Health risks and inflation drive smokers away from cigarettes
One of the main reasons for the drop in BAT’s US cigarette business is the increasing awareness of the health risks associated with smoking, especially during the Covid-19 pandemic. According to the US Centers for Disease Control and Prevention, smoking increases the risk of severe illness from Covid-19, as well as other respiratory diseases, cancers, and heart problems.
Another factor that has affected BAT’s US cigarette business is the inflation that has hit the country in recent months. The rising prices of goods and services have made smokers switch to cheaper brands or alternative products, such as vaping devices and heated tobacco products. BAT said that its US cigarette volume declined by 5.5% in the first half of 2023, compared to a 4.5% decline in the overall market.
BAT faces fierce competition from rivals in new product categories
While BAT’s US cigarette business has suffered, its new product categories, such as vaping and heated tobacco products, have shown strong growth. The company said that its revenue from these products increased by 50% in the first half of 2023, and that it expects them to be profitable by 2024. BAT’s vaping product, Vuse, gained almost three percentage points in market share and reached 39% in key vapour markets, with growth in the US and other countries.
However, BAT also faces fierce competition from its rivals in these new product categories, especially in the heated tobacco segment. BAT’s heated tobacco device, glo, lost more than one percentage point in market share in key countries, such as Japan and Italy, where it faced challenges from other products, such as IQOS from Philip Morris International and Ploom from Japan Tobacco. BAT said that it was disappointed with the performance of glo, and that it was working on improving its product portfolio and marketing strategy.
BAT remains confident in its long-term strategy and outlook
Despite the challenges in its US cigarette business and the heated tobacco segment, BAT remains confident in its long-term strategy and outlook. The company said that it expects to deliver mid-single figure diluted earnings per share growth in constant currency, and revenue growth of 3% to 5% for the full year. BAT also said that it expects to maintain its operating cash flow conversion of more than 90%, and to increase its dividend by 2.5%.
BAT’s CEO, Tadeu Marroco, said that the company’s strategic aim is to transform its portfolio by encouraging adult smokers to switch to less risky products compared to smoking, and that this transformation would deliver long-term value for its stakeholders. He also said that BAT was well-positioned to capitalize on the opportunities in the new product categories, and that it was investing in innovation and digitalization to enhance its consumer experience and loyalty.
