Definitions

promotional expense

British American Tobacco

British American Tobacco Plc (, KLSE: BAT) is a leading British-based tobacco company. It is based in London, England and is a constituent of the FTSE 100 Index with a market capitalisation.

History

Established in 1902, when the United Kingdom's Imperial Tobacco Company and the American Tobacco Company of the USA agreed to form a joint venture, the British-American Tobacco Company Ltd. The parent companies agreed not to trade in each other's domestic territory and to assign trademarks, export businesses and overseas subsidiaries to the joint venture. James 'Buck' Duke became its chairman. The British American Tobacco business thus began life in countries as diverse as Canada, China, Germany, South Africa, New Zealand and Australia, but not in the United Kingdom or USA.

In 1911 the American Tobacco Company sold its share of the company. Imperial Tobacco gradually reduced its shareholding, but it was not until 1980 that it divested its remaining interests in the company.

In 1976 the group companies were reorganised under a new holding company, B.A.T Industries. In 1994 BAT acquired its former parent, American Tobacco Company (though reorganised after anti-trust proceedings). This brought the Lucky Strike and Pall Mall brands into BAT's portfolio.

In 1999 it acquired Rothmans International, which included a share in a factory in Burma. This made it the target of criticism from human rights groups. It sold its share of the factory on 6 November 2003 after an "exceptional request" from the British government.

In 2003, BAT acquired Ente Tabacchi Italiani (ETI) S.p.A, Italy's state tobacco company. The important acquisition would elevate BAT to the number two position in Italy, the second largest tobacco market in the European Union. The scale of the enlarged operations would bring significant opportunities to compete and grow ETI's local brands and BAT's international brands.

In January 2007, BAT closed its remaining UK production plant in Southampton with the loss of over 600 jobs. However, the global Research and Development operation and some financial functions will continue on the site.

In July 2008, BAT acquired the cigarette and snus production from Scandinavian Tobacco Company and sold its remaining shares in the company.

Tobacco brands

International Brands include Dunhill, Kent, Lucky Strike, Pall Mall, Vogue, Rothmans, Peter Stuyvesant, Benson & Hedges, Winfield, John Player, State Express 555, KOOL, and Viceroy. However, British American Tobacco does not necessarily own the rights to all of these brands in every nation they are marketed.

Local brands owned by British American Tobacco include, Belmont (Chile and Venezuela), Jockey Club (Argentina), Stradbroke (Australia), du Maurier (Canada), Prince (Denmark), North State (Finland), HB (Germany), Sopianae (Hungary), Wills (India), Ardath (Indonesia), Carrolls, Carrolls Kings, Grand Parade, Sweet Afton, Major (Ireland), Boots,[Alas] (Mexico), Gold Leaf (Pakistan), Jan III Sobieski (Poland), Yava Gold (Russia), Courtleigh (South Africa), Parisienne (Switzerland), and Xon (Uzbekistan), Craven A (Vietnam and Jamaica) as well as BAT snus, Holiday, Freedom and Park Drive (New Zealand)

On 11 June 2006, R. J. Reynolds Tobacco Company announced that it would be manufacturing Camel brand snus in Sweden in partnership with British American Tobacco; the product would be test-marketed in Portland, Oregon and Austin, Texas by the end of the month.

Other operations

BAT has diversified into various fields at different times in its history. Its U.S. retail division, BATUS Retail Group, acquired Gimbel's, Kohl's, and Saks Fifth Avenue in the 1970s and Marshall Field's and its divisions in 1982. The United Kingdom retail chain Argos was purchased in 1979. Kohl's grocery stores were sold to A&P in 1983. In 1986, BATUS sold the Kohl's department stores and two Marshall Field's divisions, The Crescent and Frederick & Nelson; BATUS closed Gimbel's the same year, with many locations being absorbed by sister division Marshall Field's. In 1990 Marshall Field's was sold to Dayton Hudson Corporation (now Target Corporation), Ivey's (another Marshall Field's division) was sold to Dillard's, Saks Fifth Avenue was sold to Investcorp S.A., and Argos was demerged (Argos was acquired by previous parent company GUS plc in 1998).

The group was a major financial services company with the acquisitions of Eagle Star (1984), Allied Dunbar (1985) and the Farmers Group, Inc. (1988). Around 1996 British American Tobacco merged their financial operations into a single operating unit, British American Financial Services (BAFS). This division was sold and merged with Zurich Insurance Company in 1998 to form the Zurich Financial Services Group.

Advertising and promotion

BAT has found many imaginative ways over the years to keep its brands in the public eye. As recently as 1996 they secured an arrangement to sponsor the Cricket World Cup which was branded the "Wills World Cup" and thereby achieved a high level of brand recognition for the Wills cigarette brand in India where young cricket fans were a key target market.

BAT also sponsor the London Symphony Orchestra.

Motor sport

The success of Formula One motor racing has largely been built on tobacco sponsorship, including that of BAT. In 1997 BAT brought its participation in the sport to new levels with the purchase of the Tyrrell team for approximately £30 million. The team raced as Tyrrell for the 1998 season before being renamed as British American Racing (BAR). BAT used the team to advertise major brands, particularly Lucky Strike and State Express 555.

Although Formula One is an exceptionally expensive sport, for BAT the high cost of running an F1 team was justified as a promotional expense because there were few other opportunities for brand promotion. However in 2005 a European Union (EU) directive was brought into force which required national governments to legislate to prevent tobacco sponsorship. The livery of cars competing at circuits outside of EU jurisdiction can continue (in some cases) to promote tobacco brands but these opportunities are declining as anti-tobacco legislation begins to bite.

In 2004 BAR announced that technology partner Honda had purchased a 45% stake and in September 2005 it announced that Honda would be buying the remaining 55% stake. The team raced as Honda Racing F1 Team in 2006, the last year of the Lucky Strike sponsorship before leaving the sport. For the 2006 season, the team was renamed as Honda F1 Racing Team, with BAT only advertised at a couple of races. All links between the two companies were severed for 2007.

Controversy

The company was recently the subject of a BBC2 documentary, in which Duncan Bannatyne investigated the marketing practices of the company in Africa and specifically the way the company targets younger Africans with branded music events, competitions and the sale of single cigarette sticks. Many of the practices uncovered by Bannatyne appeared to break BAT's own code of conduct and company standards. Towards the end of the programme, Bannatyne interviewed Dr Chris Proctor, Head of Science and Regulation, in which Proctor admitted that advertisements targeting children from three African countries were 'disappointing'.

References

External links

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