Philippa Kaur

TECH FIRMS with ropy business models are told to “pivot”—abruptly reinvent themselves in the hope that a new approach generates profits before venture capital runs out. YouTube is celebrated in business schools for hurriedly switching from a dating service to video-sharing; Slack ditched online gaming for corporate chat. Agile repositioning is not confined to Silicon Valley. In Russia the hustle to come up with the next tech darling has emerged from an unlikely quarter. Sberbank, once the Soviet Union’s sclerotic retail-savings monopoly, is ploughing billions of dollars into consumer technology. It is pitching clients digital services from food delivery to music streaming. Driverless cars and e-commerce will be next. Can the former spiritual home of financial bureaucracy, still majority-owned by the government, reinvent itself as Russia’s Netflix, Google and Amazon rolled into one?
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Bewilderingly, the answer is: maybe. Sberbank has pulled off one long-odds pirouette—from a communist state enterprise, with all the attention to customer care and corporate probity you would expect, into a modern lender. By adopting decent governance standards and up-to-date lending practices it has seen off plenty of rivals and kept nearly half of all retail deposits in the country. Its brand remains strong. The state’s continued involvement—the Russian finance minister chairs its supervisory board—has helped reassure customers that the state will make them whole if things go awry. Two in three Russians are still its clients. The lousy interest rates depositors accept in return for this security ensure cheap funding for Sberbank—and some of the world’s juiciest lending margins. This has made it Russia’s most valuable listed firm, and Europe’s second-most-valuable bank behind HSBC.

The same man who turned the decrepit dinosaur into a nimble 21st-century lender now wants to choreograph its entry into big tech. German Gref has been boss since 2007. A descendant of German deportees exiled to Kazakhstan in 1941, he took the reins after a stint as a liberal-minded economy minister under Vladimir Putin, an old associate of his from their time in St Petersburg in the 1990s. Having succeeded at the humdrum task of offering better financial services to the masses—getting tellers to smile and vetting borrowers thoroughly—he now wants to move beyond being a “boring banker”, as he has put it. Tech looks just the ticket.
Just as likely these days to sport tech’s de rigueur T-shirt and jeans as he is a suit, Mr Gref has a vision of Sberbank as a purveyor of everything digital. Where some firms offer services to consumers, others to businesses or governments, he has designated Sberbank as a “B2C2B2G” company. The roster of current and planned offerings ranges from cloud-computing to ride-hailing, virtual assistants, e-health and its own cryptocurrency. Forget banking: the firm has rebranded itself as Sber.
The model Mr Gref has in mind is not American or European but Asian. Far-eastern “super-apps” have emerged offering a wide array of services under one roof. The likes of WeChat in China or Grab in South-East Asia have thrived by disrupting old financial institutions. Sberbank wants to be the disruptor instead. It has spent around $2bn on technology and acquisitions, for example of an internet-media group. A further $3bn-4bn splurge between now and 2023 should help it build out an “ecosystem” of apps with a target of annual sales (including by third parties on Sberbank’s platforms) of around $7bn. That would be enough to be among Russia’s top three e-commerce firms within three years, before taking the crown by the end of the decade.
Sberbank starts with ingrained advantages. Its banking app is already the third-most-popular in Russia, and draws rave reviews. Its customer base of nearly 100m is an unrivalled franchise. And, in a country that defies easy logistics, a network of 14,000 branches can double up as last-mile delivery points.

The logistics headache, along with a dollop of protectionism, help explain why mere billions are enough to make a credible push into digital services in Russia. Western giants have been all but frozen out. Local companies such as Yandex (which started out in search) and Mail.ru (email and social media) lack the resources to transform themselves. Sberbank’s fat banking profits enable it to do just that. Troves of consumers’ credit data are equally useful.
On paper, then, Mr Gref’s vision makes a fair bit of sense. Implementing it is another matter. Sberbank has tried to join forces with tech groups in the past, notably Yandex and Alibaba, a Chinese giant, but the joint ventures met an acrimonious end. False starts have meant that it still needs to build an Amazon-like e-commerce operation around which its e-empire would revolve. Russian online services are growing rapidly, not least thanks to covid-19, but are mostly unprofitable. Others have spotted the super-app opportunity, including mobile-telephony providers, as well as Yandex and Mail.ru. And few precedents exist for an incumbent bank anywhere successfully parlaying its franchise into a wider ecosystem, points out Gabor Kemeny of Autonomous, a research firm.
Getting dizzy
The push into tech is partly the consequence of banking becoming less lucrative; margins are forecast by Sberbank to come down from their giddy heights as low interest rates bite. Overseas expansion once looked promising but was all but kiboshed by Western sanctions imposed on many Russian firms after Russia annexed Crimea in 2014.
The B2C2B2G opportunity is real. But is it worth it? In contrast to flailing Silicon Valley upstarts Sberbank does not need to pivot. Even under its own bullish forecasts for a thriving digital ecosystem, in ten years 70% of profits would still come from the legacy banking business. Most bosses would love to turn their firm into the next Alibaba. Sberbank’s shareholders seem happy for Mr Gref to give it a whirl. Others will be studying his progress carefully. ■
This article appeared in the Business section of the print edition under the headline “Sberbank’s second pirouette” More

“WHEN PEOPLE talk, listen completely.” Those words of Ernest Hemingway might be a pretty good guiding principle for many managers, as might the dictum enunciated by Zeno of Citium, a Greek philosopher: “We have two ears and one mouth, so we should listen more than we say.” For people like being listened to.
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Some firms use a technique known as a “listening circle” in which participants are encouraged to talk openly and honestly about the issues they face (such as problems with colleagues). In such a circle, only one person can talk at a time and there is no interruption. A study cited in the Harvard Business Review found that employees who had taken part in a listening circle subsequently suffered less social anxiety and had fewer worries about work-related matters than those who did not.

Listening has been critical to the career of Richard Mullender, who was a British police officer for 30 years. Eventually he became a hostage negotiator, dealing with everything from suicide interventions to international kidnaps. By the end of his stint in uniform, he was the lead trainer for the Metropolitan Police’s hostage-negotiation unit.
When he left the force in 2007, he realised that his skills might be applicable in the business world. So he set up a firm called the Listening Institute. Mr Mullender defines listening as “the identification, selection and interpretation of the key words that turn information into intelligence”. It is crucial to all effective communication.
Plenty of people think that good listening is about nodding your head or keeping eye contact. But that is not really listening, Mr Mullender argues. A good listener is always looking for facts, emotions and indications of the interlocutor’s values. And when it comes to a negotiation, people are looking for an outcome. The aim of listening is to ascertain what the other side is trying to achieve.
Another important point to bear in mind is that, when you talk, you are not listening. “Every time you share an opinion, you give out information about yourself,” Mr Mullender says. In contrast, a good listener, by keeping quiet, gains an edge over his or her counterpart.

Hostage negotiators usually work in teams, but the lead negotiator is the only one who talks. “What we teach is that the second person in the team doesn’t really talk at all, because if they are busy thinking about the next question to ask, they aren’t really listening,” Mr Mullender explains.
The mistake many people make is to ask too many questions, rather than letting the other person talk. The listener’s focus should be on analysis. If you are trying to persuade someone to do something, you need to know what their beliefs are. If someone is upset, you need to assess their emotional state.
Of course, a listener needs to speak occasionally. One approach is to make an assessment of what the other person is telling you and then check it with them (“It seems to me that what you want is X”). That gives the other party a sense that they are being understood. The fundamental aim is to build up a relationship so the other person likes you and trusts you, Mr Mullender says.
The pandemic has meant that most business conversations now take place on the phone or online. Precious few in-person meetings occur. Some might think this makes listening more difficult; it is harder to pick up the subtle cues that people reveal in their facial expressions and body language.
But Mr Mullender says that too much is made of body language. It is much easier to understand someone if you can hear them but not see them, than if you can see but not hear them. He prefers to negotiate by telephone.
Another key to good listening is paying attention and avoiding distraction. In the information age, it is all too easy for focus to drift to a news headline, a TikTok video or the latest outrage on Twitter. In another study in the Harvard Business Review, participants paired with distracted listeners felt more anxious than those who received full attention.
The lockdown has increased the need for managers to listen to workers, since the opportunities for casual conversation have dwindled. Mr Mullender thinks that many people have become frustrated in their isolation, which can lead to stress and anger. He thinks there may be a business opportunity in helping managers listen more efficiently, so they can enhance employee well-being. After a year of isolation, many workers would probably love the chance to be heard.
This article appeared in the Business section of the print edition under the headline “Hear, hear” More

IT HAD BEEN closed, on and off, for much of the past year. Now signs on the blacked-out windows of the Zara shop on the Champs-Elysées, the Spanish brand’s early outpost in the French capital, announce it will not re-open even after covid-19 passes. Disappointed fashionistas are redirected to the label’s website for all their value-for-money sartorial needs. Alternatively, they can stroll two blocks down the avenue, where another Zara shop opened a few years ago. There are three more within a half-hour’s walking distance in central Paris.
Peppering city centres and malls with more outlets used to be the obvious strategy for apparel retailers seeking new customers. Inditex, Zara’s owner and the world’s biggest purveyor of fast fashion, grew from fewer than 750 stores at the turn of the century to around 7,500. But trends come and go in business as they do on the catwalk. In 2020, for the first time in its two-decade history as a listed company, Inditex finished the year with fewer shops than it had 12 months earlier—and suffered its first quarterly loss. Up to 1,200 outlets are in the process of being axed, compared with 300 planned openings. Inditex, the most admired firm in the sector, has not run out of ambition. Instead, Zara is chasing its young clientele to where they spend the most time: on their phones, shuffling between Instagram and TikTok. The shift to online sales, which has been turbocharged by lockdowns, will require some agile refitting of the way fashion brands do business.

Much of what it takes to flog a polka-dot dress for $27—the average selling price for the Inditex family of brands, which also includes thriftier Bershka and posher Massimo Dutti, among others—is the same in store or online. The product must be desirable, and available at the right time, right size and right price. For the bean-counters, though, the transactions are as different as sequins and flannel. Shops are giant bundles of fixed costs, starting with rent and staff, which turn profitable only once you shift enough product through them—the idea is to stack it high and sell it cheap. Websites and warehouses cost much less to run. But because retailers cough up to deliver each package, the more they sell the more such variable costs add up.
On the surface, shifting sales online looks alluring. Gross margins are a bit leaner than in shops, where it is harder for buyers to compare prices than on Google. But at the same time an online-only retailer has none of the expenses associated with stores, such as shop assistants’ wages and rental payments. So online sales can end up more profitable overall. The wrinkle for established retailers is that their website often serves customers who would once have rung up the tills in physical stores, leaving them emptier. Unless at least some shops are closed, says Aneesha Sherman of Bernstein, a broker, retailers risk having to cough up new variable costs of online fulfilment while continuing to incur the fixed costs of legacy bricks and mortar.
Inditex’s signal that it is reducing its store numbers is a wake-up call in the industry. Bosses dislike shutting shops. Attendant lay-offs irk politicians; write-downs and forgone sales can annoy investors. But where Inditex goes, others follow. The Spanish group has grown faster than rivals, such as Sweden’s H&M or America’s Gap. It surged ahead by outsourcing more of its production close to its main European market, which allowed it to respond faster to fashion trends and maintain leaner stock. Fresher inventory led to fewer end-of-season markdowns and fatter profits. Even as rivals have emulated it, Inditex has managed to keep operating margins at a plump 17%. Those of Fast Retailing, the Japanese parent of Uniqlo and the only rival to match Inditex’s sales growth in recent years, are a third lower.
Few doubt Inditex will meet the target, set in June, of raising the share of online sales from 14% of the total in 2019 to at least 25% by 2022. Having arrived late to the cyber-party, Pablo Isla, the company’s boss since 2005, has the zeal of a convert. His plan envisages hefty investment: over $3bn will be spent by 2022 to boost online capabilities and make sure stores and websites work seamlessly together. New technology, such as RFID chips, tracks where items are, allowing Inditex to fulfil an order from either a shop or a warehouse. It is testing an app to tell shoppers if a particular item in a particular size is available in a given outlet—and even on which of the outlet’s racks to find it.

These investments ought to be easy to fund from Inditex’s healthy balance-sheet and profits—certainly easier than for other retailers, which have their backs against the wall after a dud year. The Zara brand is strong enough to attract shoppers to its own app; lesser marques rely on intermediaries such as Zalando or Amazon, which crimps margins. Inditex has short leases on its stores, giving it more room to haggle over rents, or make rent payments more flexible by linking them to shops’ sales.
Prêt-à-cliquer
Being an online champion inevitably brings its own headaches. Amazon is a far more fearsome competitor than H&M. Barriers to entry are low. Maybe one in three garments sold online is returned, a much higher proportion than in shops, where they can be tried on (though nudging buyers to leave unwanted frocks in stores, as Inditex does, helps cut postage costs and increase the likelihood the item can be sold again while still in fashion). Zara, which spends next to nothing on advertising, might have to start if people are not reminded of its existence by walking past its billboard-like outlets.
In time, sales per square foot in remaining shops will probably continue to fall, threatening their viability. Unlike banks, which have been pruning their high-street branches for years, clothes retailers deal with fickle fashionistas, not sticky account-holders. The industry’s supermodel will probably sashay online with more grace than rivals. But it had still better watch its step.■
This article appeared in the Business section of the print edition under the headline “Refashion model” More

THE ANNUAL Consumer Electronics Show (CES) in Las Vegas used to be a jamboree for gadgets you can put in your pocket or hang on your wall. This hasn’t been true for a few years. As vehicles morph from a lump of mechanical engineering to a digital platform for mobility services, and motor shows wane in importance, carmakers have sought new venues to showcase their wares. At this year’s (virtual) CES, which opened on January 11th, they once again joined makers of smartphones, smart toilets and smart dog flaps in showcasing their smartest tech.
CES has risen in significance because vehicles are changing. Bosch, a parts supplier, noted at the show that a typical car had 10m lines of code in 2010; today it has 100m. This month Ford had to idle a factory in Kentucky for a week owing to a global shortage of semiconductors that deprived it of the chips its cars run on.

Electrification of transport will speed up the transformation of vehicles into electronic devices. Battery power requires a new electronic architecture that will come with better integration of hardware and software, and improved connectivity. Harman, a car-tech firm, envisions a “third living space” between home and work, using the development to plug a connectivity gap and offer new in-car services, such as interactive concerts and gaming.
In other ways, though, cars remain a metal box. Although electrification has reduced barriers to entry in the car business—which were formidable for capital-intensive metal-bashing—vehicles are still best made by firms that can manufacture at scale and with a trusted brand.
As a result, car firms are wracking their brains over how much of the software that runs their vehicles’ new electronic functions they should develop in-house and how much to outsource to tech firms. At CES Daimler showed off Hyperscreen, a new touchscreen dashboard for its luxury electric models. Mary Barra, boss of GM, delivered a keynote speech reiterating the Detroit stalwart’s electric and electronic plans. In the autumn GM said it would invest $27bn in electric cars by 2025 and launch 30 new models. Ahead of CES it unveiled a new logo, repainted blue to evoke clean skies and with its “M” made to look a bit like a plug. This week the firm made more announcements about its plans for electrification, including details about its BrightDrop electric delivery van and new electric Cadillacs (as well as, inevitably, a flying-car concept).
Tech firms, for their part, are mulling mobile hardware. Apple’s flirtation with electric cars exemplifies the complexities of the relationship. Rumours that it intended to make electric vehicles first surfaced in 2014. Two years later, when the trouble and expense became clear, it dropped the idea. On January 7th a news report of talks with Hyundai to build an Apple car sent the South Korean carmaker’s share price up by nearly 20%. Hyundai acknowledged it was in early discussions with the iPhone-maker. Apple has yet to comment. Just as carmakers look to Vegas, it seems, big tech is headed the other way.■

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This article appeared in the Business section of the print edition under the headline “Steel and silicon” More

IN EARLY 2019 an executive at Visa, a giant payments firm, sketched a picture of an island volcano. He scribbled the current capabilities of Plaid, a Silicon Valley fintech firm founded in 2012, in “the tip showing above the water”. The startup, which has developed a platform connecting consumer accounts at more than 11,000 banks to financial apps, was offering services like “bank connections”, “account validation” and “asset confirmation”. But he warned of the “massive opportunity” beneath the surface. Plaid could expand into fraud detection, making credit decisions and, scariest of all, payments infrastructure.
This opportunity for Plaid looked like a threat to Visa. Ten months later, in January 2020, Visa announced that it would acquire its putative rival for $5.3bn. This sum was more than 50 times the revenue Plaid earned in 2019 (though a modest lift for a company with a market capitalisation of over $460bn). Al Kelly, Visa’s boss, described the deal as an “insurance policy”.

These details—volcano sketch and all—were included in the complaint America’s Department of Justice filed in November, when it sued to block the deal. The acquisition, the DoJ said, would snuff out a competitor in the debit-card business, in which Visa has a market share of around 70% and profit margins nudging 90%. In 2019 Visa earned around $4bn in profits. On January 12th the DoJ announced that Visa had pulled out of the deal, rather than continue to trial, which was scheduled for June.
The trustbusters’ intervention bears some striking similarities to the antitrust suits that have been filed against Facebook. Two separate legal challenges, one mounted by a bipartisan coalition of attorneys-general in 46 states and another from the Federal Trade Commission (FTC), centre on its acquisitions. They alleged that the technology titan maintained its monopoly in personal social-networking by systematically buying up potential competitors—notably Instagram in 2012 and WhatsApp in 2014.
In its defence, Facebook said that the government “now wants a do-over”, which would, as the company has put it, send “a chilling warning to American business that no sale is ever final”. The FTC’s complaint fails to mention that the antitrust authorities cleared the Instagram and WhatsApp deals at the time.
The move to block the tie-up of Visa and Plaid implies a new trustbusting approach taking shape in America. Henceforth the authorities will probably try to nip Facebook-like arguments in the bud pre-emptively by stymieing attempts by powerful incumbents to swallow upstart competitors. Explosive stuff.
This article appeared in the Business section of the print edition under the headline “Visa-free travel” More

MARY BARRA, boss of GM, took to the virtual stage on January 12th to launch BrightDrop. The carmaker’s new logistics division will peddle such unsexy things as delivery vans and autonomous electric pallets for use in warehouses (see article). Hardly stuff to set pulses racing.
Suppress your yawn, for Ms Barra’s announcement is the latest sign of a quiet but powerful revolution. “The convergence of software and hardware seen in the carpeted parts of enterprises is now seen on factory floors in every industry we serve,” says Blake Moret, chief executive of Rockwell Automation, a giant of the industry. His firm runs a full-scale manufacturing facility at its Milwaukee headquarters, to prove that automation enables it to make competitive products despite America’s high labour costs. Its share price has risen by 28% in the past year, nearly twice as much as the S&P 500 index of big American firms. Other purveyors have done even better.

Bosses have boasted of automating their operations for years without an awful lot to show for it. Covid-19 has spurred them to put their money where their mouths are. Hernan Saenz of Bain, a consultancy, reckons that between now and 2030 American firms will invest $10trn in automation. Nigel Vaz, chief executive of Publicis Sapient, a big digital consultancy, says that the downturn offers bosses the perfect cover. “The unrelenting pressure for short-term financial results from investors has temporarily been suspended,” he says. “Firms are not just going back pre-pandemic, but completely reimagining how they work,” says Susan Lund, co-author of a forthcoming report from the McKinsey Global Institute, a think-tank. A recent survey by the institute’s sister consultancy found that two-thirds of global firms are doubling down on automation.
Aye, robot
Robots are the most prominent winner. Robo Global, a research firm, predicts that by the end of 2021 the worldwide installed base of factory robots will exceed 3.2m units, double the level in 2015. The global market for industrial robotics is forecast to rise from $45bn in 2020 to $73bn in 2025.
“We have had a catbird seat during the pandemic,” says Michael Cicco, the head of the American operations of Fanuc, a Japanese robot-maker. With supply chains whacked, manufacturers were forced to find ways to build flexibility, he says. Companies reshoring production have sought to offset the high cost of human labour with the engineered sort. And robots are becoming much more capable. The most dexterous can now pick delicate objects such as individual strawberries.

Fanuc has seen a surge in demand for material-handling equipment and “collaborative robots”, designed to interact with people. These “cobots” are particularly useful in e-commerce, which covid-19 has given a huge boost. The pandemic has, on one informed estimate, led consumer-goods firms to increase buffer stocks by around 5%. To counter this, firms are snapping up robots for use in warehouses, made by companies like GreyOrange and Kiva (which Amazon acquired in 2012 to assist its e-commerce fulfilment).

Right now cobots help with social distancing. But, says Dwight Klappich of Gartner, a research firm, robots that move goods to workers will be a boon for post-pandemic productivity, too (as well as for the morale of humans, by sparing their weary feet). Luke Jensen of Britain’s Ocado, an online grocer and robotics pioneer, insists that his low-margin industry must find ways of fulfilling the recent surge in online orders with less labour. His firm already serves the bulk of its British customers from just three highly automated sites. Kroger, a big American grocer, is now expanding its roll-out of Ocado equipment both in warehouses and at its retail outlets.
A survey of supply-chain executives published on January 13th by Blue Yonder, another consultancy, found that the share of firms with fully automated fulfilment centres may rise by 50% within a year. And, as Sudarshan Seshadri of Blue Yonder puts it, “Automation is just the table stakes.” The pandemic’s bigger long-term impact may be a fuller embrace by firms of data their operations generate, and predictive algorithms to help guide real-time decisions.
Stuart Harris of America’s Emerson, a big automation firm, says that “pervasive sensing”—which combines AI and clever sensors—helped his company’s revenues from remote monitoring grow by 25% last year. Emerson’s clients range from a Singaporean chemicals factory to a Latin American mine. Peter Terwiesch of ABB, a big Swiss-Swedish industrial-technology firm, also reports a boom in remote-operations systems, from marine vessels to paper mills. His firm’s annual sales of such products have doubled to $400m from pre-pandemic levels. Drishti, an American startup, has come up with a way to apply artificial intelligence (AI) and computer vision to analyse busy video streams of workers on assembly lines. Marco Marinucci of Hella, a big German car-parts supplier, says his firm used Drishti’s kit to analyse and fix problems at a high-volume assembly line. This allowed its throughput to rise by 7% last year. Publicis Sapient automated the inventory forecasting of a division of a big European retailer which found itself repeatedly out of stock amid the change in consumption patterns during the pandemic. The consultancy’s software allowed its client to prevent shortages of its top 100 items 98% of the time.
It isn’t just production floors and warehouses that are being automated. So are back offices. By one estimate, America’s health-care system could save $150bn a year thanks to automation of paper-pushing. Allied Market Research, a firm of analysts, predicts that the global sales of process-automation products will balloon from $1.6bn in 2019 to nearly $20bn in 2027. In December UI Path, a trailblazing Romanian startup in the area, filed for an initial public offering. It may start with a market value of $20bn. On January 12th Workato, an American rival, said it has raised $110m in fresh funding.

Last year Alibaba, China’s biggest e-emporium, unveiled the results of a more ambitious project, code-named Xunxi (“fast rhino”). Alain Wu, who runs Xunxi, explains that this involved digitising and integrating whole value chains—from product design, parts procurement and manufacturing to logistics and after-sales service. This allowed merchants on Alibaba’s e-commerce platforms to fulfil customised orders within days while eliminating excess inventory. Time from production to delivery was reduced from several months to a fortnight.
Sceptics note that history is littered with examples of supposedly world-changing technologies that beguiled bosses, only to fail to live up to the promise. (Remember the blockchain?) Once covid-19 has been defeated, companies’ enthusiasm for new technologies may subside. Those that have missed the opportunity to automate—as many have because they were busy trying merely to survive the pandemic recession—will lose the cover that Mr Vaz speaks of.
Optimists counter that this time really may be different. In the past the biggest returns to automation accrued to giant, well-capitalised firms. Today advances in technology and business models allow smaller ones to enjoy similar benefits. That should increase demand for clever systems—and in time reduce their cost further. And so on, in a virtuous, fully automated circle.■

This article appeared in the Business section of the print edition under the headline “Bearing fruit” More

IT IS HARD to imagine a simpler product than a cigarette paper: small, rectangular, with no moving parts. So cheap it is often given away. And replaceable; desperate smokers have been known to tear out Bible pages as substitutes. It has none of cigarettes’ glamour (though, these days, some of their stigma). No wonder Rizla, which produces 45bn rolling-papers a year and dominates the industry, attracts little attention as a marketing phenomenon. Yet it is one of a few brands, like Coca-Cola, Google, Jacuzzi or Tupperware, whose name (“Got a Rizla?”) defines the product.
That is because a simple packet of Rizlas exhibits many of the qualities—history, design, consistent quality and values—that marketing gurus consider hallmarks of enduring brands. Flip open the cover and you find a lesson in how to remain relevant. Aptly for a business long associated with the counterculture, the tutorial is a wry summary of the dark arts of marketing.

Start with history. Long ago Rizla may have realised that if you lack an illustrious heritage, you could invent one. “The Original…since 1796”, as the underside of its packets’ lids still boasts, refers to a time when Napoleon Bonaparte supposedly granted the Lacroix family of south-western France a licence to supply rolling papers to French troops, according to Rizla’s website. This may well be nonsense. A museum in Angoulème, the Lacroix ancestral seat, calls this historical “fantasy” and says that until 1860 the family manufactured paper but not for cigarettes. Its history of the clan says it was not until 1867 that Léonide Lacroix created the brand. A spokesman for Imperial Brands, which owns Rizla, says the story is widely recognised to have been told through the generations. “It’s a heritage we inherited when we acquired the Rizla brand in the 1990s,” he says. The discrepancy notwithstanding, Napoleon is now part of Rizla folklore.
Or take design. Rizla’s name and its cross logo are cryptic clues, which also date back to the 19th century. Riz is French for rice, as in the paper. La is the first syllable of Lacroix. The second, croix, is French for cross—and symbolised by a gold one appended to the name. For Rizla fans the logo is iconic. A former marketing executive recalls emblazoning it on the heel of wellies that the company distributed at music festivals, so that the imprint would stand out in the mud. Rizla does not advertise to its customers that they can use its papers to smoke marijuana as well as tobacco; that would break the law in many countries. But it doesn’t have to: pot-heads do it themselves, by plumping for its king-size papers (which the company insists are only produced to emulate ultra-long cigarettes).
Consistent quality is another trait, and a must to ensure that the claim on the packet—“Keep Rolling with the World’s No. 1”—remains true. Being owned by Imperial, a global tobacco giant valued at £15.5bn ($21bn), helps. Rizla is a sleek industrial machine, producing almost all of its papers at a big factory in Wilrijk, a suburb of Antwerp in Belgium. Reels of paper, now made of wood pulp rather than rice, are layered with gum, cut into strips, packaged and shipped to about 100 countries. It is highly automated. Ties to Imperial, owner of Golden Virginia tobacco used for rolling, offer a structural advantage that rivals lack.
The trick is to tap its parent’s deep pockets while promoting values that appeal to roll-your-own smokers who like to think of themselves as individualistic iconoclasts. One is attention to detail, which users obsess over. The papers come in six thicknesses, from 12.5 grams per square metre (in silver packets) to 26.5g/m2 (liquorice).

The second value, irreverence, is more ephemeral. Brice Barberon, who took over as Rizla’s boss in March, speaks of the “tribal element” to rolling your own cigarette. “The kind of blend you will choose, the kind of paper, the way you roll it, how much tobacco you put in, there is a kind of ritual in it that our consumers like…that brings people together.” Brits favour green packets (17.5g/m2). The Dutch, orange (20g/m2). The French, Micron (12.5g/m2).
Tribes share a lingo, musical tastes, pastimes, memes, clothing and a sense of humour. That is a great way to reach them. A former executive says that Rizla once used models dressed as border guards with high heels and handcuffs as part of a “show me your papers” campaign. With that comes the most effective, and cheapest, form of marketing—word of mouth.
Going from paper to digital
For all its guile, Rizla faces challenges ahead, notably the rise of upstarts that use less subtle social-media campaigns to build a new kind of cult following, especially among pot-smokers. They include Raw, started by Josh Kesselman, a shaggy-haired American entrepreneur who instructs his 1.7m followers on Instagram how to roll the perfect joint (“if you pack it too tight, it can’t run right”).
Vaping presents another problem. Though smokers are trading down to roll-your-own cigarettes during the pandemic, sales growth in the longer term is expected to weaken. Rizla is diversifying. Coinciding with the European Union’s ban on menthol cigarettes, it now sells “flavour cards” that infuse a packet of cigarettes with the taste of menthol within 60 minutes.
The biggest risk, though, may be thinking it must change too much. It has a market position to protect, but also a heritage. This may not quite date back to 1796 but is, these days, real enough. Rizla’s competitors can, at best, hope to fake it. ■
This article appeared in the Business section of the print edition under the headline “Rolling in it” More

ON JANUARY 7TH , a day after a mob of his supporters stormed the Capitol in Washington, leaving five people dead and America shaken, Donald Trump had the sixth-most-popular account on Twitter, with nearly 90m followers. A day later he had none. The outgoing president was permanently booted off his social-media platform of choice for inciting violence.
Free-speech advocates—including Angela Merkel, Germany’s chancellor and no Trump fan—bristled. So did investors. Twitter’s share price has fallen by around 10% since @RealDonaldTrump’s expulsion. That of Facebook, which suspended his account “indefinitely” on its main social network and Instagram, its sister photo-sharing app, has also dipped.

This looks like an over-reaction, at least by the stockmarket. Social-media firms’ ad-sales departments may be glad to be rid of the troll-in-chief. Before being displaced by “coronavirus” last year, “Trump” was the most blocked keyword by online advertisers, loth to have their logos appear alongside content that might repel customers.
Twitter’s algorithms prioritise tweets that generate greatest engagement. Mr Trump’s were highly engaging, to put it mildly, and often ended up at the top of users’ feeds. This coveted online real estate is sold through automated auctions. If many potential bidders block “Trump”, this may depress prices. With Mr Trump gone, says Mark Shmulik of Bernstein, a broker, this ad inventory becomes more valuable.
Twitter may experience a decline in engagement in the short term. People who came to the site to gawp at Mr Trump’s latest outrage, and stuck around to read about movies or sports (or some lesser dust-up) may not return with the same frequency. But the upside of being more brand-friendly may offset losses from the Trump dump. The share price of Snap, which also suspended the presidential account, jumped on the news. Twitter’s remains well above pre-Trump levels (see chart).

For Facebook, Instagram and YouTube, which blocked Mr Trump’s account on January 12th, the impact is probably going to be negligible. Their monthly users (2.6bn, 1bn and 2bn, respectively) are more numerous and more global than Twitter’s (300m).
A bigger concern is whether muting Mr Trump undermines social-media firms’ claim that they are impartial platforms, and thus shielded from liability for what their users post, rather than publishers, who do not enjoy such protections. That is why they have been careful to couch their decision in the language of process and consistency with their own rules.
Even before the latest outrage, the firms had been stepping up moderation efforts, without giving up claims to platformdom. They employ tens of thousands of moderators between them to wade through toxic posts and remove those that break their terms of service. They have tried to limit the spread of misinformation around elections and other febrile times. Facebook has a semi-independent oversight body to hear appeals to disputed moderation decisions.
The social-media giants may welcome clearer rules, the need for which enjoys bipartisan support in America. These would raise barriers to entry for upstart rivals; Parler, a newish social network popular among American right-wingers, was boycotted into oblivion when it showed itself unable, as well as unwilling, to excise dangerously inflammatory content (see article). If muting Mr Trump engenders greater regulatory clarity, the thinking goes, so much the better for deep-pocketed incumbents. As an added bonus, it earned them rare plaudits from Democrats, who are about to take unified control of the federal government. ■

This article appeared in the Business section of the print edition under the headline “Capitol gains” More