Philip Morris Serbia Starts Cut Tobacco Output on Demand

Philip Morris International Inc. (PM) started producing cut tobacco in Serbia to respond to changing habits of consumers who seek cheaper alternatives following cigarette price increases.

The cut tobacco is “a growing phenomenon in Serbia” and Philip Morris’ unit in Serbia will be the first factory in Europe, Middle East and Africa and the “fourth manufacturing facility that we have in the world to produce cut tobacco,” outgoing managing director Paul Riley said in Belgrade today.

“We just added 120 people in the factory to manufacture cut tobacco,” Riley told reporters. “Economic conditions change the markets somewhat” and in Slovenia the cut tobacco market has gone up to 8 percent from three percent in 12 months.

An increase in the sales tax and excise duties last October, designed to beef up state revenue and narrow the budget gap, has created demand for “cheaper tobacco products in order to make savings in the personal budget,” deputy managing director Jelena Pavlovic said at the same news conference.

A can of tobacco will retail at 420 dinars ($4.92) and it can produce an equivalent of six packs of cigarettes “which means that a pack would cost 70 dinars compared with the cheapest pack of cigarettes of 135 dinars,” Pavlovic said.

Riley will be replaced by Stacey Kennedy, the company’s vice president for sales strategy, who will move from Switzerland to manage Philip Morris’ operations in Serbia and Montenegro and oversee the entire Balkans.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net