British American Tobacco Slightly Ahead of Philip Morris in Tobacco Sales

At the general meeting of its shareholders, the chairman of British American Tobacco highlighted the exceptional profits of his group, notably through the gain in market share in the sale of classic cigarettes. The development of new products, under the guise of risk reduction, seems for its part to be guided more by the growth of this market than by environmental or public health issues.

"Better tomorrows" ("A better tomorrow"), proclaims British American Tobacco (BAT) in its communications. A statement that seems more directed at shareholders than smokers, when we look at the statements made by the chairman of BAT at the group's general meeting of shareholders on April 28[1].

BAT slightly ahead of PMI in the cigarette market

The message from Luc Jobin, BAT's chairman, during this general meeting was both clear and paradoxical. He was clear that the group's profit growth is primarily due to an increase in tobacco sales, to which is added the strong growth in the non-combustible products sector (electronic cigarettes, heated tobacco, oral products). However, it may seem paradoxical to acknowledge that we need traditional combustible cigarettes, which cause the death of eight million people worldwide each year, to finance products that would be less harmful to customers' health.

By posting $12.9 billion in profits and a global dividend up 1,% for 2021, BAT wants to affirm its good economic health and wants to reassure shareholders, in particular by increasing its valuation through massive buybacks of its own shares. By slightly rising ahead of its rival Philip Morris International (PMI) in the traditional cigarette market, BAT became the second largest seller of these products in the world in 2021, behind China National Tobacco Corp (CNTC).

Regulations, the main threat to British American Tobacco

The origin of this renewed activity on the smoked tobacco front has its explanation: Luc Jobin did not fail to congratulate his teams for their dynamism, with the implication of having deployed all sorts of strategies, often illegal, in order to maintain the supply and distribution of these products during the two years of pandemic. BAT's good results can thus be explained by the energy expended by its employees to revive the tobacco markets and circumvent regulatory constraints.

Luc Jobin also confesses that the main threats to BAT are above all regulatory changes concerning all tobacco and nicotine products, as well as legal proceedings. The behavior of BAT's Malaysian branch bears witness to this. The cigarette manufacturer thus opposed, with its competitors and for the seventh consecutive year, a bill aimed at increasing taxes on tobacco. Similarly, it was singled out for its repeated violations of the ban on advertising for tobacco products in this country.[2]. The manufacturer also successfully launched KYO cigarettes in Malaysia in the midst of the 2020 pandemic, demonstrating that it was not giving up on combustible products in a country where it controls 52,% of the traditional cigarette market. The prospect of the disappearance of menthol tobacco products in the United States[3] also poses a real danger for BAT, which has been in first position in this growing market for over twenty years; the implementation of this regulation could however "take several years", which BAT intends to take advantage of.

The development of other tobacco and nicotine products

With £2bn (€1.7bn) in profits, the new tobacco and nicotine products sector alone accounted for 12.% of its profits at the end of 2021 and, like PMI, BAT is counting on this sector to continue its growth. Despite having developed the glo heated tobacco process, which occupies 19.% of this market, PMI dominates this segment with its IQOS product. BAT is however at the forefront in the very buoyant e-cigarette segment, with its Vuse brand, and in the booming oral products segment, with its Velo brand. Across these products, BAT claims to have converted 18.3 million consumers, almost four times more in a single year, without providing details on the possible multi-use of products, or on the possible loyalty of consumers to the new products. Like its competitors, BAT is positioning itself in a marketing strategy aimed at dissuading people from quitting by making alternative products available, while banking on their adoption by non-smokers.

Luc Jobin, for example, claims to have made the cards slide "information" in a billion of its cigarette packs to advertise these new products to smokers, in order to convert them to these alternatives before they quit smoking. According to him, the profits from combustible cigarettes are intended to finance investment in products presented as less dangerous. In the speech addressed to shareholders, it is the profits linked to these new markets that are highlighted, well ahead of the possible benefits for consumers.

To the question “Why don’t you just stop selling cigarettes?”, Luc Jobin responds that this would only result in increased trafficking and smuggling. He cites the example of the ban on tobacco sales in South Africa during the 2020 lockdown as an illustration of this type of consequence. However, the South African branch of BAT has clearly been called into question for its illegal activities in this country during the 2010s.[4].

Environmental impacts

The environmental consequences were addressed in a truncated manner, with BAT boasting of having reduced its carbon emissions by 42% since 2017, but limiting itself to Scope 1 (direct emissions) and 2 (electrical energy consumed) and neglecting Scope 3 (all other indirect emissions), which represents the vast majority of companies' emissions.[5]. The tobacco industry remains a particular consumer of natural resources (wood, water, arable land) and producer of waste (cigarette butts, packaging, batteries). Since electronic vaping or heated tobacco devices are, in terms of industrial processes and waste produced, significantly more polluting than cigarettes, it is doubtful that the rapid growth of these markets can reduce the environmental footprint of cigarette manufacturers.[6].

Ultimately, BAT sees 2021 as its "pivotal year", probably because of the renewed activity in the combustible cigarette sector that allowed it to overtake its long-time rival, PMI, in this area. Like its competitors, the tobacco company's speech seems mainly aimed at reassuring shareholders about the profitability of the company and the tobacco and nicotine sector, in order to stem the flight of investors from a market perceived as declining and uncertain.

Keywords: BAT, PMI, Luc Jobin, new products, heated tobacco,

M.F.

[1] 2022 AGM: Chairman's address, BAT, published April 28, 2022, accessed May 13, 2022.

[2] BAT aims to sell more cigarettes to reduce harm…, SEATCA, published May 2022, accessed May 13, 2022.

[3] United States: Menthol Ban Takes Form, Generation Without Tobacco, published May 4, 2022, consulted May 13, 2022.

[4] Tracking and tracing of tobacco products: the South African tax administration up against the wall, Generation Without Tobacco, published October 16, 2020, consulted May 13, 2022.

[5] GHG balances, categories, ADEME, undated, consulted on May 13, 2022.

[6] Hendlin YH, Alert: Public Health Implications of Electronic Cigarette Waste, Am J Public Health. 2018 November; 108(11): 1489–1490.