Imperial Tobacco Stops Operations in Russia, Other Tobacco Majors Continue Sales

Manufacturers Philip Morris International (PMI), British American Tobacco (BAT) and Japan Tobacco International (JTI) have announced that they are ceasing their investments in Russia following the invasion of Ukraine, but are reluctant to give up this large tobacco market.

The Russian Federation's aggression against Ukraine has prompted many multinationals to cease all commercial activity with the country. Tobacco manufacturers, for their part, have expressed divergent attitudes. Only Imperial Tobacco has, to date, taken the decision to cease all commercial activities.[1]This attitude contrasts with its competitors Philip Morris International, British American Tobacco and Japan Tobacco International, which have announced that they are suspending their investments, without, however, withdrawing from the Russian market. BAT, for example, announced that it was suspending all its activities in Ukraine, where it has a factory and around 1,000 employees, but continued to sell cigarettes in Russia until March 11.[2].

The Russian market, a real boon for cigarette manufacturers

As in other Eastern European countries, smoking prevalence remained high in Russia, standing at 29% in 2019, including 26% of daily smoking.[3]. The Russian Federation also ranks fourth among tobacco-consuming countries in terms of volume. According to PMI, it is its second largest market, behind Indonesia.

Tobacco multinationals occupy a significant place in the Russian economy. Philip Morris International stands out in particular for being the leading foreign company in terms of profits made in the country, ahead of Japan Tobacco International, which moved from seventh to fourth place.[4]BAT, for its part, rises to fourteenth place in this ranking carried out by Forbes. Imperial Tobacco only appears in 41st place.^th position, which probably explains its greater ease in abandoning the Russian tobacco market.

While PMI only generates 2% of its turnover in Ukraine, Russia represented 8.4% of its cigarette deliveries and 17.1% of the sales volume of IQOS, its heated tobacco device.[5]. Its revenue in Russia increased by 8% in 2020 alone, as PMI took advantage of the COVID-19 health crisis to strengthen its presence there. The war in Ukraine could, however, reduce PMI's activities in Russia, as the lower performance expected in this market could affect its overall revenue and lead to a defection of some investors.

In 2021, Japan Tobacco International strongly opposed the Russian authorities' planned tobacco tax increase, arguing that the COVID-19 crisis had fueled the illicit tobacco trade.[6].

Keywords: Russia, Ukraine, PMI, BAT, JTI, Imperial Tobacco, tobacco

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[1] Matsuyama K, Gretler C, Japan Tobacco Suspends Investments in Russia, Joining Rivals, Bloomberg, published March 10, 2022, accessed March 11, 2022. [2] Davis R, British American Tobacco halts Russia sales after U-turn, The Guardian, published March 11, 2022, accessed March 16, 2022. [3] WHO, Russian Federation, FCTC report, 2020. [4] Popov I, Philip Morris has become the leader in the rating of the largest foreign companies in Russia, Forbes, published October 4, 2021, accessed March 11, 2022. [5] Maurer B, Philip Morris: The Russia Problem, Seeking Alpha, published March 1, 2022, accessed March 11, 2022. [6] 10th tobacco industry observatory in the face of the COVID19 pandemic, Generation Without Tobacco, published October 20, 2021, accessed March 11, 2022. National Committee Against Smoking |