08 Oct

Big Tobacco Entering the E-Cigarette Market

In response to falling sales and profits in Europe, Imperial Tobacco, the world’s fourth largest cigarette company by market share, recently announced that it will be establishing a new venture to develop electronic cigarettes. The company’s Chief Executive, Alison Cooper, stated on 26 February 2013 that “We’re looking at opportunities and we’re actively developing in that area at the moment” and that Imperial Tobacco was “open-minded” about purchasing existing electric cigarette companies [1].

Imperial Tobacco is following the lead set by one its main competitors, British American Tobacco, which established a company called Nicoventures in 2011 to research e-cigarettes [2].

Like many tobacco companies, Imperial Tobacco has seen its sales drop in developed countries as people give up smoking and as the black market grows. Instead, it has been focusing on emerging markets in Saudi Arabia and Turkey where anti-smoking legislation and public awareness of the negative health effects of tobacco is far weaker than in most European countries.

Indeed, 2012 and early 2013 have seen a number of big tobacco companies investing in electronic cigarettes, both in the United Kingdom and United States.

In December 2012, for example, British American Tobacco acquired CN Creative, a company that sells electric cigarettes.

A press release published on the company’s website on 19 December 2012 states that “British American Tobacco announced today that it has acquired CN Creative Limited, a UK based start-up company who specialises in the development of e-cigarette technologies intended to offer smokers a less risky alternative to cigarettes” [3].

According to Euromonitor, a market research company, British American Tobacco and CN Creative have plans to launch what they have called an “e-light cigarette” on to the market some time in 2014 [4].

In the United States, big tobacco companies are similarly investing in e-cigarette research or buying up existing electronic cigarette retailers. Market leader Altria is planning to launch an electric cigarette on to the market some time in the middle of 2013 [5]. Its competitor Reynolds American is currently doing market research on its own e-cigarette [6]. All of these companies, however, are following the lead set by Lorillard, the third biggest cigarette manufacturer in the United States, which purchased the largest American electronic cigarette company – BluCigs – in 2012 for a reported $135 million [7]. Lorillard claims to control 40 per cent of the United States electric cigarette market [8].

The big tobacco companies, realising that tobacco cigarettes are a dying business throughout the developed world, have decided to get in to the e-cigarette market in an effort to maintain their earnings in these markets where fewer people are smoking.

References
[1] “Imperial Tobacco to develop e-cigarettes as profits drop”, Reuters, 30 April 2013.
[2] British American Tobacco, “British American Tobacco establishes stand-alone company, Nicoventures Limited”, British American Tobacco website, 5 April 2011.
[3] British American Tobacco, “British American Tobacco buys UK based e-cigarette technology company”, British American Tobacco website, 19 December 2012.
[4] Don Hedley, “What’s happening in tobacco”, Euromonitor International, 29 March 2013.
[5] Mike Esterl & John Kell, “Altria to enter e-cigarette market”, The Wall Street Journal, 25 April 2013.
[6] Reynolds American, Quarterly Report, United States Securities and Exchange Commission, 23 April 2013.
[7] Lorillard, “Lorillard Inc. reports first quarter 2012 results and acquisition of blu ecigs”, Lorillard website, 25 April 2012.
[8] Shane MacGuill, “Mass appeal: Lorillard earnings releases give a unique glimpse of US e-cigarette market”, Euromonitor International, 1 May 2013.