BAT invests in a smokeless future

British American Tobacco, the world’s second-biggest tobacco company by sales, is investing more than £100m to develop smoking alternatives as new tobacco bans and higher taxes persuade more smokers to extinguish their butts. Speaking to the FT, Nicandro Durante, BAT’s Brazilian-born chief executive, said the company was looking at several lower-risk alternatives to traditional cigarettes such as non-combustible cigarettes, which heat tobacco rather than burn it, and nicotine inhalers. 

“I think that, [in] the future, there will be consumers who go for a cigarette [or] a non-combustible product and consumers who go for a nicotine-based product – so this is something we have paid a lot of attention to over last one and a half years,” he said. Mr Durante added that the size of the market for tobacco alternatives could account for as much as 40 per cent of BAT’s revenues – which were £15bn in 2011 – in 20 years’ time. “It will be sizeable in 20 years’ time … it’s going to grow,” he said. The move into smoking alternatives comes as the tobacco industry faces increasing regulation in western markets and also emerging economies such as Brazil, South Africa and Uruguay.

The smokeless tobacco market, which also includes chewing tobacco and snuff, was worth $14bn of the $664bn world tobacco market, according to Euromonitor in 2011, with cigarettes accounting for more than 90 per cent of the total. In the UK, the biggest component of the market for cigarette substitutes is electronic cigarettes, dubbed e-cigarettes, which are not regulated. Mr Durante said regulating the sector would be key to the commercial success of cigarette alternatives. “At the end of the day, if these kind of products will be successful, say pure nicotine products, you need to have a health claim to help consumers to navigate on that,” said Mr Durante.

“So the regulators will be fundamental [in doing that].” In the 1980s, the US conglomerate RJR Nabisco developed one of the first smokeless cigarettes, called Premier, at an estimated cost of more than $300m. It turned out to be a commercial flop amid concerns about its poor taste and bad smell. “[RJR Nabisco] were not successful because they didn’t give any satisfaction to the consumer … the intake of nicotine compared to normal cigarettes was extremely low so they didn’t feel satisfaction,” said Mr Durante. “If you don’t satisfy consumers, you’re not going to win them.” Soon after he was appointed chief executive in March last year, Mr Durante established Nicoventures, a BAT division devoted to cigarette alternatives. It plans to launch a nicotine inhaler by the end of 2014.