BRITISH American Tobacco has struck an exclusive deal with the Russian Post Office to sell cigarettes, including the flagship Kent brand, through more than 30,000 outlets.

The London-based company hopes that the deal will play a key role in hitting its target of toppling Philip Morris, the Malboro maker, as Russia’s biggest cigarette player by 2010.

BAT, whose 20.5 per cent market share lags behind Philip Morris, with about 27 per cent, will use the Post Office network to deal with the logistical problem of covering Russia’s vast landmass.

Russia is the world’s third-biggest tobacco market, behind China, with 1.6 trillion cigarettes, and the United States, with 400 billion. It has an annual consumption of about 315 billion cigarettes. British consumption is about 57 billion cigarettes. Almost half of Russian adults smoke.

BAT said that the Post Office deal was still in a trial stage. The financial benefits of the deal were obvious, given that it would negate the need for BAT to set up its own costly distribution network, it said.

Despite Russia’s population hubs of Moscow and St Petersburg, a significant proportion of the country’s 144 million citizens live in remote locations. Tobacco companies previously have found it uneconomic to service such far-flung places through an organic distribution network. The Post Office’s 40,000 outlets are the only commercial retail outlets in some parts of Russia. The Post Office delivers more than a billion letters, three billion periodicals and 44 million money orders a year. It also acts as a lifeline for many rural and regional communities in the country.

About 30,600 Post Office outlets are licenced to sell tobacco products. BAT’s deal would make it the only international player to sell its cigarette brands through the Post Office.

The deal is significant because BAT and its rivals, including Gallaher and Imperial Tobacco, are trying to cash in on the tendency of Russian smokers to migrate from cheap, home-grown tobacco products to international brands. Foreign brands sell at a significant premium to local products, meaning that international tobacco companies enjoy improved profitability even in those markets where the actual sales volumes are declining.

BAT will distribute both the market-leading Yava cigarettes and Kent through the Post Office.

With the Chinese market proving virtually impossible to crack and the American market well-established, BAT and its rivals are focusing on Russia as a source of substantial profit gains. Russia is already BAT’s second-biggest individual market based on the number of cigarettes sold, ranking behind Canada.

John Taylor, managing director of BAT Russia, said that he was confident of increasing the company’s market share to 30 per cent by 2010, toppling Philip Morris in the process.

BAT has backed up its aggressive claims with a $170 million expansion of its three Russian factories in Moscow, St Petersburg and Saratov. The expansion will boost capacity from 95 billion cigarettes a year to 115 billion by 2009. Ultimately, the company plans to expand capacity to 125 billion cigarettes by 2014.

Mr Taylor said that BAT’s market-leading target would be achieved on the back of key product relaunches, significant investment and a focus on smokers under the age of 30. He denied that the company’s age target would inevitably attract underage smokers.

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