Nobody's fools?

"A CIGARETTE," THE OLD saying goes, "is a pinch of baccy wrapped in paper with a fire at one end and a fool at the other."

For nearly a century, the world has kindly provided a constantly swelling number of fools, and a handful of companies have grown fantastically wealthy just by putting that demographic at the center of their business plan. Philip Morris, Japan Tobacco (JT) and British American Tobacco (BAT) may worry about the odd lawsuit, but their profits have always looked solid as a rock and particularly so in Japan.

But all that could be changing. In February, JT said that the 60 billion cigarettes it sold in the home market during 2002 was 5 percent down from the previous year. While the drop doesn't exactly put JT in the poor-house, it's certainly got the suits at head office reaching nervously for their Mild Sevens.

In explaining the sales slide, JT pointed to the grim economic climate and the double tax hike that forced retail prices to rise by about [yen] 10 per pack. Analysts scoffed at this claim, pointing out that relative to other G7 nations, at [yen] 260 a pack Japanese smokers pay exceptionally little to stoke their habit. British smokers, by comparison, merrily puff away despite paying the equivalent of [yen] 850.

Nor can the drop he readily explained by any serious intervention on the part of the Japanese government--recently slammed by the World Health Organization as a "dinosaur." Until recently, the health warning along the side of your Caster Milds read: "Since smoking may be harmful, let's not smoke too much."

The clue to all this lies in a closer look at those JT figures. The domestic market may be suffering, but the group's international business is humming away. In the same period that Japanese sales dropped 5 percent, international sales soared by more than 17 percent. JT, like its big sector rivals, has realized the rich potential of markets like China and Indonesia, and has been busily weaning those countries off their domestic brands and onto Camels and Salems.

The most significant conclusion being drawn from this is not that China and the rest of East Asia are good opportunities, but that Japan is now a mature market. And like all mature markets, there is only one direction that sales can go.

Earlier this year, Tokyo's Chiyoda Ward imposed a ban on smoking in the streets. While still nowhere near as fierce as the sort of bans in place in California, the move reveals a new boldness on the part of the anti-smoking lobby. Other Tokyo wards and cities across Japan are fully expected to follow suit. It is precisely that sort of confidence that is giving JT its current headache. It is a short step from smoking bans to European-style bans on tobacco advertising. JT et al have seen the writing on the wall--or more precisely, the future lack of it.

The most recent marketing measures by the cigarette companies smack of rising desperation. In Chiyoda Ward, JT has taken to placing "smoking wagons" at strategic points outside offices to beat the ban and draw smokers into a heavily branded alcove. Philip Morris has, since 1995, run its "Smoking Manners" campaign in a thinly veiled ruse to put its brands on ashtrays everywhere. Its TV adverts, involving promises of a desert island paradise, have grown more and more oblique as the group tests out the "alternative" marketing schemes it knows it will one day be forced to adopt anyway.

But the efforts may all be in vain. Japanese smokers are gradually showing that they are nobody's fools, and the cigarette companies face a very rude awakening.