Turning Japanese

Daniel Torras tells Ronan Hegarty why JTI will continue to flourish despite the challenges posed by legislation


Sitting in his soon-to-be refurbished office in leafy Weybridge, Daniel Torras is still adjusting to British life. It's a year since the Spaniard took the top job at JTI UK following the parent company's £7.5bn acquisition of Silk Cut and Hamlet producer Gallaher in 2007. So unsure was he about British cuisine that he persuaded the head office canteen to serve a more cosmopolitan range of dishes.

Fortunately he has had no problem getting his head around the business side of things - no mean feat given that he oversaw the integration just as the tobacco industry entered one of the toughest legislative and economic periods in its history.

In the last two years the tobacco industry has been hit by a smoking ban in public places, an increase in the legal minimum age for buying tobacco from 16 to 18 and the introduction of mandatory graphic pictorial on-pack health warnings.

With legislation going through Parliament that could outlaw the display of tobacco in-store, does the ex-smoker ever think he might be in the wrong game?

"Of course, there is controversy surrounding tobacco," admits Torras. "But lots of industries have issues - whether that is alcohol, food or even banking. We live with that. Tobacco is a controversial product and it is important we provide our consumers with the necessary information so they can make an informed adult choice."

Luckily, the integration of the two businesses hasn't got in the way. "JTI and Gallaher were similar businesses in terms of scale," he says. "Perhaps the biggest difference was culturally."

Not that this will have been a problem for the man who kicked off his tobacco career 14 years ago - in the Glorious Nation of Kazakhstan. Needless to say, it is not the backward nation painted by Borat, and Torras says he enjoyed his time working there for US tobacco firm RJ Reynolds. "It was a lot of fun," he admits. "We were young and we had a good time."

An older and wiser Torras now faces a more serious set of challenges. The company will continue to meet them by investing in brands and people, he says, insisting there won't be any job cuts. In fact, JTI has recently increased its sales force in the UK from 170 to 225, he says, arguing that sales people on the ground are vital for the trade to understand the impact of legislation on their business. In addition the absence of consumer advertising leaves face-to-face contact as the only means of explaining the purpose of different brands.

The strategy certainly appears to be working. JTI currently has nine of the UK's top 20 biggest cigarette brands. Six of these are in good growth according to the latest figures from Nielsen, a fact particularly impressive in a category that fell by 2.8% in terms of the number of sticks sold in the year to November 2008.

Torras remains hopeful that the Government can be persuaded not to go ahead with its plans to bring in a display ban. Under the Health Bill currently going through Parliament, supermarkets will be banned from displaying tobacco from 2011, and smaller shops from 2013. "Tobacco is a legal product, but the display ban is a disproportionate response," he argues. "It is not based on evidence and we believe that it will unfairly punish retailers."

There are better ways to reduce the number of young people smoking, believes Torras. Why not make proxy purchasing (adults buying for kids) a criminal offence? Or introduce stronger penalties for retailers selling tobacco to underage customers? No-ID-no-sale schemes? Better education on the risks of smoking would also be far more effective and less intrusive than a display ban, he says.

The danger of a display ban is that it could drive up the amount of smuggled and counterfeit tobacco being sold, he adds. Canadian Convenience Stores Association figures last month revealed that since a display ban was introduced last year, illicit trade has rocketed. The contraband trade, which accounted for 21% of all tobacco sales in Ontario in 2006, rose to more than 50% last year.

By stigmatising the sale of tobacco through legitimate outlets, it will become easier for the criminals behind the smuggling to operate, he says, adding that the situation will only be compounded by the huge levels of tax payable in the UK. At 85% of the retail price, the UK tax on cigarettes is the second-highest in Europe and three times that of Spain, France and Greece, from where most of the smuggled products come into the UK.

"The people behind the smuggling are real criminals involved with arms smuggling, drugs, people trafficking and prostitution, and the supply of tobacco provides them with a steady income," he says. "So doing anything that will make it easier for them is just wrong."

JTI is working with retailers and engaging with politicians to fight the Health Bill. It's not impossible, says Torras, pointing to the decision of New Zealand's prime minister to stop similar plans in that country.

Regardless of the outcome, it will continue to adopt a long-term view of the market. "For most things we talk about five-year plans," he says. "With the current crisis, we know where we are and where we're going. We have a strong business and we won't stop investing in it, so we'll come out stronger on the other side." Of course a lot can happen in five years.