Death knell for Tobacco Direct

NEWS “Death by a thousand cuts,” is how BJ Cunningham describes his treatment at the hands of the British judicial system.

NEWS

“Death by a thousand cuts,” is how BJ Cunningham describes his treatment at the hands of the British judicial system. As a director of the Enlightened Tobacco Company (ETC), he will return to the High Court next Monday (July 31) for a hearing that will sound the death knell not just for the company’s controversial cigarette service Tobacco Direct but the Death cigarette brand itself.

“We came up with Tobacco Direct because it was the most effective solution to our distribution problem with Death cigarettes in the UK,” Cunningham says. “It doesn’t matter how much awareness you have if you can’t generate sales because you can’t get distribution.”

He adds that Tobacco Direct and Death cigarettes are “umbilically linked”.

The ETC launched Death in 1991, positioning the brand as an honest smoke with an advertising campaign that proudly proclaimed: “Death kills”. Within months the brand was being distributed through 3,500 independent retail outlets in London and had a monthly turnover of more than 200,000. “The aim was to persuade small distributors to stock us, which would lead to a listing with major multiples,” says Cunningham.

The strategy failed. Without listings, ETC could not afford its sales team. Without a sales team, Death sales inevitably fell. “We assumed we would make 750,000 losses in year one and be in profit by the end of the second year,” Cunningham adds. “After six months we faced a stark choice: liquidate the company or seek alternative means of distribution.”

The alternative was Tobacco Direct – a duty free import scheme. By taking advantage of lower taxes on tobacco sold on the Continent, ETC set up a new division, The Man in Black – subsequently called Tobacco Direct – to sell Death by sending cigarettes bought in Luxembourg direct to UK customers.

ETC’s strategy was based on its interpretation of a European directive allowing goods bought by an individual for their own use – and transported by them – to incur only the duty charged in the European state in which they were bought.

Tobacco Direct acted as its customers’ agent to offer discounts of up to 40 per cent on cigarettes by paying tax at only 1.04 for a pack of 20 in Luxembourg, compared with 2.10 in the UK. The service, launched last October, was expanded to cover other major brands such as Silk Cut and Benson & Hedges.

Before being forced to cease trading in May, Tobacco Direct had monthly sales of more than 130,000.

It inevitably attracted the attention of other tobacco companies and Customs & Excise, which claimed it could lose 10bn in tax if the scheme was allowed to continue.

In May, C&E and Imperial Tobacco challenged ETC’s interpretation of European law in the High Court, and won.

On July 3 the appeal judges referred the case to the European Court of Justice – a process likely to take two years. A decision on whether The Man in Black can continue to trade as Tobacco Direct in the meantime was deferred until July 31. “The answer will almost certainly be no,” says Cunningham.

ETC has laid off its six staff. There are only a handful of London shops still selling Death cigarettes and five overseas distribution contracts, which Cunningham expects will be serviced on an order-by-order basis. The company will not be able to continue without the income generated by Tobacco Direct. “We plan, as a point of principle, to claim retrospective damages and take this case forward to the European Court of Justice in Luxembourg, and win. In the meantime, we will mothball the company,” he says.

Honesty, it seems, doesn’t pay. ETC provoked the wrath of the tobacco industry and anti-smoking lobby alike with its “Death kills” strategy. Now, it seems, they have got their revenge.

But Cunningham claims he has few regrets: “I still say ‘tell the truth, be honest with your customer’. If you smoke our cigarettes, too bad you’re going to die.”

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