How Philip Morris Conquered Turkey

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• To: intl-tobacco@essential.org
• Subject: How Philip Morris Conquered Turkey (fwd)
• From: Robert Weissman <rob@essential.org>
• Date: Mon, 14 Sep 1998 15:02:14 -0400 (EDT)

September 11, 1998

Drawn to Marlboro's Buzz,
Taste,
The Turkish Shun the Local Leaf

By SUEIN L. HWANG
Staff Reporter of THE WALL STREET JOURNAL

ISTANBUL, Turkey -- How did Philip Morris Cos.

capture nearly a quarter of the cigarette market in
Turkey, a nation almost synonymous with tobacco?

For a few clues, stroll the cobblestone streets of

Istanbul's trendy Ortakoy neighborhood. Waiters at
sidewalk cafes carry dishes on trays sporting the
red-and-black Marlboro chevron logo to diners seated
under red umbrellas, also provided free by the company.
Fashionable young consumers don $100 pairs of
Marlboro Classics khaki pants. On Ortakoy's main
drag, a Philip Morris salesman dressed like the
Marlboro Man makes his rounds in a truck painted to
resemble a cigarette pack.

In the seven years since Turkey abolished price controls

that had propped up its state-owned tobacco company,
Philip Morris has gotten millions of Turks to cast aside
local cigarettes in favor of its Marlboro, Parliament and
L&M brands. Take Mehmet Yalcin, a 19-year-old
Marlboro loyalist who now scoffs at Turkish cigarettes.
"None of my friends smoke local cigarettes," says Mr.
Yalcin, standing on a dusty street in an Istanbul ghetto.
"That would be humiliating."

Under regulatory
and legal fire in the
U.S., tobacco
companies have
been staking their
financial futures in
developing
countries. For
Philip Morris --
which saw
international
tobacco profits grow 60% to $4.6 billion last year from
1994 -- nowhere has that push been more successful
than in Turkey. In the nation that inspired the phrase
"smokes like a Turk," 43% of the 62.9 million population
smokes, according to government estimates, compared
with 25% in the U.S. Meantime, cigarette consumption
in Turkey has increased at an average annual rate of
about 4.76% since 1992, making this one of the
fastest-growing markets in the world. In the U.S.,
smoking has fallen an average of half-a-percent each
year over the same period.

The rapid infiltration of Turkey lends considerable insight

into how New York-based Philip Morris has become
the biggest tobacco company on Earth, producing nearly
one of every six cigarettes world-wide and raking in
$72 billion in revenue last year. In fact, the battle plan it
used to capture Turkey is the same one it has perfected
setting up operations in nearly 30 countries world-wide.

First, it lobbied heavily to eliminate the government's

control of tobacco prices, enlisting the help of one of
Turkey's most influential businessmen. Then it poured
tens of millions of dollars into a state-of-the-art
cigarette factory, where, competitors say, it carefully
engineered its cigarettes to appeal to Turkish taste
buds, but with a stronger kick than local smokes. It
dispatched salesmen to 130,000 stores across the
country, successfully recruiting many of the
mom-and-pop shops to support a vast in-store
marketing plan. And it spent lavishly on an advertising
blitz of cowboys and panoramic vistas, selling a
cellophane-wrapped piece of America for $1.20.

In the process, Philip Morris has watched its share of the

Turkish cigarette market mushroom, to 23% in 1997
from 15% in 1995, while Tekel, the government-owned
tobacco company, has seen its hold drop to 70% from
82% over the same period, according to figures
provided by the Turkish government. Third-ranked R.J.
Reynolds, with its Winston and Camel brands, says its
share has grown to 7.3% from 2.9%. (Tekel says
Reynolds's share is lower.)

Turkish smokers got their first taste of Philip Morris

brands in the 1970s, when smuggled, tax-free American
cigarettes began flooding local bazaars. But it wasn't
until the early '80s that the company was allowed to sell
cigarettes here. Eager to raise Turkey's status in the
West, then-Prime Minister Turgut Ozal decided to turn
his rural country into a model of free-enterprise. One of
his first targets: Tekel, the creaky state monopoly that
had held exclusive rights to sell tobacco, salt and liquor
to Turks since the waning days of the Ottoman Empire.

Run for years by bureaucrats, Tekel represented

everything Mr. Ozal wanted to change about Turkey. Its
antiquated factories, scattered across the country,
churned out cigarettes that leaked tobacco particles
and filled throats with hot, burning smoke. Tekel didn't
deliver supplies door-to-door, forcing store owners to
close their shops and travel to its warehouses whenever
they needed to pick up more inventory. It didn't even
bother to advertise.

How could Mr. Ozal prod Tekel into the modern age?
He announced in 1984 that foreign tobacco merchants
would be allowed in Turkey for the first time since the
days of the sultans.

But there was a catch: Tekel would continue to price

and distribute all cigarettes, both foreign and domestic.
That advantage came in especially handy when Tekel in
1988 launched Tekel 2000, a cigarette blended with
American tobacco leaves that it designed to compete
with Marlboro. Priced about 25 cents lower than a
standard 20-cigarette pack of Marlboros at the time,
Tekel 2000 quickly won a quarter of the market.

Arguing that it couldn't survive in Turkey unless it had the

right to price and distribute its own products, Philip
Morris leveraged the one thing it had that the
government badly wanted: millions of dollars to invest in
the country. And it wouldn't invest that money unless
Tekel gave up control, says Norman Janelle, who
headed Philip Morris's Turkish operations at the time.

A Well-Connected Businessman

To make its case, Philip Morris enlisted the help of one

of Turkey's most powerful businessmen, Sakip Sabanci.
The colorful scion of one of the wealthiest families in the
world, Mr. Sabanci controls a conglomerate involved in
everything from Hilton hotels to Bridgestone tires.
Influential in Turkish politics, he also enjoyed close ties
to Prime Minister Ozal, who once served as chief
executive of his company.

In one 1989 showdown with Philip Morris executives at

Tekel headquarters here, Tekel executives were refusing
to give up pricing and distribution rights. Silent for most
of the meeting, Mr. Sabanci rose from his chair and
addressed the room with a booming voice that belies his
small stature. "Look, this is not to be feared. This is
good for Turkey. This is good for you," Mr. Janelle
recalls him saying. (Mr. Sabanci didn't respond to
several requests to comment for this article.)

Tekel eventually relented, and in May 1991, Philip

Morris got the right to market, price and distribute its
own cigarettes, conditioned on a number of factors,
including building its own factory. Months later, it
announced a joint venture with Mr. Sabanci's company,
Sabanci Holding Inc., and poured in $100 million to start
construction of a factory in the southwestern city of
Torbali.

The factory opened in 1993, and Philip Morris

eventually expanded it into a $230 million facility.
Located in a sprawling compound that includes a soccer
field, volleyball and basketball courts, and separate
rooms for popular Turkish pastimes like table tennis and
backgammon, the plant is a world away from Tekel's
antiquated facilities. It is capable of cranking out more
than 28 billion cigarettes annually.

State-of-the-Art

Inside the plant, a handful of men, wearing crisp khaki

outfits, study computer monitors as thundering machines
pump out as many as 12,000 cigarettes a minute. Fresh
Marlboro packs zip past faster than the eye can see.
Sukru Arkayin, operations director, shows off a new
optical system that uses a laser beam to inspect
shredded tobacco for debris such as string and plastic
foam. With a pop, a sharp burst of air fires the offending
matter off to a separate bin. "This process is from the
U.S. It was just installed the beginning of this year," Mr.
Arkayin says proudly.

Tekel's large Maltepe plant half an hour outside Istanbul

seems to dwell in an earlier time. Lacking Philip Morris's
sophisticated machinery, Tekel scientists in lab coats test
batches of tobacco by hand. In front of one machine, a
woman wearing a traditional headscarf bends to sweep
the dusty floor with a crude broom.

The differences in appearance underscore an even

bigger gap in the companies' products. Turkish smokers
marvel at Marlboro's smooth taste and powerful buzz, as
compared to harsher, local cigarettes made with
Turkish Oriental tobacco, which is naturally lower in
nicotine content than the American-leaf tobacco Philip
Morris imports here.

Maneuvering his small taxi through a dusty, sprawling

suburb of Istanbul, Adnan Kocarslan volunteers his idea
of Marlboro's secret. "These cigarettes are mixed with
wine, creating a very special, very addictive taste," he
claims, swerving around a tight corner. "Smell a
Marlboro, and it smells like an alcoholic drink."

This urban myth is partly based on Muslim prohibitions

on alcohol. But it reflects a commonly held belief here
that Philip Morris tinkered with its cigarette
formulations to specifically attract Turkish smokers.

'Their Kitchen Is Big'

"We generally believe Philip Morris cigarettes use more

additives and chemicals than Turkish cigarettes," says
Mustafa Guclu, who headed Tekel in the early 1990s.
"Their kitchen is big, our kitchen is small."

In particular, Tekel executives claim that the American

company adjusted tar levels in its cigarettes to wean
Turkish smokers off high-tar Oriental tobacco. When
Philip Morris started producing cigarettes at the Torbali
plant, Tekel scientists say they were startled to find that
the tar levels were higher than in U.S. Marlboros, which
had served as a model for Tekel 2000.

Mr. Guclu and Gulsevil Makul, chief of quality control

for Tekel's Maltepe plant, say the first Marlboros made
in Turkey had up to 18 milligrams of tar. That is about
11% more than the 16-milligram American standard and
a tad closer to Oriental cigarettes, which contain as
much as 20 milligrams. Since 1993, however, Mr. Guclu
and Ms. Makul say, Marlboro's tar deliveries have
gradually declined to U.S. levels.

A Competitor's Secret Report

Supporting the idea that Philip Morris adjusts its

cigarette blends is a confidential 1992 report, titled
"PM's Global Strategy: Marlboro Product Technology,"
conducted by researchers at rival B.A.T Industries
PLC's Brown & Williamson unit. "When Marlboro has
been introduced into a market there is evidence that
initial offerings may be closer to that market's traditional
taste," concludes the 150-page-plus report, which
documents different Marlboro formulations in countries
including Brazil, Britain and Germany. "Over time, then,
PM will alter the product and introduce product
technology more consistent with an overall Marlboro
sensory character."

Philip Morris says it doesn't comment on speculation by

competitors. The company says it strives "to ensure that
Marlboros are as consistent as possible world-wide,"
but adds that some variation results from local
regulations that limit constituents like tar or require the
use of locally grown tobaccos. The company says that
in Turkey, Marlboro tar levels have remained the same
at 15 to 16 milligrams. Marlboros are adapted in certain
ways to local tastes, says Marco Terribilini, now head of
Philip Morris's operations here, but the changes are
extremely subtle. "You would have to be an extremely
good smoker to notice the slight difference," he says.

Cowboy Salesmen

Beyond the taste difference, Tekel couldn't keep up

when Marlboro's prices were cut. Although they still
maintain Tekel 2000 was a success, Tekel executives
today say they want to sell the brand to a foreign
competitor. "We are losing ground," says Kemal
Ketenci, head of statistics. "Without new investment,
without good policies, how can we compete?" Since
1992, Philip Morris has poured $250 million into
Turkey.

Where Philip Morris really bested rivals is in marketing

and distribution. In September 1994, the company
began delivering cigarettes to individual stores -- a new
concept in Turkey. It dressed up its salespeople like
cowboys, sending them off into the sunset, in vans
painted like Marlboros, to visit store owners across a
51,000-square-mile distribution area.

As it does around the world, Philip Morris uses its

distribution system to turn every store it can into an
advertising venue. In Ortakoy, Anjel Malku runs a small
convenience store that owes much of its decor to Philip
Morris. The company provided the white racks for its
cigarettes, and in early May installed two huge backlit
signs featuring the Marlboro Man. "I work for Marlboro,
that's what I do!" Ms. Malku says.

In Istanbul, Marlboro hosted parties at nightclubs and

sponsored contests. "Of course, the first thing you do is
paint the town red," explains Mr. Janelle, the former
Philip Morris executive here. "We painted every
building." Tekel, unaccustomed to the concept,
grudgingly responded with just a handful of small ads, he
says. (Tekel says its advertising was limited in part by a
lack of funds.)

Rounding Up Young Smokers

In a country where a third of the population is under 35,

Philip Morris's campaigns have caught on with young
people. At a quaint cafe inside the wrought-iron gates of
Galatasaray, one of the most prestigious high schools in
Istanbul, 17-year-old Ozlem Dinc sits with two
girlfriends around a tiny table with three Marlboro packs
on it. "We spend 20% of our pocket money on
cigarettes," she says. "Not cigarettes," one friend
interrupts. "Marlboros!"

Can Acikel, a senior, recalls when representatives for

Philip Morris and R.J. Reynolds a few years ago would
regularly hand out samples near the school: He picked
up five free packs a day, every day for a week. "When
they were launching a new brand, they came so often!"
recalls Mr. Acikel. "They were always here, standing in
the middle of the street distributing cigarettes."

Philip Morris declined to comment on the student's

recollection. Although selling cigarettes to minors
wasn't illegal at the time, managers at Philip Morris and
Reynolds say sampling to minors violates their marketing
codes. "I can't comment because I wasn't there, but if
anybody was distributing cigarettes near schools I
would say it was wrong, regardless of whether it was
legal," says a Reynolds spokesman.

Such marketing efforts have helped incite a previously

unheard of phenomenon in Turkey: the antitobacco
activist. "It became such an interesting issue when the
foreign tobacco companies came in," says Elif Dagli, a
leading activist. Pressured by antitobacco groups,
Turkey's Parliament passed one of the strictest
cigarette ad bans in the world in late 1996. Not only
does it prohibit campaigns using any cigarette "name,
trademark or trade name," it also broadly prohibits any
campaign "encouraging" people to smoke. The law also
restricts smoking in airports, schools and other public
facilities, and the sale of cigarettes to anyone under 18.

Enduring Imagery

But the legislation is no match for Philip Morris, which

has years of experience dealing with ad bans in other
countries. Turkish readers of the newsmagazine Tempo
are treated to a redesigned two-page, red-and-white ad
showing a river-rafting expedition. "Adventure Team
'98," the copy reads, omitting the word "Marlboro,"
usually included in the title. Likewise, in hundreds of
small convenience stores topped with lighted Marlboro
signs, Philip Morris has simply deleted the Marlboro
name, leaving the easily identifiable red chevron.

The message isn't lost on smokers. Walking about

Ortakoy with his friends, 19-year-old Ahmet Tastan
points to the red chevron in one store. "This doesn't say
Marlboro, but we understand it," he says. "The law
didn't change anything."

Mr. Terribilini says Philip Morris has devoted a lot of

time and money to complying with the new ad
restrictions. He notes that the company even deleted the
Marlboro name from its sales representatives' shirts.
"The way we see it, this law focuses on the advertising of
cigarette products," he says. However, "it doesn't
cover all nontobacco products and events."

Some of those "nontobacco" products can be found at

Mudo, a hip clothing store in Istanbul's popular
Akmerkez shopping mall. Past the platform loafers and
lime-green jackets, beneath pictures of buffalo and a
large American flag, is one of the store's best-selling
brands: Marlboro Classics, whose jeans bear the slogan
"For Strength and Endurance." Owning Marlboro's chic
isn't cheap: A pair of khakis runs $100. A local brand
costs $36.

For young Turks who can't afford such luxuries, the lure
of the Marlboro Man is still powerful. In Bagcilar, far
away in both miles and prosperity from the shopping
malls of Istanbul, Ugur Onder, 20, watches a soccer
game in a trash-strewn field. Mr. Onder still lives with his
mother because he can't afford rent for an apartment.
But he admits to spending half of his income on his
pack-and-a-half daily Marlboro habit. "I need it to pick
up girls and boost my image," he says.

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