New Tobacco Will Become The Main Competitive Force of Tobacco Giants

At the beginning of the new year, major international tobacco giants have released 2020 performance reports. 2020 is an unusual year that will definitely be recorded in history. All walks of life are looking for opportunities in crisis, and so is the international tobacco industry. In the past year, Among the international tobacco industries, some of them have been happy, some sad. On the whole, new types of tobacco will once again usher in huge growth in 2020, especially represented by the two giants of Philip Morris International and British American Tobacco.

The development of tobacco giants

Philip Morris International’s operating income in 2020 grew 15.3%. Behind the growth, the company is increasingly dependent on the new tobacco market. The financial report shows that Philip Morris International’s cigarette shipments in 2020 will drop by 11.1%. However, shipments of new tobacco products increased by 27.6%. Among them, the main product IQOS contributed 23.8% to the company’s revenue. In the global market (excluding China and the United States), the market share of IQ0S increased by 1.7% to 6.1%. Philip Morris International estimates that by the end of 2020, the total number of global IQOS users is about 17.6 million, of which 12.7 million users have completely switched to IQOS and Successfully quit traditional cigarettes. The company also expects that by 2025, the contribution of new tobacco products to the company’s total revenue will increase to more than 50%.

British American Tobacco’s new tobacco business also contributed to the company’s profit growth for the first time. According to the 2020 annual report, although British American Tobacco’s annual operating income fell 0.4% year-on-year, its net profit increased by 4.8%.  And new tobacco business revenue increased by 15% year-on-year to 1.5 billion pounds. Currently, the number of users of the company’s new tobacco products has reached 13.5 million, a year-on-year increase of 30%. British American Tobacco predicts that this number will further increase to 50 million by 2030.

The new category of British American Tobacco is gaining momentum, and the profit path to 2025 is clear. CEO Bowers said 2021 will be a “critical year” for the company and announced an ambitious plan, QUEST, dedicated to accelerating the company’s transformation. , To build a “Future Enterprise”. QUEST is the collective name of five strategic business areas: Quantum Theory, Unleashing Innovation, Empowering Organizations, Shaping Sustainability, and Technology and Digitalization.

When these two giants were looking forward to 2021, they both mentioned the product concept of “Beyond Nicotine”, and emphasized the need to “transform into a better and more sustainable business” and “transform into Technology and Innovation Company”. Since 2016, Philip Morris International has defined the company’s vision as a “smoke-free future”, and British American Tobacco also has its own slogan of “Building a Better Tomorrow”. These two slogans both reflect the determination of the two giants to make new types of tobacco the focus of their development.

In contrast, the performance of Japan Tobacco and Imperial Brands is not satisfactory. Japan Tobacco released its 2020 financial report and its 2021 performance outlook. Affected by the epidemic, the company’s profit in 2020  fell

6.6% and it is expected that in 2021, profits will continue to decline by 22.6%.

Japan Tobacco also recently announced that it will carry out major reforms, merging the functions of its current tobacco business headquarters in Tokyo into the international business headquarters of Japan Tobacco International in Geneva, with the aim of enhancing its profitability and competitiveness. It will also increase investment in the research and development of new tobacco cartridges. Efforts to catch up with the footsteps of the first two giants.

In terms of new tobacco, IQOS has an absolute advantage in the Japanese market. Philip Morris International’s IQOS launched in 2014 has quickly taken the lead in Japan. It was not until 2017 that Japan Tobacco launched the Ploom series of heated tobacco products to compete with it. However, the sales volume was not good and it failed to reverse the situation.

Last year was also a difficult year for Imperial Tobacco. The annual report shows that the company’s 2020 operating income was 7.99 billion pounds, a decrease of 0.1% from 2019. Net profit was 3.53 billion pounds, a decrease from 3.74 billion pounds last year. When the new CEO Stefan Bomhard recently announced his plan for the next five years, he said that he would implement a more “disciplined” new tobacco layout strategy and carefully adjust his strategy of heating tobacco in Europe and atomizing e-cigarettes in the United States based on market research. Bomhard expressed confidence in the measures taken to improve the operation of next-generation products.

South Korea’s KT&G, which expects to rank fourth among the global tobacco giants in 2025, also performed very well this year. KT&G announced that its 2020 operating profit was 1.17 trillion won (1.05 billion U.S. dollars) and its sales were 5.3 trillion won (4.76 billion U.S. dollars), an increase of 7.5% and 6.8% respectively over the previous year. KT &G attributed its performance to the increase in sales in overseas markets. Last year, the company also established a partnership with Philip Morris International to export heated cartridges FIIT and equipment Lil to Russia and Japan.

It seems that KT&G still has a certain gap with Imperial Tobacco, but Imperial Tobacco, which is relatively weak among the big four companies, will not vigorously reform and develop, It is afraid that in a few years, it will really be squeezed out of the top four by South Korea’s KT&G.

The global traditional cigarette market is currently declining at an average annual rate of 3%. Harm reduction has gradually become the key development direction and research and development hotspot of the international tobacco industry. In the next 2021, the development of new types of tobacco will still be the general trend, and giant companies want to continue to occupy their positions. , It is necessary to increase investment in the research and development of new tobacco.

 

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