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Drugs:
How it is Sold and Distributed In The UK
The
Independent, 16 July 1998, Review Section, p1.
As CHAIRMAN of the board of Drugs (UK) plc I am pleased to report to our directors and shareholders record sales last year. Our core business remains the importation, distribution and retail of illegal drugs. The overall value of our industry is, by its nature, hard to gauge. But for the first time our own estimates have been confirmed by official figures suggesting that we now have a turnover worth up to £10bn a year. The Office of National Statistics report issued last week said that this reflects up to 2.5 per cent of all consumer spending.
Our turnover, which I think you will agree is impressive, is almost comparable with the British wine and spirit industry’s 12bn per year. As you can see from our profit and loss account, we have provided exceptional return on your venture capital.
Market penetration of all our products has increased over the last year in all demographic and geographic areas. About 48 per cent of 16-24-year olds now say that they have used illegal drugs, an increase of 3 per cent on 1994. There remains a great [amount] of scope for expansion. Only one-fifth of those who have used our products are regular purchasers.
We have made strenuous efforts to break away from our traditional inner city urban image and are breaking into new regions, especially in rural areas.Confirmation of our success came from the independent commentator on the drugs market, “drugs tsar” Keith Hellawell, last week: “Traditionally addicts came from broken homes, or deprived backgrounds. We are now getting a new group, people from the more affluent rural areas. They are often high achievers from stable homes, and they are becoming addicted to drugs.”
In a year of notable successes, first I must congratulate our employees in the heroin subsidiary for their strenuous efforts to expand the downstream business. As our long-term investors will know, this sector has mainly supplied a small but dedicated group of high-spending consumers. Official estimates suggest 40,000 regular purchasers.
As a result of innovative marketing strategies, we have increased our consumer base at the rate of some 20 per cent per annum. We have been able to improve supply of this drug and to continue a 10-year trend of price-cutting to expand our customer base. We are currently watching with interest new, localised schemes building on this success.
Our sales team are encouraging inhalation of heroin, as this has shown to have a better image than mainline methods. Our new strategy of packaging in special cheap £2 “one hit wonders” appears to be highly effective in attracting the youth market. In some areas we supplied heroin to the school age market at below retail cost. This “loss-leader” scheme is designed to give early exposure to our products to potential long-term consumers.
Although the price of heroin has dropped in recent years from £90 a gram to £45 a gram, the profit margin remains high. We have also been able to increase the purity of our products at street level. As in previous years, heroin produces a high and sustained return on investment.Our cocaine subsidiary has had a buoyant year. Growth has been gradual and times have been changed from the late Eighties where our City business experienced a boom period. Our white powder is primarily an upmarket product, and we hope to hold sales steady through the anticipated recession.
Purchases of crack cocaine, our product targeted at lower socio-economic target group, have out-stripped those of the classic powder product. Market research shows that our 173,000 regular cocaine consumers spend an average of £780 per annum on this drug. However, dedicated users spend up to £20,000 per year, far greater expenditure than on any of our other products. We also have a large “impulse buy” market for this product.
Cannabis remains our biggest selling brand. Our core group is some 1.73 million regular customers and each is estimated to spend some £600 a year on our cannabis range. Market research shows that one in three 14-15 -year-olds have sampled at least one product form this range, and that 70 per cent of this age group know one of our sales representatives. We have maintained prices at around £3.50 a gram. Cannabis presents a difficult import challenge due to its bulk compared with Class 'A' drugs. It takes around 70 tonnes a year to supply our current client base.
Our cannabis and synthetic drug division has kept up its close contact with Holland, which leads the world in state-of-art exportation techniques. Our Dutch colleagues have expanded operations and continue to develop the manufacturing base for our synthetic products.
The most important of these synthetic brands, ecstasy, continues to sell well, although it has never lived up to the promise of late Eighties. We believe the problem with this product is user tolerance, which, while temporarily increasing sales, deters long-term use. Our chemists are working with our Dutch colleagues in the research and development division are looking for a new product range that overcomes this problem.
I welcome the extension of the European Community. Reducing border controls has expedited shipments and reduced bureaucracy. Recent experience has shown that the Channel Tunnel is an efficient route for importation if not overused. The upheaval in eastern Europe has opened a variety of new trade routes. In addition we have an extensive recruitment strategy in the former Communist countries. I would like to take this opportunity to welcome our Czech colleagues.
One note of caution. The biggest current threat to our business is the mounting number of health scares associated with our brands. We have for many years been able to present cannabis as totally harmless. Recent research has caused worries and has deterred some casual consumers.
Ours is always a high-risk industry. Seizures by Customs and police have increased, but we feel this reflects the continuing expansion of our import arm. According to the latest figures released yesterday, Customs last year seized our products to the value of £3.3bn between 1997 and 1998, including 1.7 tonnes of heroin.
In January, Scotland Yard claimed that they had “seriously disrupted” supplies of heroin by knocking out a distribution centre in North London. The continuing drop in the price of this product I think speaks for itself. Customs claimed to have eliminated 130 of our import and distribution franchises. Sadly this is an occupational hazard of our business.
DRUGS (UK) PLC’S Liverpool area manager, Curtis Warren, 34, noted for his aggressive leadership style, has moved to new pastures. While overseeing a shipment from Holland, the Dutch police recognised his innate organising talents and the Netherlands prison service made him an offer he could not decline for a 12-year contract.
David Satini, 31 who had made a similar impact as our main heroin distributor in Scotland, has received a 13-year contract from the British Prisons Service.
In the UK, heroin deaths rose from 52 to 186 in three years. We regret the loss of such regular customers. I also deprecate the increase in the use of firearms, that has, unfortunately become synonymous with our business. This damages our corporate image and attracts excessive interest from the police. Some 95,000 of our workers and customers were arrested in 1996, up from 86,000 in 1994.
Drugs (UK) plc business has also contributed to our allied industries, theft and prostitution. One recent report suggested that just 664 of our regular heroin purchasers had been involved in some 70,000 theft offences in a three-month period. On the broader front it has been an eventful year. Regarding legislation, we were troubled by the campaign run by a national newspaper and the increasing number of police officers and other prominent figures who favour the legalisation of cannabis.
As I have pointed out in the past, legalisation presents a threat to our control over the industry. We believe we provide an exemplary 24-hour “drugs direct” service with no expensive headquarters or showrooms, no advertising, no tax, just personal contact with our extensive network of salesman. We were initially concerned at the arrival of a new government, especially one that included some members who had personal past knowledge of our product range. Worries that it might precipitate a radical change of policy proved groundless.
We lobbied to encourage the Government to maintain the traditional “war on drugs” position. I am glad to say that the Prime Minister, Tony Blair and Home Secretary have continued to support this hardline stance.
I emphasised to the Government our commitment to the one truly free market. I also feel we have entered into the spirit of Labour’s “New Deal” by providing employment for many considered unemployable in mainstream business.
On the negative side the Government appointed a “drug tsar” in October. This was followed in March by a considered “White Paper” policy document that moved away from the political hyperbole we have seen in the past. However, despite a number of well considered suggestions I do not envisage any substantive impact on our business.
I would also like to express my gratitude to the Chancellor for increasing the taxation on alcohol and tobacco. This has meant our products can provide more “bang for the buck”, compared to the cost of a pint of bitter or a glass of wine. This has been a major incentive for our customers among the young and un-employed.
For politicians who take a moral high tone on our trade I would draw attention to the report by a leading expert, Rowan Bosworth-Davis, who says that the flow of drugs money from the indebted Third World countries is helping to keep the Western banking system afloat. He estimates that by 2004 the value of the drugs fund world-wide will be £1,500bn (£937bn) - equal to the value of the world’s stock of gold.
Prospects for the next five-year period look promising. We should continue to trade on our image as a leisure industry service provider. While we cannot afford to be complacent in a fast changing market, we see nothing on the horizon that poses a serious threat to maintaining and developing our trade for the foreseeable future.