BAT Explores Alternatives As Cigarette Market Dips

Source from:  Business Day (za)  10/08/2012

BRITISH American Tobacco (BAT), the JSE's largest listing with a market capitalisation of R878bn, is investing ￡100m to develop a series of smoking alternatives as tobacco bans and higher taxes persuade smokers to quit the habit.

Speaking to the Financial Times yesterday, BAT CE Nicandro Durante said the company was looking at lower-risk alternatives to traditional cigarettes such as noncombustible cigarettes, which heat tobacco rather than burn it, and nicotine inhalers.

Mr Durante said that the size of the market for tobacco alternatives could account for as much as 40% of BAT's revenues — which were ￡15bn last year — in 20 years' time.

"It will be sizeable in 20 years' time … it's going to grow."

The tobacco industry faces growing regulation in western markets and emerging economies such as Brazil, SA and Uruguay. The smokeless tobacco market, which includes chewing tobacco and snuff, was worth $14bn of the $664bn world tobacco market, according to Euromonitor last year.

In the 1980s, the US conglomerate RJR Nabisco developed one of the first smokeless cigarettes, called Premier, at an estimated cost of $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.

Soon after he was appointed CE in March last year, Mr Durante established Nicoventures, a BAT unit devoted to cigarette alternatives.

BAT's rival Imperial Tobacco has an undisclosed stake in an e-cigarette company and Japan Tobacco International has a commercial agreement with a company that makes nicotine "vaporisers". Enditem