Talking Trade blog
How Oreo could become best friends with the Marlboro man
Published 23 March 2015
Last week I wrote about how lobbyists should be an important part of the policy landscape, particularly for trade issues. Companies, consumer groups and others need to pay careful attention to what governments across Asia are doing. The consequences of inattention could be significant.
As an example, one deeply problematic regulatory issue that appears to be spreading across the region is the introduction of plain packaging. While initially targeted at cigarettes, the momentum seems to be building for the use of plain wrappers for other products as well, including alcoholic beverages and even ordinary food items.
The results would be a disaster for companies both big and small and potentially a nightmare for consumers.
Let’s start with understanding plain packaging for cigarettes. Under an Australian plan, cigarettes were singled out for special treatment. The intention was to reduce the number of Australians who smoke cigarettes. By limiting the marketing and branding of cigarettes, the government hoped to reduce the incentives for taking up the habit.
Changing labeling for cigarettes is not new. Many governments around the region have special rules around packaging. In Singapore, for example, packets require graphic and gory photographs of the damage caused to smokers (and their offspring). Advertising for cigarettes, like in many markets, is heavily restricted.
Cigarette companies have managed to live with these rules. The key issue for companies has been to have clarity.
But plain packaging is a whole different level of regulatory influence. Under plain packaging, every element of the product is made to look identical to every other product. For cigarettes, imagine that the carton is Army green. The Marlboro name is written in courier font. Every pack of cigarettes inside the carton has the same green wrappers with courier font. Even every cigarette stick inside looks identical between brands.
Thus a consumer cannot tell what cigarette is being sold, bought or smoked very easily at all. From a glance, the Marlboro looks like a Salem which also looks like a generic product.
The purpose of this change in packaging was to get consumers to stop smoking. It is not clear whether this objective will be met. What is likely to happen instead is that consumers will continue to use cigarettes but may shift preferences between brands over time. Absent clear quality differences, some consumers will likely migrate to cheaper products.
This is, of course, deeply problematic for companies that have spent a lot of time and money building up brands. As a result, Philip Morris sued the government of Australia for invalidating the intellectual property embedded in their packaging. While this case is not yet resolved, Ireland has also passed plain packaging legislation for cigarettes.
Governments have the right to regulate in the interest of health. Philip Morris would likely argue that they are fine with the various regulations on packaging and advertising prior to the plain packaging rules. These new rules, however, took a legal product and changed the regulations in ways that did not automatically appear to confer health benefits but could be very damaging to the company’s brands.
Leave aside for the moment whatever you think of cigarette smoking or the use of investor state dispute settlement as a means to resolve this dispute. Of greater interest for this blog post is the likely spread of this regulatory measure if the cigarette case gets resolved in favor of the government.
One of the lobbyists from Philip Morris has been arguing for several years that plain packaging would spread to other sectors. But no one seems to have taken her comments very seriously. However, looking at the ground in Asia, it appears she was right and companies from across the spectrum should be deeply concerned.
Government officials in Indonesia have already said that they will use plain packaging on alcoholic beverages with high levels of alcohol content. But really, why stop there? If plain packaging is required for strong spirits, it might as well be required on all alcoholic beverages.
Imagine trying to shop for wine in a world of plain packaging. If every bottle on the shelves has an identical shape with labels in Army green and brands listed in courier font, how will a consumer find the best product? How will a consumer find any new brand? How will a company reach new consumers?
Will the change in packaging result in less wine being drunk? Will fewer people become impaired if all the labels look the same? It is not at all clear that plain packaging would, in fact, resolve public health concerns related to alcohol use.
Consumers are still likely to buy wine. What I suspect will happen is that consumers will reach for brands and products they know. They will shun anything unfamiliar, making it nearly impossible for new companies to grow or for existing companies to expand product lines. While major brands will be affected, the change could be most problematic for smaller firms and new entrepreneurs.
Now think about this brave new world if the plain packaging mania spreads to food products or even to just processed food products. Already, officials in Malaysia have apparently commented on their intention to proceed in this sector.
Imagine if every Oreo cookie looks like very other biscuit—no more blue packaging as it could also end up Army green. No more happy Oreo logo. Every single cookie inside the packet could also lose identifying markers—no Oreo stamp on the cookie and no raised design on the chocolate cookie at all. How will Oreo distinguish their products from others on the shelf?
Again, would plain packaging keep consumers from eating Oreos? Would customers be healthier if food labels were identical and Army green?
I’m sure that many will rush to say that there is no public health reason for plain packaging on food. But I suspect that a creative government could come up with something.
The point is that this sort of regulatory behavior is likely to spread, particularly in the absence of clear information from companies and consumer groups about how such rules will affect the marketplace.
As I said last time—government is going to make policy. The extent to which those policies are helpful or not may depend on having information from companies and others about the implications of different policy decisions on real-world behaviors in the marketplace.
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