Tobacco Investors Unfazed by Packaging Regulations

plainpkgingTobacco companies in Europe are worried about plain packaging laws slated to go into effect next year, but their investors are unfazed. In Australia, cigarettes have been sold in plain packaging with warnings of the effects smoking has on health since 2012. In 2014, plain packaging laws were proposed in France. Earlier this month, Ireland placed a ban on branded cigarette packs, and the United Kingdom Parliament voted in favor of plain packaging.

Tobacco company executives are concerned about the effects of being unable to use custom product packaging. Imperial Tobacco’s director of group corporate affairs, Axel Gietz, believes the plain packaging will take choice away from consumers. “We have a fundamental right to differentiate our brands from those of our competitors,” he told the Wall Street Journal. Another concern executives have is the decreased sales due to increased availability of illegal cigarettes. Plain packaging, they argue, makes it easier for smugglers to pass off imitation cigarettes as genuine.

“Initially, cigarettes without branding will continue to sell. They are addictive after all. Without an obvious difference between brands they will be forced to sell on a lower price,” said Don Keller, owner of Catalpha Advertising & Design. “When profits slip, you’ll see an increased effort to gain some type of packaging concession. Perhaps just adding their logo which in itself should be enough to sway a buyer’s decision.”

Tobacco companies’ investors don’t see the plain packaging as such a bad idea. As sales volumes decrease, companies are spending less money on production and new technology. The plain packages and advertising restrictions will also save thousands of dollars that would have been used on design and marketing.

Restrictions on creating custom product packaging have another unforeseen side effect. When all the packages look alike, it is more difficult for new brands to differentiate themselves. These barriers to market entry decrease competition, allowing already-established brands to flourish. In addition to lack of competition, rising prices of cigarettes combine with smaller tax percentages to increase profit margins across the board.

While tobacco companies prepare to sue legislators over the right to custom product packaging, European consumers will have to wait to find out how plain packaging affects their buying decisions. Meanwhile, unworried investors will continue to improve tobacco companies’ stocks until the plain packaging changes the market.