the premium, medium, and low segment. Though very low segment is the
potential segment for this company, yet till now BATB does not operate here.
Moreover, low priced segment is the crucial segment for this company as
competitions are very active and continuously trying to eat up BATB‘s market
share. BATB recognized the importance of retaining a critical mass in the low
priced segment. Cash and profit generation, entry point of Biri up trading to
As resources are scarce, it‘s not possible to engage all its resources
against all the brands and promotes all the brands at the same time. Looking at
the past trends, it has identified some strategic brands that will be profitable
for the company in the long run and decided to put all its efforts behind these
brands. BATB‘s ‗Strategic Brands’ are: B&H Family (both FF and lights),
JPGL Family (FF & Lights), and STAR. Other brands are Tactical brands
(SE 555, Capstan, and Scissors), which are in the portfolio for tactical purpose
3
Annual Report 2000
43
brand description
44
New Brand Launching:
To meet the consumer demand and being in the leadership position, BATB
has launched LONDON in the 1.5Tk. segment to grasp this price segment and
Portfolio Strategies:
organization.
month. It‘s a 18 months rolling plan with 3 months firm plan. Under this plan,
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CPM
46
a year is segregated into 12 different cycles focusing on all sorts of
operating all over the country and a strong, dedicated Trade marketing team to
ensure sell-in and sell-out of its brands to the retail level and to the consumers
recognizes them as its Valued Business Partner (VBP‘s) and doing businesses
followed by BATB:
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Implement performance based contracts with all the
appropriate.
48
To operate as ‗Best Cost Provider’ in the industry, BATB has to act
The best defense is the good offense. Being offensive minded leader, BATB is
always act as first mover’s in the industry to sustain its competitive advantage
customer services and finding ways to cut production costs. BATB always
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b) Fortify and Defend Strategy:
Through this strategy, BATB makes it harder for new firms to enter and for
challengers to gain ground. The goals behind BATB‘s strong defense are to hold
on to the present market share, strengthen current market position and protect its
offering.
4
Retail Media: A high quality grocery outlet giving the essence of the presence of a particular brand
without demonstrating that brand and creating a brand world for that brand. eg. Shop n Save, PQS, Stop n
Shop are B&H retail media.
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c) Follow the Leader Strategy:
With this strategy BATB uses its competitive muscle to encourage runner-up
firms to follow. For instance, when BATB introduces tax-stamp, its biggest
brands.
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40
20
0
CT 9
- O 000
- A 999
- A 000
- A 001
01
- D 998
- D 999
- D 000
- F 998
- F 999
- F 000
- J 999
- J 000
- J 001
9
- A 199
- A 200
19
20
2
1
2
1
2
1
2
1
2
N
N
SE UG
SE UG
EB
EB
EB
CT
JA EC
CT
JA EC
PR
PR
PR
E
U
-O
-O
AY
AY
AY
N
N
AR
AR
AR
P
P
V
V
L
L
JA
SE
JU
JU
O
O
M
M
M
M
N
Analysis: From the above graph, its quite evident that BATB’s volume
1999, 2000 and 2001 are in increasing trend compare to its competitors. In
the same period of time some competitors had increasing and some had
decreasing trend.
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Customer Service: BATB is very serious in maintaining its relationship
its distributors through ‗On time in-full‘ (OTIF) delivery from factory and
70
60
50
40
30
20
10
0
99
00
98
99
00
9
00
01
98
99
00
99
PR 0
01
9
00
01
99
0
99
19
20
19
19
20
20
20
19
19
20
19
20
20
20
20
1
AY R 1
UG
G
EC
EC
N
N
T
T
EB
EB
EB
R
C
C
E
U
U
U
P
P
-F
-F
-F
-O
-O
-O
-D
-D
-D
-A
-A
-A
-J
-J
-J
-A
-A
AY
AY
N
N
V
V
P
P
AR
AR
AR
L
L
JA
JA
JA
JU
JU
NO
NO
NO
SE
SE
SE
M
M
M
Analysis: From the graph, BATB’s increasing value share (70%) trend is
visible compare to other competitors.
52
Corporate Reputation: BATB is continuously striving to enhance its
controversial industry.
responsible company:
The Health Warning Clause must be on the front and back panel
of the pack in contrasting colour.
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Social Works:
far, it has planted 35 million trees across the country. Besides this, the
groups.
adult choice. Its target consumers are ASU 30, Adult smoker under 30.
as well. Yet, its concern for youth smoking again indicates its responsibility
54
Question No. 2: What are the company’s resource strengths and weaknesses and its
Strengths:
No.1 leading cigarette manufacturing company in the
country in terms of market share and consistent leader
in liquidity and profitability.
Effective Trade Marketing and Distribution.
International brand-name image
Eminent Corporate reputation
Talented work force.
Strong and motivated Trade Union
Global sourcing for raw materials
Superior Technology
Strong Brand portfolio
Dedicated Distributors as valued business partner
Strong partnership with key suppliers.
Weaknesses
Cannot operate in the very low segment
Not diversified as other competitors
Foreign exchange availability/restrictions for importing
raw materials for international brands
Pays excise where competitors avoid paying taxes to govt.
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Opportunities
Threats
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Question No. 3: Are the company’s prices and cost competitive?
BATB is striving for best-cost cigarette producer not only in Bangladesh but also in the
American Tobacco. There is an intense competition in the region as well, to become most
In order to achieve competitive position in the region BATB had taken initiative in the
year 1999 to achieve the regional benchmarks in different identified element of cost.
Fixed Cost:
Variable Cost:
farmer.
tobacco.
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2. Local Sourcing / Conversion of raw materials like Tipping paper,
driven.
reduction.
Partner.
Cascade down the vision and mission of the company at all level and
Looking at the BATB performance, it is evident that the BATB could keep its price
stable because it has the ability to produce efficiently with reduced production cost. But
still there are areas for improvement to become competitive in the region.
58
Question No. 4: How strong is the company’s competitive position relative to its
rivals?
BATB is the market leader in Bangladesh market because of its international brand
quality brands.
Well positioned in the premium and mid segment where there is no presence
of competitors.
has been carried out considering some industry‘s Key Success Factors (KSF’s) and on
advantage.
59
Weighted Competitive Strength Assessment
rating
Analysis: From the above „Weighted Competitive Strength Assessment’, its being
quite evident that BATB is the market leader scoring high among its core
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Question No. 5: What strategic issues does the company face?
At present the strategic issues faced by British American Tobacco Bangladesh are
as follows:
BATB should capitalize the opportunity to enter into the very low segment,
as a huge chunk of ‗Biri‘ smokers are there who can use very low segment as
potential consumers can have BATB offering in front of them at the time of
up trading and choose the preferred brand at the time of starting smoking
cigarettes.
There was a time when BATB was the leader in each of its operating
segments. But due to competition in the low segment, in the recent past, it has
existence of rivals in the very low segment is taking away the opportunity of
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grabbing some market shares. Currently, BATB‘s market share is around
47%. To increase it to the desired level in the 10 years strategic plan, it needs
to restructure its brand portfolio by having its presence in all segments of the
market.
revenue every year through increasing tax structure. BATB needs to manage
the Board of Revenue to sustain and keep the excise duty in control to manage
the costs.
to some unethical practices by the local industries such as not paying properly
the exact taxes with respect to their actual sales to the government, rivals can
manage to sustain their pricing policy in the market. There are also quite a
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significant numbers of transit products available in the market, which, as well
Isn‟t it crucial for BATB to improve its KSF‟s and achieve the regional
benchmark target?
Although BATB is the market leader in Bangladesh, it is not the market leader
in the region. In order to achieve leadership in the region, BATB must focus
Shouldn‟t BATB revise its brand portfolio in terms of strategic and tactical
brand that exhibits growth with out any support. If enough support is given
behind this brand this might help the company for achieving higher profit in
with the local ones for reducing the supply chain costs on a continuous
improvement basis?
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The cigarette market is growing and in order to sustain the current pricing of
the products, more and more imported tobacco grades have to be substituted
Markets?
Market is becoming darker day by day. People are becoming health conscious
and as a result restrictions are becoming stringent than before. Even one day
will come when all sorts of advertisements will be banned. To deal with such
environment and protect its business BATB should take measures proactively.
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STRATEGIC TASK ANALYSIS
VISION
MISSION:
STRATEGIC IMPERATIVES:
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GUIDING PRINCIPLES:
o Open-minded
o Enterprising Spirit
BATB VALUES:
Activities:
Activities:
-Order Management
-Order fulfillment
-Inventory management
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Resource management.
Activities:
-Manpower Planning
-Organizational Development
Activities:
-Product Availability
-Trade Marketing in-store communication and
promotions.
Account Management.
Activities:
-Account (Grocery, Convenient, HORECA) Planning
-Account Profitability
-Business Development
Information Management
Activities:
-Market Intelligence
-Internal Monitoring
-Information Technology
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STRATEGIC PLANNING:
During the second quarter of 2000, BAT Bangladesh conducted a full ten-year strategic
review of the Bangladesh market and the company position. Every year this 10-year plan
takes a concrete shape without any major changes in context of the ten-year vision.
BATB recognizes the need to both extend the current leadership position in all aspects of
the business with clear focus on identified must win segments, and to strengthen and
Ten areas of strategic focus have been identified and they are as follows:
3. Drive Lights
penetration.
9. Development of People
68
It is assumed that there will be no change from the current site of manufacturing, and
current manning levels will be sufficient to manage the growing business with a phased
under 30)
Manage a tactical entry into very low segment to enhance rural penetration.
69
Develop a differentiated channel strategy.
Prevention) Campaign
Non-management development.
70
Excise lobbying, rationalize slabs, increase floor of the market and increase
Build open and trustworthy relationship with pressure groups that will
organization.
71
OBJECTIVES:
2010.
2010.
block competition.
72
Achieve value growth through upward line extensions of drive
AN brands.
AL
Achieve market dominance by improving share in sub-urban and
YS
rural areas through:
IS
--increase support for Star family.
OF
--tactical launch of a brand in the very low segment.
BA
BAT Bangladesh is a single business company and hence does not have
Business strategies:
potential opportunity.
objectives.
base.
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Intensify competition with rivals by improving the quality of
them.
Operating strategies:
targets.
introduced in 1999.
Value.
74
EVALUATION OF BATB’s FINANCIAL, MARKETING, AND PRODUCTION
5
Calculated from Annual Report 2000
.
75
From the table, it‟s being noticed that BATB‟s Return on Asset (ROA) is
33.1% in 2000 compare to 15.4% in 1999, which almost got doubled. This measures
the overall effectiveness of the companies‟ management in generating profits with its
BATB‟s ROA is in increasing trend, it appears that shareholders feel comfortable and
confident enough to invest in this company, rather any other place. In future, if
BATB can meet the sales forecasted demand its‟ ROA will definitely improve further.
Profitability Ratio
From the owner‘s perspective, BATB is also doing well. Its Return on Equity
increased from 15.5% in 1999 to 27.4% in 2000. Its‘ Net Turnover and Net Profit After Tax
Tk.5,388,977,000 (in the year 2000) and from Tk.236, 722,000 to Tk.476, 591,000
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Current ratio measures the liquidity of the company i.e. the company‟s
ability to pay off the short-term obligations. From the table, it is very much evident
that BATB is having problems in maintaining its cash flow (current ratio 0.88). Its‟
short-term borrowing is also high and frequent and compare to industry average
Moreover, the Debt to Equity ratio for BATB is 19.6% in the year 2000 and
71.2% in the year 1999. This indicates that BATB has improved its performance in
it measures the proportion of total assets financed by the company‟s creditors. The
figure, 53.4% in 1999 and 61.24% in 2000 indicates that BATB‟s investment is mainly
financed by external sources and therefore, has more financial leverage compared to
industry average.
Leverage Ratio
71.20%
80%
60% 53.40% 61.24%
40%
19.60%
20%
0%
1999 2000
Debt Ratio Debt to Equity
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Both the Current Asset and Current Liabilities of the company are in
decreasing trend indicating that the company is focusing on investment rather than
having current assets in its hand (idle cash in hand) and having less amount of current
liabilities as a whole.
and Net Profit Margin (from 1.66% to 2.78%) also indicates that the company is also
doing well in earning profits on operations and its success with respect to earnings on
sales.
Profitability Ratio
5%
4.20%
4%
3.27% 2.78%
3%
2% 1.66%
1%
0%
1999 2000
Again, BATB‟s increasing Interest Coverage ratio (3.6 to 11.1) indicates the
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Marketing Performances:
Product: BATB’s has a wide variety of brands in its product line. It has
international premium quality (centrally managed) brands like, Benson & Hedges
(B&H) both full-flavored and lights, and SE555; Value for money (regionally
managed) brands like, John Player Gold Leaf (JPGL) both full-flavored and
lights, and LONDON; and Domestic Value for money (locally managed) brands
like, Star filter and plains; Scissors filter and plains; and Capstan.
Among its brand, BATB pays royalties for B&H, SE555 and LONDON. For all
Group) in London. No decision can be taken without their due permission. Even
for advertisements and promotions every bits and pieces are guided by IBG
guideline.
BATB has developed the capability of producing all its international brands,
factory. BATB brands are available in three types of SKU’s (Stock Keeping
Units): Hinge lit (HL), Soft-Cup (SC) and Shell and Slide. All international brands
and Capstan are available in 20s HL pack. It has 10s ‗Shell and Slide’ pack on
Star and Scissors and 20s Soft Cup pack on Star. Plain brands are available in 10s
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Price: Competitive price is being offered by BATB while keeping pace with the
competitions. BATB products are available in the entire price segment of the
market except the very low segment. As around 87-90% of the total cigarettes are
sold in sticks rather than whole pack, price segmentation has been done on the
In the premium segment at Tk.3 per stick, the parent products are Benson &
Hedges and State Express 555, with line extension of Benson & Hedges Lights.
These international brands have excellent product image with a segment share/
In the medium price segment at Tk.2, John Player Gold Leaf is the bread and
butter for the company with international image in both Full- flavor and Lights
In the Low price segment at Tk.1 plus, the brands are Capstan filter, King Size
LONDON, Star filter, Scissors Filter, Star Plain and Scissors plain. These
brands have a volume share of 35.34% declining from 56.37% 6 market share due
to tough competitors.
6
Source: Retail Census Q1 2000.
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Place: BATB products are reached to the ultimate consumers through its
designated distributors. BATB has 60 distributors all over the country. These
Territory officers (TO‘s) of the company. For 60 distributors there are 40 TO‘s
Regional Managers (RM‘s). These regions are Dhaka Metro, Dhaka Outer,
Chittagong, Khulna, Sylhet and Rajshahi. Regions are again divided into 12
strategic areas and headed by 12 Area Managers (AM‘s). Under each Area
Manager, there are Territory officers who are responsible for their defined
and HoReCa (Hotel, Restaurant & Café). The distributors cover groceries and
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Major sales are done through Cash & Carries, small mobile outlets who buys
directly through distributors. Small retail outlets also takes BATB‘s product from
some major retail stores in the wholesale bazaar (like Mowlobibazar of old
Dhaka), where all the trading takes place for all kinds of consumable goods.
company. Therefore, they are also engaged in various company programs like
initiatives.
Promotion: BATB has strict CORA guidelines for promoting its brands. Apart
from CORA guidelines, there are strict IBG guidelines for promoting international
brands. For such kinds of brands, advertisements and promotional activities are
same all over the operating companies of British American Tobacco. Again
from legal point of view, under company act 294 (B), BAT cannot run any
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In Bangladesh, television advertisements are banned in local broadcast television.
Now a days, other private channels like ETV, Channel Eye, ATN Bangla are used
to advertise BATB brands. Other promotional campaigns for Benson & Hedges,
State Express 555 and John Player Gold Leaf are done in other medias like
sponsoring concerts. Branded outlets for JPGL and Star are now common type in
the market to promote that particular brand. Other merchandising materials for
promoting brands are: branded in-store cabinet, street cabinet, desktop, light-box,
canopy, sunscreens and so on. There are also cycle based promotions for outlets
like, poster, dangler, bunting, sticker, trade letter, consumer lift-let dispenser and
Production Performances:
MISSION:
“We delight our consumer with superior quality product through most flexible
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Product harmonization.
4.0).
in declining trend over the past few years. Even 3 years back it was
ground.
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Product cost Tk.296 per mille against Tk 300 per mille.
7 6.05
6 5.18 5.39
4.99
5
4
3
2
1
0
1998 1999 2000 2001
STRATEGIC INTENT--Manufacturing:
in the region.
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Clear objectives / challenge / KPI for management and shop floor
employees.
Improve productivity.
- Strategic thinking
- Leadership and
- Team building.
Technical development.
- Technology effectiveness.
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QUALITY STRATEGY:
Quality Focus:
Smoking Quality.
Consumer complaints.
Vendor development/partnership.
BATB has developed some local suppliers as its valued business partner
suppliers deliver raw materials on ‗Just in time’ basis, usually less than a
day, for using in its‘ production line. BATB usually has one-year contract
with these suppliers where prices are settled for that period. It also has
agreement to have safety stock of raw materials for 1.5 month, work in
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progress material for 7 days and finished materials for 7 days. For better
manufacturing plan of the company for next 18 months through direct link
materials are available in the factory premises and thus benefiting the
Leaf Performance:
MISSION:
competitive cost.”
LEAF OBJECTIVES:
Organize Cultivation
Quality Improvement
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Import Substitution
Export
CHALLENGES:
(S&OP)
Storage
Weather
Unethical Competition.
Price Sustainance
Quality Improvement
Industrial requirements
Seed Planning.
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LEAF OPERATION:
companies in BAT has got its independent leaf operation: leaf growing and
farmers, who grow tobacco leaf in their lands with the financial and technical
support from the company. The leaf processing operation is done in the GLT
(Green Leaf Threshing) plant located at Kushtia. GLT runs for 5 months of the
year during the leaf buying and processing time. The hourly throughput (ideal) is
7,500 kg per hr, which cover both domestic and export requirements.
achieve the tobacco-growing target and fulfill the local demand as well as the
Mature harvesting.
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Barn management (Development in the Tobacco curing
equipment).
Grading.
environmental awareness).
Although BATB is not directly involved in the cultivation but due to its deep
create awareness and manage pest control among the growers. This process
includes:
Continuous Training
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Future Challenges:
certain level and for further cost minimization following programs has been
identified:
the manufacturing.
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LEAF SOCIAL:
in the leaf growing areas with a target group of their valued business partners
(farmers).
Activities on Focus:
for primary education and 100% VBP‟s know how to sign their
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Safety---To ensure VBP‟s safety, BATB arranged leaf payment
MISSION:
Earlier in BATB there exists two groups of people: Management and Non-
with them for the betterment of the company as a whole. These two groups were
busy in a tag of war with almost anything. A common understanding into any
issue was very uncommon. Nothing could be decided without negotiation. Win-
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technical training. Lack of business sense; communication gap, trust & forward
BATB now values its people as Human Capital. In 22nd November 2001 MRP II
a whole. The company started to reshape its structural set-up by removing barriers
Actions Taken:
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Introducing common dining facility: Managers and employees started
the employees.
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BATB has a very good corporate reputation for excellent
ACHIEVEMENT
COMMITMENT
TRUST
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IT Performance:
finance department. But now, IT department has been expanded with its own
pace of regular business activities. In the last MRP II Audit, IT of BATB has been
System‘ that integrates all the systems and data for making appropriate decisions
controversial industry, anti smoking lobby always put pressures on the company.
Today‘s smokers are becoming alert and desire to have something with a lesser
amount of Tar & Nicotine percentage. To maintain certain level of these two
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Moreover, consumer preferences are changing. To meet the demand of their tastes
and preferences Product Development Manager and Blender are trying to develop
new blends and even to improve the current blends proactively. BATB Research
Lab is equipped with latest equipments like ‗Smoking Machines‘ that measures
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PROBLEM ANALYSIS
Problem areas of BATB both in terms of external and internal aspects are as follows:
MAJOR PROBLEMS
Strategic Problems
Brand Portfolio:
exception. Around 87-90% cigarettes are sold on stick and market segmentation has
done also on the basis of stick price. BATB brands do not exists in all the existing
market segments. In those vacant segments, BATB does not have any product
available and therefore, it is always under potential threat of new product entry in the
market.
Market has great potential (volume terms/value terms) in the very low segment. But it
is not economically viable for BATB to operate in this segment and earn reasonable
profit after paying excise. As competitors are well known for unethical practices in
terms of excise payment, they are making profit by operating in this segment and
capture both volume and value share without facing any competition from the
industry leader.
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Increasing Excise:
pressure for increasing excise demand from the government. BATB has to manage
the excise structure and put constant pressure for not making any excise structure
segments from transit Marlboro (around .03%). There was a time when BATB used
to face competition with its own BAT companies cigarette brands. These brands are
not duty paid therefore, they are available in comparatively cheaper price compare to
BATB‘s brands. Sometime, counterfeits of some of the major brands of BATB like
JPGL, SE555 and Star or Scissors filters are available in the market. This has become
a serious concern for the company as the quality of the counterfeits is very low and
Industry Shifts:
Even till 1990s smokers preferred to smoke plain brand cigarette with a very strong
and hard taste. During 90s the smokers‘ preference started shifting towards full
flavored Virginia cigarettes with lower delivery and king size filter cigarette. Today‘s
smoke lower delivery cigarettes and therefore, preference for lighter cigarette has
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been increased. To meet this industry demand, new technology in the industry with
The cigarette market is very price sensitive. In the early 2000, BATB had to reduce
the price of its mid segment brand JPGL due to loss of sales, a result of the price
increase by 2.5% in early 99‘s. To stabilize the situation, BATB had to increase its
sales volume to optimize its value share. Lots of cost reduction initiatives were taken
production costs etc. In future, such kind of threat is always there for BATB.
Operational Problem:
Increasing Manufacturing cost is one of the key issues for the Operation department
BATB‘s product costs, conversion costs and material costs are higher than the other
operating companies of British American Tobacco and also higher than the region
(MESCA) average.
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ALTERNATIVE STRATEGIES:
Brand Portfolio
Alternative 1: BATB has the resources available and thus, can fill up its vacant
segments when it will experience potential threat from new entry in the
market.
Pros:
No need to invest money right now behind this matter. Rather can
success.
Cons:
Competitors will have the opportunity to grasp the potential value and
the opportunity.
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Alternative 2: BATB can start thinking proactively to have its presence in
Pros:
BATB will grab volume and value share in those segments before
anyone else.
their brands.
‗Dark Market‘.
Cons:
those segments.
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Pros:
Cons:
low segment, and it should be happy with its existing brand portfolio.
Pros:
It won‘t loose money and will be able to maintain its profit growth.
Cons:
segment and will continue grabbing the market share in this huge
potential segment.
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Increasing Excise:
Alternative 1: BATB can lobby and maintain good relationship with the
Govt. officials for stable excise payment. On this issue, the company can take
win scenario. This was done in the past and thus resulted positive outcome for
both government and the cigarette industry. For instance, As per BATB‘s
Pros:
future.
Excise stability will give the company additional cash its hand.
Successful roll out of tax stamp will enhance competition within the
industry.
Cons:
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Increasing Transient/Counterfeits:
Alternative 1: BATB can lobby with the Govt. and law enforcing agencies by
discourage counterfeits.
Pros:
Govt. will get more excises, as smuggled ones are not duty paid and
BATB will be able to sell more and grab market share if no transit
Cons:
In the premium level, the company will face competition where BATB
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Industry shifts:
firms to enter and for challengers to gain ground. Therefore, company can do
lights segment. It can also create a state of readiness within the company for
different low delivery cigarette for different price segment. The company can
launch brands on trial in the test market as a part of niche strategy to identify
Pros:
Cons:
its premium (B&H, SE555) and value for money (JPGL) brands are perceived as
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international and high quality product. Therefore, company need to continue
Pros:
Quality enhancement.
Cons:
matter.
Pros:
Cons:
The company will act as follower not the leader of the industry.
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The costs of cigarettes are related with production capacity. BATB can put
operations.
Pros:
and integrity.
Pros:
Union will not act as barrier in case of any change for the betterment
of the company.
Union leader will act as catalysts between the management and the
union.
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RECOMMENDATIONS:
There is nothing called best solution. Looking at BATB, in market the company is in the
best position and enjoying the market leadership. Following recommendations can be
made to support the company‘s overall strategy for further enhancements of its operations
in this country:
Continuously monitor 10 years strategic plan and its execution phases year
demand and its responses, and find out whether plans are aligned with the
up the gaps (eg. at Tk. 2.5, 3.5 and even introducing super premium
brand).
Should continuously monitor and reshuffle its strategic and tactical brand
portfolio as per the industry trend. For instance, can think of giving effort
behind SE555.
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BATB should try to achieve the economies of scale in order to reduce
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IMPLEMENTATION PLAN:
Implementing strategy entails converting the organizations strategic plan into action and
into results. And thus it is the most difficult task of strategic management. The
managerial task of implementing and executing the chosen strategy requires assessing
what it will take to make the strategy work and to reach the target performance on
schedule. The managerial skill here is being good at figuring out what must be done to
put the strategy in place, execute it proficiently, and produce good result.
levels of managers across the company. The top management of BATB should
continuously reinforce and cascade down its mission, vision and strategies across the
company and transform each and every one within the company into manager in his/her
area of concentration for overall development and widening the business line.
Formulate plan of actions for potential unfocused market segment and act
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Continuously striving for innovative strategies to have edge over competitors
demand.
Lobbying and keeping good relationship with the Govt. for effective
implementation of ‗tax-stamp‘.
Find out cost occurring activities in the supply chain and try to fix up the
Technology (IT) and creating new arena to add velocity in the respective business
process.
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BATB need to increase morals of its front-line management, Trade Marketing
& Distribution by offering them quick career growth, as they are the key contact
machineries can breakthrough production capacity per day and help the
productivity.
Planning & Logistic Manager: The planning and logistic manager has the
chain activities in a cost effective manner. Supply chain scopes starts from
and must becost effective to increase the profitability and velocity in the
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Shifts/Plant Manager:
(MPS).
Demand/Marketing Manager:
users.
managers to proactively take the steps of developing new blends and new
brands. The product manager should be ready with „Off the shelf’ brands so
that when ever market requires, the company can launch /introduce new
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Brand Manager: Brand managers are the custodians of BATB brands.
media, they need to find out consumers needs and wants and try to
compensation packages.
development.
the company.
floor.
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He should look into different safety precautions like:
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CONTINGENCY PLAN:
In any planning process, contingency plan needs to be incorporated for what if scenario.
Even the best plan may fail. There is no guarantee that specific plan(s) will work out
In the BATB’s strategic plan, focal points are its volume share and profit margin. To
have higher volume share and incremental profit margin, some key assumptions are:
If any of the above assumptions change due to external forces, there is a possibility
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Therefore, the contingency plans are recommended as follows:
Growth in the premium and mid segment contributes higher profitability margin.
BATB is recognized by the corporate Head Office for the leading candidate within the
region for exporting cigarettes. As a result BATB might consider exporting its premium
and mid segment brands in the international market and earn foreign exchange for the
Diversification:
to unrelated products like ITC (Indian Tobacco Company) and expand its business
horizon.
The lower brands of BATB are produced in the low productive machine and the
current employee cost for BATB is Tk. 26,000 per month. With strategic alliance with
the local manufacturer, BATB can produce these brands with much cheaper cost. This
will enhance the profit margin of the company as well as well increase the sale volume
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New style of brands in the portfolio (Low delivery and US blend cigarette):
As the tastes and preferences of the consumers are shifting towards low delivery
cigarette, the company can gear up its resource and technology and be at the state of
readiness so that demand can be created in the market. BATB can even think proactively
Phillip Morris.
It is therefore, suggested that a proper study should be carried out to identify each of the
contingency plan. Once the study is done, company should be prepared to implement the
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