It had been talked about for the better part of a decade, and written into draft legislation as early as 2006 but this month a more comprehensive and stricter ban on the advertisement of alcohol and tobacco products in Ukraine has finally been passed by the country’s parliament. However, although touted by lawmakers as a victory for child welfare and public health, the new law is really about companies that already have a firm foothold on the market holding on to their share.
Parliament passed amendments to the Law On Advertising” on March 18, with a rare majority of 425 out of 450 lawmakers giving their assent. Some restrictions will begin in 2009 and others in 2010.
Lawmaker Mykola Tomenko of the majority BYUT faction, who has been a leading proponent of legislation restricting advertising of alcohol and tobacco, was quick to claim political points for the initiative. “We are ready to stiffen control over such ads, so that young Ukrainians become worthy citizens of their country,” he said after voting. The opposition also jumped on the bandwagon. Party of Regions spokesperson Anna German commented: “In the near future we will initiate the passage of another law limiting beer adverts.”
Changes in law and expenditures
Ads for tobacco products have long been banned from radio and television in Ukraine, while those for alcoholic beverages are limited to late night (23:00 to 06:00). But starting in 2009, billboards and public transportation will also be restricted areas. That same year, a ban on celebrity sponsorship of beer will also kick in. Then, in 2010, the ban will be extended to magazines and most other print publications. In the mean time, the new amendments have more clearly defined several advertising concepts and the obligations of advertisers.
Maxim Lazebnik, executive director of the all-Ukrainian Advertising Coalition, estimates that the 2009 changes alone will result in a loss of USD 25 million, or 13% of outdoor advertisers’ income. But, he said that tobacco and alcoholic beverage companies have been preparing themselves for the new legislative environment gradually. “The percentage of tobacco and alcohol advertisements on billboards has decreased every year, without exception. Thus, even if the restrictions didn’t start in 2009, the companies’ budgets for outdoor advertising would decrease so significantly that no one would even notice their absence in a couple of years.”
According to Lazebnik, in addition to the USD 25 million that tobacco and alcoholic beverage companies spent on advertising last year (USD 20 million from tobacco and USD 5 million from alcoholic beverages), another USD 100 million (from alcoholic beverage companies) went toward TV messages: USD 30 million for nighttime ad spots and USD 70 million for daytime sponsorship). Radio and print spending was much smaller, he adds.
Vodka makers divided over market share
In 2006, number one Ukrainian vodka producer Khortitsya was speaking out against legislative restrictions on outdoor advertising of alcohol and tobacco products but by the end of last year, Khortitsya owner Yevhen Chernyak had become a proponent of the ban. When questioned by journalists about his change of mind, Chernyak cited civic responsibility. Some Ukrainian media have since reported that domestic producers of alcoholic beverages began switching sides in anticipation of more foreign producers entering the market when Ukaine formally joins the WTO. In various press interviews, Chernyak argued that the market had already consolidated and therefore newcomers and new brands were no threat to Khortitsya.
Vodka is the most widely sold alcoholic beverage in Ukraine. After Khortitsya, Ukraine’s biggest producers are Nemiroff and Soyuz Victan. Nemiroff press secretary Tagir Imangulov said his company was against the new ad law because it stifles competition. According to him, around 100 companies currently have licenses to sell vodka in Ukraine, but the top 10 control 90% of the market. Tighter rules on advertising will make it more difficult not only for new foreign players but also smaller companies still developing their brands and larger ones trying to launch new ones.
Imangulov says the ban received such wide bilateral support in parliament because it is populist and elections are coming up. “It was a political decision, but for us the important thing is that they did it correctly, phasing in the new changes over two years and not immediately.” He claims that big companies such as Nemiroff, which has 15 years of experience in Ukraine and ranks third worldwide behind Smirnoff and Absolut, will not suffer, because they have been given time to adjust.
“We will simply transfer our budget funds from outdoor advertising to BTL advertising.”
BTL, or Below-The-Line advertising includes promotions at place of sale such as supermarkets or at the place of consumption: i.e., hotels, bars, casinos and restaurants.
“Experienced market players will always think of ways to reach consumers,” he adds.
Nemiroff boasts an annual turnover in Ukraine of USD 270 million a year or around half its USD 500 million international turnover. The company’s market share is 14%, behind Khortitsya’s 28%, Imangulov says.
According to Imangulov, who declined to disclose his company’s advertising budgets, any serious player on a serious vodka market will spend anywhere from at least USD 10 to USD 20 million per year on advertising.
The Advertising Coalition’s Lazebnik says he doubts the public benefits of the ban on alcohol ads in print media. “Today in the press [i.e. glossy magazines] mainly expensive alcoholic beverages are advertised. I don’t think that the advertising of gin and tequila in high-end magazines will encourage alcoholism,” he points out.
Tobacco makers hold their own
Lebednik says tobacco companies were not only prepared for the new rules but actually got what they wanted from the new law. If a company already has a nice market share in Ukraine it has nothing to lose, he says. “The overall number of smokers won’t decrease from a ban on outdoor advertising,”
The main aim for tobacco companies, Lebednik claims, was to preserve their right to advertise at points of sale and consumption.
British American Tobacco (BAT) is the world’s second largest quoted tobacco group in terms of market share. BAT Ukraine’s Communications Executive Veronica Yankovska reports that her company enjoyed a volume share of 13.8% in Ukraine in 2007. “We estimate that total consumption of tobacco products in Ukraine is around 80 billion units per year,” she says.
The company was neither surprised nor opposed to the new legislative restrictions. “Outdoor tobacco product advertising is banned in many countries of the world so our company was prepared for such a ban to be introduced in Ukraine. British American Tobacco Ukraine complies with International Tobacco Products Marketing Standards which state that tobacco advertising should be directed at adult consumers only; the recent ban in Ukraine also supports that. It is also important that these limitations foresee transition periods so that the tobacco industry can get ready to work under new conditions,” reads a statement from BAT Ukraine.
According to the International Resource Centre, an online clearinghouse of resources for tobacco control advocates worldwide that is funded by philanthropist and New York City mayor Michael R. Bloomberg: In Ukraine, 66.8% of males and 19.9% of females are smokers. Smoking among Ukrainian males is among the highest in the world, and is increasing especially among poorly educated, lower-income groups. Among women the opposite is true as more affluent, highly educated women exhibit the highest smoking rates. A Ukrainian smoker consumes 1,389 cigarettes each year and the country imports 66,306 metric tonnes of tobacco leaf annually.
Advertisers left unsurprised
Mikhail Pimenov, general director of international advertising giant Young & Rubicam’s Ukrainian office, says the new law came as no surprise. “In my view, this is nothing dramatic for the industry, however some things will need to be adapted. Outdoor operators will have to revise their plans as both alcohol and tobacco producers will have to stop use of OOH [out of home] advertising as of Jan 1, 2009.”
Executive Director of Mather Communications Olga Shevchenko, says the change will mean a shift in advertising budgets for alcohol and tobacco companies. Shevchenko estimates total alcohol and tobacco spending in Ukraine (including ATL, BTL and sponsorships) at approximately USD 150 million per annum. “Obviously, there will [also] be a shift in terms of finding new legal touch points where brands will communicate with consumers. For some clients and their agencies this might become a difficult task in terms of lack of understanding/knowledge, lack of credible experience, simple fear of unknown territories and not focusing on the long-term, as they have been primarily targeting classical ad channels and have not been exploring alternatives,” she says. But according to Shevchenko, the overall effect for the industry will be positive.
“Legal changes will make the advertising market change, to explore new ideas, to get rid of old habits. And this will give an opportunity for the industry to develop. We thus consider these changes as an opportunity,” Shevchenko concludes.
