Smokeless nicotine products continue to grow in importance for one of the world’s largest tobacco manufacturers. In its half-yearly report, British American Tobacco (BAT) describes the Velo nicotine pouches and Vuse e-cigarettes as its main growth drivers, whilst the company has raised its profit forecast for the full year.
According to BAT, sales in the company’s smoke-free products category rose by 18 per cent during the first six months of the year. The Velo nicotine pouches have performed particularly well, whilst the Vuse e-cigarette brand has recovered in several key markets.
– “We continue to deliver strong growth in our smoke-free categories, with particularly strong performance from Velo and improved results for Vuse,” writes CEO Tadeu Marroco in the report.
Velo is growing the fastest
BAT highlights, in particular, Velo nicotine pouches as the fastest-growing product category. Sales rose by double-digit figures during the first half of the year, and the company describes the performance in the US as particularly strong following the launch of the new Velo Plus product.
Vuse e-cigarettes (disposable models and pre-filled pod systems) are also continuing to strengthen their position. BAT describes Vuse as ”the world’s largest vejp brand” in the markets where the company operates and highlights increased market share, particularly in the US.
At the same time, Sweden is an exception. Here, BAT is one of the market leaders in nicotine pouches through Velo, whilst the company’s e-cigarettes have found it considerably more difficult to gain a foothold. The Swedish vejp market is still dominated by local players and specialist firms, rather than the major international tobacco companies.
At the same time, BAT states that the widespread trade in e-cigarettes without marketing authorisation remains a challenge in the US. According to the company, stricter oversight by the US Food and Drug Administration (FDA) has improved the market situation.
Cigarettes still dominate
Despite this rapid growth, the majority of BAT’s revenue still comes from traditional cigarettes. Smoke-free products still account for a significantly smaller proportion of turnover, although their importance is growing year on year.
This trend is similar to that of its competitor, Philip Morris International (PMI), which has for several years based its strategy on smoke-free products. However, the product mix differs. Whilst BAT’s growth is primarily driven by nicotine pouches and e-cigarettes, heated tobacco via IQOS remains the largest smoke-free product category for PMI.
The rules vary from market to market
Whilst tobacco companies continue to invest in smoke-free nicotine products, regulatory frameworks vary across the world’s largest markets.
In the US, a limited number of e-cigarettes have been granted marketing authorisation by the FDA. However, the large market for products that BAT describes as unauthorised or unlicensed has arisen partly as a result of changes to the regulatory framework.
Competes with vejp shops
Since the FDA assumed regulatory responsibility for e-cigarettes in 2016, virtually every product intended for sale on the US market must undergo the agency’s comprehensive authorisation process, the PMTA. Following the submission of millions of product applications, the vast majority have been rejected or have not been granted marketing authorisation.
This means that many products and brands that were previously sold openly and legally by independent manufacturers and vejp shops are now not authorised for sale. At the same time, a small number of products from the major tobacco companies have been given the green light by the FDA. These include, amongst others, several variants of BAT Vuse.
BAT describes the tighter regulatory oversight as both a regulatory challenge and a change in the competitive landscape. The company welcomes the authorities’ increased efforts to tackle products that lack marketing authorisation.
Tighter rules in the EU
At the same time, regulations in Europe are expected to become significantly stricter. The European Commission is working on a review of the Tobacco Products Directive (TPD3), under which both e-cigarettes and nicotine pouches are expected to be subject to stricter rules. In parallel, discussions are also taking place regarding increased minimum taxes on several smoke-free nicotine products within the EU.
BAT emphasises that the company would like to see regulation that takes account of the differences between various nicotine products, particularly with regard to the relative risks associated with e-cigarettes, nicotine pouches and cigarettes.
– “We remain committed to working towards regulation that takes into account the risk profile of smoke-free products and supports adult smokers who wish to switch from cigarettes,” the company writes.
The issue is expected to take centre stage when the European Commission presents its proposal for a new Tobacco Products Directive, TPD3.
