Seita - Company Profile, Information, Business Description, History, Background Information on Seita



53, Quai d'Orsay
75347 Paris Cedex 07
France

History of Seita

Seita is France's leading producer, distributor, and marketer of tobacco products--not a surprising position given that Seita long functioned as the French government's tobacco monopoly. Since 1995, however, Seita has been a publicly held company listed on the Paris stock exchange and as such has entered into full competition with the giants of the international tobacco industry. Indeed, with a shrinking domestic market--and rising pressure from anti-smoking forces--international expansion may be essential for Seita's future. In 1997 the company held just one percent of the worldwide tobacco market. Yet international sales already account for more than 42 percent of Seita's total revenues.

Seita's activities are organized along two primary lines: manufacturing and distribution. The company manufactures cigarettes, rolling tobaccos, pipe tobaccos, cigars, and matches. Cigarettes and rolling tobaccos remain the company's primary source of revenues, representing 90 percent of the company's own-brand sales in 1996. The company's flagship Gauloises brand enjoys worldwide recognition; other cigarette brands include Gitanes, the aromatic Amsterdamer, Lucky Strike (produced under license exclusively for the French market), and the more recent Brilliant, Brooklyn, and American Dream, developed especially for the company's growing Eastern European and Asian activities. In its home country, Seita's brand portfolio continues to hold the dominant position, with more than 40 percent of the French cigarette market. As French consumer tastes have shifted from the traditional brown tobacco to the lighter-flavored blond (especially Virginian) tobaccos, Seita has reacted strongly, introducing blond versions of its Gauloises, Gitanes, and other brands, to build more than 20 percent and the number two position of this French market.

While cigarette sales in France have been shrinking steadily, the markets for rolling and pipe tobaccos and cigars have been rising. Seita's Corporal and Amsterdamer brands hold more than 50 percent of the French roll-your-own market. Outside of France, rolling tobacco sales are generated principally in the Netherlands, Belgium, and Luxembourg. Cigars, which have enjoyed an increasing popularity in the 1990s, contribute six percent of Seita's French sales. The company's cigar brands, including Ni&ntilde, Havanitos, Fleur de Savane, Oro, Cohiba, Pléiades, and Picaduros, have enabled Seita to maintain the French market leadership, with approximately 40 percent of the country's cigar sales. Seita's cigars have also found success in Spain, where the company is the number one cigar importer, and increasing popularity in the United States, where the company's sales--led by its handmade Pléiades large cigars--have risen to more than one million units. In addition to tobacco products, Seita manufactures matches, primarily for the French market; match sales account for one percent of Seita's French revenues.

Headquartered in Paris, Seita's French operations include five cigarette manufacturing facilities, two cigar factories, a pipe and rolling tobacco factory, and a match factory. The company also operates research facilities in Bergerac and Les Aubrais. Through its subsidiaries, Seita's international presence includes South America (Brazil, Paraguay, and Argentina), Africa, China, and Indonesia, as well as Spain, Belgium, Italy, Poland, and Slovenia.

Distribution, Seita's second primary activity, is in fact its chief source of revenues. Distribution of non-Seita products produced 65 percent of the company's total revenues in 1996, including more than FFr 8 billion in tobacco product sales and more than FFr 3 billion in nontobacco product sales. In effect, Seita continues to hold the monopoly on tobacco products distribution in France, through its exclusive relationship with the country's network of nearly 35,000 tobacconists--the only retail outlets allowed by French law to sell tobacco products. As such, Seita distributes its competitors' products and enjoys the benefits of their popularity with the French consumer. In 1996 Seita distributed more than 95 billion units of tobacco products. The company has also moved to expand its distribution beyond tobacco products to become the country's primary distributor of telephone debit cards and parking meter cards. These cards alone produced nearly FFr 2.5 billion in sales in 1996.

Roots in the 17th Century

Tobacco was first introduced to France in the 16th century by the French monk André Thevet, but it was Jean Nicot, France's ambassador to the court of Portugal, who would give his name to the plant's active ingredient in 1560. The cultivation of tobacco--in particular, a "brown" variant of the plant that would dominate French tobacco tastes until the late 20th century--soon centered in the Savoy and southern regions. Touted for its medicinal properties, tobacco was first distributed by pharmacies and was used as an ingredient in a variety of syrups, balms, and ointments, as well as a snuff; it was not long, however, before smoking became the most popular usage of tobacco. By the mid-17th century sales of tobacco had reached significant levels.

Toward the end of the 17th century tobacco began to take on a new, and lasting, role: that of a "tax collector" for the state. France's war with Holland in that century had exhausted the country's treasury. In 1674, during the reign of Louis XIV, tobacco sales were placed under control of a "tobacco farm" (Ferme des tabacs) by Jean-Baptiste Colbert, the French king's controller-general of finances. Seven years later Colbert extended the royal monopoly to the fabrication of tobacco products, particularly cigars, as well. The farm's control over tobacco and tobacco products was to last for more than a century.

Sales of tobacco remained largely nonspecialized through the 17th century. Merchants developed signs to indicate that they were selling tobacco; while signs in the shape of pipes were common, another symbol became the most popular. Called the "carotte," the symbol represented the bundle of tobacco leaves tied and twisted together that the merchants used to prepare the pipe and snuff tobaccos for their clients. At the beginning of the 18th century the first dedicated tobacconists appeared, marking a new method of tobacco distribution. The oldest of these, the Civette, opened in 1716 in Paris, was still in operation (and under the same family ownership) in the 1990s. As the trend toward tobacconist shops developed, the carotte was adopted as an official symbol and, at the beginning of the 20th century, the use of the carotte became obligatory.

Tobacco became a favorite of France's nobility. The monopoly control of tobacco and the heavy taxes imposed on its sale, however, placed tobacco beyond the reach of the country's poor--soon to enter history as the sans-culottes. Meanwhile, a lively contraband succeeded in popularizing tobacco beyond the ruling class. In 1791 the French Revolution abolished the Tobacco Farm and liberated the cultivation, fabrication, and sale of tobacco and tobacco products. Yet this freedom would not last long.

Once again, tobacco represented an important source of potential revenues for a state in dire need of funds. In 1810 Napoleon Bonaparte reestablished monopoly control over the cultivation, production, and sale of tobacco and tobacco products, setting up a state agency, the Direction des Tabacs, to govern the monopoly. At the same time, the distribution of tobacco was regulated as well, with merchants placed under direction of the tax office. These merchants, particularly bar and newsstand operators, were required to fulfill other distribution functions, such as the sale of postage and fiscal stamps. The 19th century would see a number of important developments in tobacco use in France. Pipe smoking, which had long achieved popularity in northern Europe, came into fashion in France at the beginning of the 1800s. In 1825 a new tobacco product made its appearance in France. Greeted with disdain by "serious" cigar smokers, the little cigar, or cigarette, was considered little more than a fad that would quickly fade. Under Emperor Napoleon III, a dedicated smoker, cigarettes achieved a fashionable status. The period was marked also by the arrival of the first rolling papers, which, perfumed or tinted to match the smokers' clothing, brought a new elegance to smoking.



For most of the 19th century, cigarettes were handmade by artisans. In 1860 these manufacturers, as well as manufacturers of other tobacco products, were brought under the control of a new state body, the Executive Office for State Production, formed by the French Finance Ministry. Cigarette production remained rather limited--a skilled artisan was capable of producing as much as 1,200 cigarettes per day. The Industrial Revolution soon caught up to cigarette production: in 1878 the first industrial cigarette machinery was introduced in France, with production runs of more than 3,500 cigarettes per hour. Cigarette machinery would continue to be refined; by the 1990s machines were producing cigarettes at a rate of 9,000 per minute. The greater supply and lower cost of production began the rise of cigarettes as the dominant form of tobacco product.

Branding a Monopoly in the Early 20th Century

Although certain names in cigars had long enjoyed popularity (the Morlaix site, still in operation in the 1990s, began producing cigars under Louis XV), brand names would play an important role in building the tobacco market in the 20th century. A step in this direction had been made in the 1850s, when the first cigar bands, bearing the manufacturer's or a prominent personality's name, appeared. The rise of production volumes enabled the packaging of cigarettes, leading in turn to the first branded cigarettes. In France the government tobacco body introduced two brands in 1910, Gitanes and Gauloises. Based on blends of brown tobacco, both would prove to have lasting appeal for the French smoker--indeed, they would become synonyms for cigarettes themselves--and achieve an international reputation. Distribution of tobacco products, through a growing network of merchants placed under separate government control, took a step forward when adoption of the "carotte" became mandatory in 1906. In France the sale of tobacco products became strictly limited to these merchants, a system common in much of southern Europe, as opposed to the northern European countries where tobacco distribution was more flexible (vending machines, supermarkets, etc.).

The modernization of the government tobacco monopoly would begin in the 1920s. To aid France's economy, devastated after the First World War, the French premier Raymond Poincare established a new organization for managing the tobacco monopoly in 1926. Called the Service d'Exploitation industrielle des tabacs, or SEIT, the new body once again fulfilled an old function, that of reimbursing public debt. Yet the SEIT represented a first step toward eventual independence, functioning as an autonomous body.

Cigarette sales continued to rise, becoming the tobacco product of choice in the 20th century. The SEIT's flagship brands also began to develop their logos (Gitanes with its silhouette of a gypsy dancer; Gauloises with its winged helmet of a Gaul warrior) in the 1920s and 1930s. With the monopoly on the French market, including France's colonies in Africa, Southeast Asia, the Middle East, and Latin America, the SEIT had little difficulty imposing its brands. Yet even after the introduction of competing brands, Gauloises and Gitanes maintained their appeal. SEITA added the final initial to its name in 1935 when the production of matches (allumettes) was placed under its monopoly control as well.

Postwar "Tax Collector"

Cigarette smoking gained in popularity and, by the end of the Second World War, had become immensely popular. In 1953 SEITA launched a third brand of cigarettes, the Royale. Growing concerns over health issues related to tobacco use prompted SEITA's research and development wing to develop a method of reducing the tar levels in its cigarettes. From 35 mg per cigarette in 1953, tar levels would eventually be mandated, by the European Community, down to just 12 mg per cigarette in 1998. The formation of the European Community in the postwar years would lead to changes in the nature of SEITA as well. In 1959 SEITA's status was adjusted to that of a state-owned industrial/commercial concern (an Etablissement Public à Caractère Industriel et Commercial). The following year the European Community took the first steps in opening its internal borders, allowing the importation of cigarettes among member countries. In 1962 SEITA's employees, formerly classified as civil servants, were granted independent legal status.

While the importation of foreign cigarette brands was slowly liberalized, their distribution in France remained under the exclusive control of the network of merchants established under Napoleon I. In 1964 that monopoly system, sorely in need of modernization, was also placed under SEITA's direction. As such, SEITA found itself in a new role, that of a "tax collector" for the French state. Other changes were in store as the European countries worked toward the formation of the European Economic Community (EEC). In 1968 SEITA introduced its first "foreign" brand, adding the production, under license, of Pall Mall cigarettes. Two years later the common market countries took down the customs barriers among member states; at the same time, SEITA lost its monopoly on tobacco cultivation--French tobacco farmers could now sell their produce on the worldwide market. The following year, another of the EEC barriers fell, when foreign brands were granted free access to the French market. SEITA, however, conserved its monopoly on the importation and distribution of these cigarettes. Yet, in 1972, SEITA lost the monopoly on the importation of EEC-produced matches.

In 1976 SEITA lost its importation and distribution monopoly--in name, at least. In practice, the company's continued direction of the country's nearly 40,000 tobacco retailers, the largest retail network in France, meant that its competitors were still required to contract with SEITA for distribution of their products. That same year, however, held a more substantial blow to the company's marketing endeavors, when the growing strength of the anti-smoking forces succeeded in placing warning labels on cigarette packages and in instituting a ban on advertisements for cigarettes. This move came at the same time as imported cigarettes, particularly the lighter-flavored, blond "American" brands, were finding increasing acceptance among French smokers. SEITA faced a similar situation beyond its borders. While the U.S., British, and Dutch markets traditionally had favored, almost exclusively, blond tobaccos, other countries, notably West Germany, Italy, and Belgium, were also turning more and more to blond tobacco products. By the end of the 1970s blond tobacco had captured as much as 95 percent of these markets as well. Gauloises, which had ranked as the sixth largest selling brand in the world, steadily lost market share, tumbling to 15th place by the mid-1980s.

While France and its former colonies, as well as Spain and Switzerland, continued to favor brown tobacco, the increasing popularity of blond tobacco among female smokers and, most important, among young smokers, forced SEITA to adapt. In 1979 the company began producing light versions of its brown tobacco cigarettes; the following year the company introduced, rather unsuccessfully, its own "American" cigarette, News. In that same year SEITA began producing under license the Lucky Strike brand for the French market. More successful for the company was the 1984 launch of Gauloises Blondes, which enabled the company to hold on to its market leadership in France. SEITA's de facto control over cigarette distribution in France, meanwhile, allowed it to continue to profit from its competitors' success.

Challenges in the 1980s

By the mid-1980s, however, SEITA was bleeding. As a government-controlled organization, SEITA was criticized for its slow response to the changing marketplace. As foreign brands grew in popularity (while cigarette consumption itself began to decline), SEITA's losses would rise to some FFr 4.5 billion per year by the end of the decade. Yet the government, content to collect taxes on tobacco sales (of some FFr 30 billion in sales, some FFr 24 billion went to the state), was ill-inspired to take action. Nonetheless, SEITA slowly began to change its status. A first step was made in 1980, when SEITA was transformed from a "service" to a nationalized company as a "société nationale." In 1984 SEITA's character was again changed to that of a shareholder society, with the sole shareholder remaining the French state. This change, however, enabled the company to diversify its activities for the first time.

The company's new organization, which included a reorganization of its production capacity and the ability to lay off employees, enabled it to become profitable by the beginning of the 1990s. At the same time, the company managed to recapture much of the French market, with Gauloises Blondes becoming the second largest selling cigarette. In 1991, on post tax revenues of nearly FFr 13 billion, SEITA earned a net profit of FFr 226 million.

Going Public in the 1990s

The most significant change for the company would come in the mid-1990s. In 1993 SEITA was included in the list of national companies to be privatized, and in February 1995 SEITA (now Seita) became a privatized company, listing as a public company on the Paris stock exchange. As such, the company faced head-to-head competition with tobacco giants such as BAT Industries and Philip Morris, in a worldwide market where Seita's share was as little as one percent. Yet with its leadership position in the French market remaining stable, enhanced by its privileged position with the country's 35,000-strong retail network, Seita could begin to take steps toward international growth. In 1995 the company acquired Poland's third largest cigarette producer, ZPT Radom. In 1996 the company began expanding its exports into other Eastern European markets, including Slovakia and Slovenia. In July 1996 Seita made moves to expand into China, the world's single largest cigarette market, when its signed a technical cooperation agreement with the Chengdu cigarette factory.

Since its privatization, Seita's sales have continued to rise, passing FFr 17 billion in 1996, for net profits of FFr 786 million. Seita continued to play the role of a tax collector for the French government, a position that came to the company's aid in 1997. With Seita faced with a price war to maintain market share (as a result of a foreign brand's dumping its cigarettes on the French market), the government imposed a new tax on tobacco products in late 1997, a tax calculated against Seita's price structure. A giant at home, Seita remained a minor player on the international tobacco market in 1998. Yet with Gauloises's status as one of the world's most recognized brands, Seita maintained an attractive future, certainly to a potential suitor to the company's key French retail network.

Principal Subsidiaries: Macotab (France); Sofitab (France); Metavideotex (France); Seitamat (France); Coralma (Africa); Tahiti Tabac (99.9%); Promofos (Spain); ZPT Radom (Poland; 33%); Distrital (Italy; 50%); Cacique S.A. (Brazil); Meridional (Brazil; 75%); Cima (Argentina; 52%).

Additional Details

Further Reference

Fitère, Anne-Laurence, "Riche, Vieille, et Jolie," L'Expansion, January 6, 1994, p. 82.Kaupp, Katia D., "Chique et Choc Chez S.E.I.T.A.," Le Nouvel Observateur, April 1984, p. 65."Prête pour une Guerre des Prix," La Vie Fran&ccedilse, May 24, 1997, p. 29.Routier, Airy, "Seita: Cap sur la Distribution," L'Expansion, December 21, 1989, p. 70."Seita: Profil," Fusions et Acquisitions, April 1996, p. 4."Tabac: une Taxe Spéciale Seita," Le Nouvel Observateur, December 4, 1997, p. 92.

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