Two tales of tobacco sales

August 5th, 2010 by Philip Brasor & Masako Tsubuku

Get 'em while they're cheap

Get 'em while they're cheap

1. Like a smoker trying to quit, Japan’s tobacco companies are having a tough time sticking to one plan of action following the Finance Ministry’s decision to raise the tobacco tax ¥3.5 per cigarette starting Oct. 1. In March, British American Tobacco Japan, No. 3 in sales after JT and Philip Morris, announced it would raise prices in conjunction with the tax hike, and then almost immediately withdrew its application from the FM, saying it needed to study the changing market environment further. Philip Morris did the same thing, only in their case they had already gained approval from the FM for a price increase.

Now BATJ has reapplied. On July 26, it submitted a new request to increase prices on all of its 62 brands on Oct. 1 from ¥110 to ¥130 per pack, including the ¥70 tax. A pack of Kools, for instance, which now costs ¥320, will go up to ¥440. Apparently, BATJ studied the situation and decided that instead of biting the bullet and trying to absorb the estimated 20 percent drop in sales that experts say will occur when the tax hike goes into effect, it will try to cover the loss with a price hike; except that they aren’t putting it in such clear, obvious terms.

According to media that have reported the price increase, BATJ said that the estimated loss in sales from the tax hike will mean higher per-unit production costs and so they have boosted the price to make up for it. The way I understand it, that means BATJ isn’t increasing the price in order to cover the loss of revenue caused by all those smokers who will finally decide to quit, but rather to pass on production costs, which, I suppose, sounds more acceptable. Whatever. The cigarettes will still be considerably more expensive.

2. In 2008, the Tobacco Institute of Japan introduced the TASPO card system to help prevent minors from buying cigarettes from vending machines. Smokers had to apply for and receive the card, which was needed to operate cigarette vending machines. However, for cigarette merchants the system is expensive and inconvenient, and a lot of smokers have just given up and buy their cigarettes over the counter.

As a result, one vending machine manufacturer came up with the kao ninsho (face recognition) device, which obviated the need for a card. Using special software, a machine could look at a purchaser’s face and decide whether he or she was over 20. No need for a card and no need to confront some deaf old lady sitting behind a little window who couldn’t tell if you asked for Mild Seven or Marlboro. Though the leasing price for the machines is pretty high — ¥1.2 million — retailers throughout Japan set up 5,239 of them.

Apparently, many don’t work. The Finance Ministry has received numerous reports of minors going up to the vending machines, putting their money in, positioning their visages in front of the cameras, and then squinting to make wrinkly faces. The machine gives them the cigarettes they want. The manufacturer has said that it seems to be a software problem that affects about one thousand of the machines. By the end of June, the company had uploaded new software into about 78 percent of all the face-recognition devices.

According to the Asahi Shimbun, one cigarette store in Kurume, Fukuoka Prefecture, reported that the new software is even worse. It doesn’t seem to recognize any face, so no one can buy cigarettes. He called the supplier and had them reboot the old software and now he just goes outside whenever he hears somebody using it to check if the person is old enough; which, of course, contradicts the whole point of a vending machine. Then again, shouldn’t cigarette purchases be made as inconvenient as possible?

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