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Sunday, 21 March 2021

Eastern Company confirms ongoing tender that would (kind of) end its tobacco monopoly

Tobacco monopoly Eastern Company has confirmed we’re about to see a new competitor: Several companies were invited to bid to become Egypt’s second major tobacco company in a tender issued by the Industrial Development Authority (IDA), state-owned cigarette manufacturer Eastern Company said in a filing to the EGX (pdf). The statement confirms local press reports over the weekend that the government is looking to potentially end Eastern’s decades-long grip over the industry by issuing a license to a competitor.

Terms and conditions of the tender protect Eastern’s market share by preventing the new player from producing cigarettes in the Cleopatra brand mass price category, which accounts for 98% of Eastern’s revenues, reads the EGX disclosure. “Accordingly, this will guarantee that there is no competitive threat,” it adds.

Under the terms of the tender, Eastern will also end up owning 24% of the planned company, and the new company would be forced to price its popular brands 50% higher than Eastern’s, the statement confirmed.

Giving their client-turned-competitor a chance to leap-frog into new products such as e-cigarettes appears to be what Eastern fears most, according to the statement. None of Eastern’s existing manufacturing agreements cover next-generation tobacco products, which the new license will cover, meaning its clients could opt to manufacture non-traditional products like e-cigarettes and the like at the competitor’s facility. Those manufacturing agreements are important, Eastern’s CEO Hany Aman told Enterprise, despite a series of “operational efficiency improvements” that have made it less dependent on contract manufacturers.

Eastern is touting the benefits of a duopoly. “Competition is always in the consumer's benefit, and at the international level it raises Egypt's rating [from investment rating agencies],” the company said. As we noted this morning, the tender’s conditions were criticized by major tobacco distributors who would like to get the chance to manufacture. They argue that, because only one license is up for grabs, the winning company would gain an unfair advantage.

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