(First published May 24/99)

John Barnett may have been educated as a chartered accountant but, he says, he's no bean counter.

Nor is he the type of person who has a lot of patience with the slow pace of things that he feels should move more quickly. That applies to production, decision-making, or, as he says, "people, process or myself."

In his new position since Nov./98, when he moved from the same position at Molson Breweries, Barnett admits that impatience can be his weak point.

But he must be patient within the tobacco industry where things move carefully, hinged on pending legislation, unclear government regulations and plans, litigation, and a lack of tools to market new products in any traditional way or even to help develop longterm strategies.

Barnett has one of the more challenging jobs in Canada, beset with significant problems such as frustrating anti-tobacco protests, lack of opportunities for dialogue with government representatives, and ethical considerations. On the other hand, the search for products and innovations is stimulating and the staff rapport, enjoyable.

C.A. Background Offered Flexibility

While most of his career has been spent in the beer business, with Carling O'Keefe breweries of Canada and Molson in both Canada and the U.S., it's his second sojourn with Rothmans. He worked at Rothmans of Pall Mall Canada as controller for eight months in the early 1970s, recruited by Rothmans, a client, from Price Waterhouse.

"I qualified in the U.K. as a chartered accountant," he says. "Every business needs a scorekeeper. I had no idea of what I wanted to do or where I wanted to live, so I looked for a profession that would give flexibility both in geography and type of business. Chartered accountancy is a training ground no matter what product or service you sell. During the auditing training process, you see a lot of businesses, which helps you figure out your goals and ambitions."

No Fear of Tobacco

Barnett felt comfortable with the tobacco business, and with the beer business where an internal Molson's company paper referred to him as 'a real beer guy, down-to-earth.'

When Rothmans recruited him, "It looked for someone who wasn't afraid of working in the tobacco industry," Barnett says. "I'm not. And it wanted someone whose past experience would give some empathy for smokers and brand loyalty. There are a lot of similarities between beer and cigarettes. Both have elements of brand loyalty, are low cost treats and have frequent purchase patterns.

"It was apparent to me that my job as CEO of Molson had reached the top in terms of principal market. I had headed the company in the U.S. (from 1989-'95) and saw that it would take a long time to grow the business outside.

"And intellectually, this is a challenge, along with giving exposure to international business on a broader base, with responsibilities for Canada, the U.S. and the Caribbean, and as a member of the worldwide executive committee for Rothman's International."

Taking on the top job in a tobacco company when it seems that almost all avenues of marketing, in particular anything related to advertising, appear outlawed is definitely a challenge.

"It's like a pendulum that has swung too far," he says. "There's a point where regulations go too far. Prohibition went too far and it didn't work. And this won't work. If people have a need for something, they'll find a way to have it. Twenty years ago before all these regulations, 29% of adults smoked on a regular basis. In 1997, it was still 29%.

"So the challenge is not so much the overall consumption. The challenge for us is that the regulations make it more difficult to get people to switch brands. If someone tries a new cigarette and then a few friends try it, it's a long build. And the work environment, with limited smoking areas, means more restrictions."

As for the job, says Barnett, it was a great opportunity at the right time. Sales revenue was up minimally. There was a small market share loss. Earnings were off slightly, largely due to a litigation settlement with Imperial Tobacco. Some older brands were declining, a situation difficult to change since most marketing and communications tools had been taken away. There were legal challenges to the Tobacco Act, more government proposals to further limit the display of products and changes in packaging. In short: a challenge.

Which Brands to Back

His first focus was to understand the business and business dynamics, and then to look at the brand portfolio to see where RB&H could prioritize.

"We're looking at where we should take our support and see where to push and grow. It's difficult to change brands that are declining, like Rothmans, and the Craven "A" family. Growing brands are Benson & Hedges, Dunhill, and Canadian Classics, launched a couple of years ago. And Belvedere is big in the Maritimes and Quebec. We've been using the Just for Laughs Festival to support Craven "A" and recently did a package redesign for part of the family".

He's been influenced by his time in the U.S., where, he says, there's a greater sense of urgency placed on management to achieve in key business results.

"I brought back that sense of urgency in getting things done, changing what needs to be changed. One of the privileges of being a CEO of a company is that you have the ability to influence others. If you think a company has to pick up its pace of doing things, you have the ability to make it happen."

One thing he has no intention of doing is rationalizing RB&H's brands. Even relatively small brands sell well in one area if not in another, he says, and Rothmans has lots of plant capacity.

"The proliferation of brand SKUs does make life more difficult, " he says. "And in most industries, when you launch a new product, you have a significantly integrated marketing plan which would include advertising and promotion. But given that we don't have those tools, it's a much slower call. We're allowed to display at retail to feature products, but even that, in Health Minister Allan Rock's proposals, may be more restricted." (As is packaging: proposals call for health warning messages covering 70% of the package, while another 10% would go to messages regarding in which province particular cigarettes can be sold.)

New Products in Test Mode

Despite lack of advertising tools, Rothman's recently launched Canadian Classics Light in English Canada in February.

And in 'hip' areas of Toronto, it's currently testing KOZ which has non-conventional graphics, Barnett says. "KOZ targets the 19-25 age group who see themselves as rebels or out-of-the-ordinary.

And Fresh Protect, a packaging innovation that allows cigarettes to stay fresh after the package is opened, rather than having them dry out, is being tested in Prince George.

"Ladies like it because it stops cigarettes from drying out and leaving cigarette dust in purses and pockets," says Barnett. "And it keeps cigarettes dry for hunters, fisherman, or if you're in the rain. Fresh Protect tries to keep cigarettes moist so they burn properly. We're always trying to come up with consumer benefits.

"Another new product is Rolls 65% More in the roll-your-own tobacco product line. It's being launched to provide a low cost product in areas where roll-your-own cigarettes are popular and to combat products of several small independent companies who tend to work in the generic, low-priced sector, primarily in Atlantic Canada and Quebec."

Working in an industry that's so highly regulated and under all sorts of new guidelines is frustrating as well as challenging, says Barnett. No matter whether you're in general management, marketing, sales, the key position objective is to try and improve market share performance.

Risk, Responsibility and Informed Decisions

Ethics play a big role, says Barnett.

"To me, it's right and proper that a government puts regulations in place in terms of making a decision when people can drink and smoke legally, and, to the extent that they believe there are adverse health consequences of use or misuse, to tell people that, too.

"But people have to take some responsibility for their own actions. Life is not without risk. What we've seen lately is well-meaning people trying to regulate life to take risk out of it. It's a grand ideal, but unrealistic.

"Everyone is different. If people don't rock climb, they ask why others do. Some do because the benefits outweigh the risks. I do a little scuba diving - not. a lot, but I enjoy it. But there are risks: the equipment could malfunction, one mightn't follow the rules. People do a lot of things that give them pleasure."

Barnett's family knows the risks. Along with the two young children (six and two) of Barnett and his wife Mary, he has a son of 21 and three daughters between 18 and 26. The two oldest smoke, as, occasionally, does the son. Over legal age, they've been told that there's increasing evidence that some people will have adverse consequences, so should make their choice on an informed basis.

Time with his young family is important to Barnett, who gets into his office early and tries to avoid taking work home. Among his activities, he's a coach with a kids' soccer team. And he doesn't get to play golf as often as he'd like. "It'll be more when I retire at 65, or when I'm not having fun doing what I'm doing."

Outside of work and family, for 12 years, he's had a particular interest in the Canadian Special Olympics where he is a director, a trustee of its Foundation, and a director of the Sports Celebrities Festival, the organization's major fundraising activity ($1.6 million last year).

Motivation Necessary

At work, Barnett's strength is in motivating people. "I try to be open and direct. I work hard to make sure people know what I expect, and to give them the tools and the freedom to get it done."

A major challenge, he says, is "projecting confidence in the historical evolution of our brands and brand portfolio in the restrictive environment that we are trying to market through, so that we can be successful in changing share trends.

"There are a lot of people who have been here a long time putting lots of effort and energy in trying to do that. They've not been meeting the success that they hoped for. It tends to wear you down. But I honestly believe that we will correct that. I don't know what elements will come together that will do it, but I believe we will.

"It's important to motivate, because there are some employees who have little or no interaction with other employees. We just had a national sales conference where the highlight was the awards night where sales people who excelled were honored. Peer group recognition is great.

Display Strategies

"Another motivatation is through the use of retail programs. The sales people all have volume and share targets re displays in stores. Retailers who sign up for display programs can participate in other added value programs. It has grown over the years, allowing them to get security systems at a lower cost than normal, business insurance at a lower premium and, recently, personal insurance for home and auto.

"So the salesmen pitch these programs along with the display payments. It's proven hugely successful. The economic benefits give the salesperson something more to build a relationship on."

Retail displays will be about the only means left for cigarettes to have any visibility for the consumer, once sponsorships by tobacco companies that currently are the main support of many cultural and sporting events in Canada end after year 2000. So in-store merchandising is important in marketing to smokers.

Barnett says, "There are two keys to in-store merchandising: you have to make sure that the brand is available to people where they can and want to buy, and you have to make sure that it is displayed well. You have to make adjustments to see if you can make the brands more prominent. If you want a reasonable shot at distribution, there's 55,000 points of purchase in Canada. They tend to stock the largest selling brands so as to get more money.

"The challenge is when you want availability for brands that aren't the leading sellers. If you need to display 'less important' brands, you have to give the retailer a reason to display them. Companies will pay for display. Retailers have some strong points to make if they are prohibited from displaying tobacco products, because they make money from both sales and from display. For many small stores, revenues that they get from sales and display of tobacco products would be a significant part of their profits."

With drugstores no longer carrying cigarettes in most provinces, Barnett sees convenience stores and convenience gas bars as becoming more and more important as key distributors.

"But if legal places to buy become restricted, I believe smokers will find a way to buy, one way or another. If that happens, there may be a real risk of increasing illegal sales, and the government will lose because of the economics, the loss of taxes."

Challenges and the Competition

His biggest challenges these days are twofold: the change in the regulatory environment with the inability to be part of any sort of dialogue with the regulators on what's practical or not; and litigation.

"There are a number of cases going through the courts. It's not as dramatic as in the US, but it's still an issue. In Canada, we haven't lost any cases yet, because there were warnings on packages for more than 20 years, so consumers were forewarned, but the U.S. marked their packages much later.

"At times it's frustrating, but I'm paid to try and figure out a way through this and to preserve and grow this company. "

Biggest manufacturer in the Canada is Imperial Tobacco with a 65% market share compared to RB&H's 22%. Competing against such a dominant player doesn't scare Barnett.

"One can't be all things to all people. There are three main players in the industry. (The third is RJR-Macdonald Inc..) The challenge for the smaller guys is to see, in the impressive array of brands Imperial has, where we can do better in segments it doesn't appeal to.

"Plus brands come and go. They have life cycles. It's hard to get young people to drink the beer their fathers did. So the badge element is a way for entry to appeal to entry smokers.

"We have a bigger need to be innovative than Imperial does. It's huge, successful and its market share is growing.

"So in a retail environment, we're looking for products that appeal to niche markets. We're looking at a couple of things triggered by seeing what's happened in another country. eg. the Fresh Protect system on packaging that we're testing. We have patents on the technology. Rothmans has the rights in Saudi Arabia where it was launched on Peter Stuyvesant and has been very successful, but for a different reason: it protects from blowing sand.

"We're looking at other things, to see if Canadians would think there would be an important advantage and then see if they can be converted into a production basis."

There was a merger that resulted in BAT/Rothmans International right after Barnett joined the company, the third merger to which he has been exposed during his career. While surprised, he says he's been around long enough to know how these things happen and now expects the 60% share of Rothmans Benson & Hedges held by Rothmans International to be sold within a year.

"I was impressed how people in this company have coped with what normally is a pretty unsettling situation," he says. " I rationalized it in my own head: If you work in a tobacco company with its constant change of regulatory environment, it sort of puts a Teflon finish on people. It's just another bump in the road. Ownership will be resolved and life will go on."