FMCG News South Africa

BAT looks to new products for growth

The traditional cigarette business will generate smouldering profits for British American Tobacco (BAT) for the foreseeable future, but next-generation products are set to light up the bottom line in the longer term.
BAT looks to new products for growth
©Rommel Canlas via 123RF

Writing in BAT's annual report, which was released on Monday, CE Nicandro Durante said the company made significant progress in 2016 with its differentiated strategy of developing and marketing a range of next-generation products and nicotine products. Next-generation products are mainly vapour products (battery-powered electronic devices that heat a solution to create a vapour, which is inhaled) and tobacco-heating products (devices with cartridges that contain tobacco).

BAT's annual report conceded that next-generation products were still a nascent market, but noted that the vapour products category was the largest of the two types and was growing at a significant rate. A 2015 estimate placed a value of $8bn on the global market, with about 29-million people vaping around the world.

Durante said BAT's vapour products business continued to perform very well. "Following the geographic expansion of Vype in 2016, we are now present in 10 markets and have the largest vapour business in the world outside of the US."

Durante said BAT's category retail share in the UK had reached nearly 40% through the growth of Vype and the acquisition of Ten Motives. BAT had an estimated market share of 50% in Poland, category retail share of over 7% in Germany, more than 4% in France and over 2% in Italy.

"We launched a vaping concept in Europe called the Vype Pebble, which we believe will enhance the overall category and raise consumer penetration," Durante said.

In 2016, BAT launched a new tobacco-heating product called "glo" in Sendai, Japan. He said glo gained 5.4% volume share in a leading convenience store chain in Sendai after only 10 weeks. He said a further roll-out and product upgrades were scheduled for 2017 and beyond.

In the traditional combustible business, BAT's cigarette volume for the full financial year was up 0.2% to 665-billion. Durante said a 0.8% decline on an organic basis was considerably better than the industry, which the company estimated to be down 3%.

BAT reckoned there were still 1-billion adult smokers around the world, with the global tobacco market value estimated at $770bn.

Source: Business Day

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