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British American Tobacco chief confident of ecigarette push

Nicandro Durante shrugs off suggestions it is playing catch-up in fast-growing market Read next BAT aims to double size of vaping business Nicandro Durante describes the market share BAT has achieved since the launch of Glo in Japan as ‘fantastic’

https://www.ft.com/content/23b177f8-f8f7-11e6-bd4e-68d53499ed71

Nicandro Durante has big plans for what is set to become the world’s largest listed tobacco company.

During his six years as chief executive, the market value of British American Tobacco has more than doubled and last month it agreed a $50bn deal to buy Reynolds American, marking the company’s return to the US after a decade’s absence.

But the Brazilian is not done yet. Last week he revealed bold plans to expand BAT’s next-generation products division, with the aim of quadrupling the number of markets in which it sells ecigarettes by 2019.

“The rate of growth is exponential,” says Mr Durante. “We’re in 12 markets now, and I want to double this in 2017, and double it again in 2018.”

Nik Oliver, consumer goods analyst at UBS, says BAT’s growth target is “relatively aggressive, but it’s feasible”, adding that the group’s “record has been very good in ecigarettes”.

While BAT is leading the market in vapour, according to Berenberg, some analysts have questioned the efficacy of its heat-not-burn tobacco product Glo.

“If BAT is going to gain any real ground [on rival Philip Morris International] the product needs to be better than IQOS [PMI’s device] in our view,” says Owen Bennett, consumer goods analyst at Jefferies.

“From trying it, we would not say this is the case.”

In addition, analysts point out that BAT’s Glo has launched only in Japan so far, while IQOS is on track to hit 35 markets, including the UK, by the end of this year.

James Bushnell, analyst at Exane BNP Paribas, says that while BAT is focused on the “more competitive” vaping market, its products “aren’t significantly better than what’s out there”.

Meanwhile, he says, it is lagging behind PMI in the tobacco-heating category.

Mr Durante rejects such criticism. He says that while the Reynolds deal will give BAT access to the US group’s reduced-risk portfolio, his group’s products are strong enough to stand alone.

“Philip Morris had a one-and-a-half year head start on us. The market shares we have been experiencing in Japan are fantastic — 5.2 per cent in nine weeks. So I don’t think that we are behind any competing products.”

Indeed, Mr Oliver at UBS describes BAT’s share in Japan as “initially very impressive”.

Mr Durante expects the Japan rollout of Glo to be completed this year and says the company is already developing new versions of the product.

The rapid expansion of IQOS has led PMI chief executive André Calantzopoulos to talk of a “smokeless future”.

But while Mr Durante expects rapid growth, he says such exuberance is premature.

“Those categories now are probably 1 or 2 per cent of the whole industry,” he says. “At the end of the day it’s all about consumer choice. Do I think that you will have a smoke-free world in my generation . . . in the next 20 years? I don’t think so.”

Mr Durante expects to continue to boost sales of traditional cigarettes in several key markets, and points to north Africa and Asia as the fastest-growing areas. “Places like Vietnam, the Philippines, and Indonesia — there are many opportunities out there,” he says.

BAT derives more than 50 per cent of its total revenues from emerging markets, according to UBS.

Mr Durante has indicated he sees further growth in north Africa and Asia, but Mr Oliver at UBS notes that while BAT has “definitely got the strongest EM portfolio of their peers”, the Reynolds deal “would definitely tilt them more towards developed markets given the huge size of the US market”.

In the US, the Reynolds deal will give BAT access to the world’s biggest vapour market.

Analysts have pointed to a further potential upside to the deal, with President Donald Trump vowing to slash corporation tax.

They warn, however, that such a move could lead Reynolds to withdraw its support for the deal on the basis that the bid substantially undervalues it, but Mr Durante is unfazed. “People just see the headline that corporation tax is going to go down,” he says. “But then you have the border tax. [It] can have a huge influence on our business in terms of the downsides,” he adds, noting that Reynolds “imports a lot of raw material”.

Assuming the Reynolds deal completes as planned by the third quarter, it will mark a milestone return to the US for a company that fled the market amid costly litigation battles over safety claims by cigarette manufacturers.

But while the industry is keen to trumpet its shift to reduced-risk products, some problems remain.

BAT has hired lawyers to examine allegations that it bribed African officials and paid a private security company to spy on and disrupt competitors on the continent.

Mr Durante pledges firm action if wrongdoing is found to have taken place. “BAT has very strong policies in this area. If there is any [wrongdoing], we are going to act and we are going to act in a very strong way.

He concedes, however: “We are in 200 countries, so I cannot give a 100 per cent guarantee that everything’s going to go by the book.”

While he refuses to be drawn on whether the lawyer’s report will be made public, insisting it is not up to BAT to decide, he stresses that BAT assures “total anonymity” to whistleblowers.

Although unsure when the report will be concluded, he is keen to see the investigation draw to a close. “As a CEO of the company I would like this to finish as soon as possible because it’s costing me a lot of money.”

Tobacco Companies Taking Over the E-Cigarette Industry

For decades, cigarettes cornered the market on nicotine.

http://www.huffingtonpost.com/entry/tobacco-companies-taking-over-the-e-cigarette-industry_us_58b48e02e4b0658fc20f98d0

People who decided to take up smoking chose the cigarette over any other nicotine delivery system available, including pipes and chewing tobacco.

This trend held true for generations of smokers, but in the past 10 years the cigarette industry has seen a small but significant sea change.

Electronic cigarettes are catching fire with an entirely new generation of smokers.

And tobacco companies have taken notice.

“It’s the most disruptive change in the tobacco market,” Jeff Drope, PhD, vice president of economic and health policy research for the American Cancer Society (ACS), told Healthline. “There is no parallel.”

A smoking hot market

Electronic nicotine delivery systems are not new.

The devices have been around in some form or another for nearly 30 years.

This current iteration of e-cigarettes made its way to the United States market by way of China.

However, the recent explosion of e-cigarette popularity caught the attention of tobacco companies a few years ago.

What was once a market populated by small independent manufacturers has given way to Big Tobacco.

And this move has anti-smoking organizations concerned.

“This is part of an ongoing strategy in the Big Tobacco playbook,” Erika Sward, assistant vice president of national advocacy for the American Lung Association (ALA), told Healthline.

The popular brand VUSE, is owned by R.J. Reynolds Vapor Company, a subsidiary of the tobacco giant Reynolds America.

British American Tobacco (BAT), the largest tobacco company in the Europe, launched Vype around four years ago.

Altria (formerly Phillip Morris) owns MarkTen.

Lorillard paid $135 million for Blu, but when R.J. Reynolds bought that tobacco company in 2015, its e-cigarette brand was sold to Imperial Tobacco, a company in the United Kingdom.

Today, global e-cigarette sales amount to around $5 billion a year.

That compares to the $92 million cigarette market, but the e-cigarette industry is expected to grow 24 percent per year through 2018.

“Big Tobacco is now dominating in dollars in sales,” Drope said.

Firms funding e-cigarette research

The tobacco industry appears so confident in the technology that they are now funding research that looks at the health effects of e-cigarettes vs. regular cigarettes.

A recent study, funded by British American Tobacco used 3-D modeling to compare the inflammation in the lungs from e-cigarettes and regular cigarettes.

The study, published in Applied In Vitro Toxicology, showed a dramatic drop in lung inflammation with e-cigarettes.

“Researchers reported changes in the expression levels of 123 genes when reconstituted lung tissue was exposed to cigarette smoke, compared to only two genes that could be confirmed following exposure to e-cigarette aerosols,” according to a press release.

These finding are similar to what initial research has uncovered about e-cigarettes. A small batch of studies do suggest that they pose less of a health threat than regular cigarettes.

“From a cancer perspective, the levels of carcinogens are lower,” Drope said.

BAT did not provide comment for this story. R.J. Reynolds also declined to be interviewed, but did provide a statement:

“We believe that vapor products and other noncombustible tobacco products may present less risk to adult tobacco consumers than smoking cigarettes. Although these products have not been used by consumers for a sufficient period of time to develop definitive scientific conclusions about their level of risk reduction, there is a growing body of scientific evidence that these products may present less risk than smoking. While some studies report that there may be health risks associated with these products, those risks appear to be lower than the risks of smoking cigarettes.”

Health concerns abound

There are many unknowns about the health hazards of e-cigarettes, and that’s what has groups such as the ALA and ACS concerned.

“Being less deadly than regular cigarettes does not make your product less safe to use,” Sward said.

First up is the use of aerosol in e-cigarettes and the impact on the body’s pulmonary and cardiovascular systems.

“We don’t know the long-term effects,” Drope said.

Aside from the health issues, the biggest concern about e-cigarettes are the users themselves.

The U.S. Surgeon General said in a report that, “among young adults 18-24 years of age, e-cigarette use more than doubled from 2013 to 2014. As of 2014, more than one-third of young adults had tried e-cigarettes.”

Sward said the trend is troubling for a number of reasons.

“There is a strong association between e-cigs, cigarettes, and other burned tobacco products by young people,” she said “There is not a safe level of nicotine use for kids until the age of 24.”

In December 2016, the FDA did establish some rules governing the sale and distribution of e-cigarettes. They can’t be sold to anyone under 18. Buyers need to show proof of identification. E-cigarettes also can’t be sold in vending machines (unless in an adult-only facility), and they can’t be distributed for free.

Both the ALA and ACS would like the FDA to impose even stricter rules, such as warning labels and an advertising ban in magazines and billboards.

“Kids are very much reacting to the advertising,” Drope said.

Sward said the flavors are another big draw to kids and the FDA hasn’t done anything to regulate those.

Both say it’s hard to tell what will happen around e-cigarettes, now that there is a new administration in the White House. Drope believes a lot depends on where the e-cigarette market industry expects to be in the next few years.

“I can imagine them being a niche market. I can see them being just another product,” he said. “If tobacco industry decides to throw their might behind it, I could really see them taking off.”

By Carolyn Abate

British American Tobacco sets sight on dominance in alternative products

Cigarette giant British American Tobacco has said its vapour business is now the largest in the world outside the US thanks to the expansion of its Vype brand.

The Dunhill and Lucky Strike owner, which is reporting its results for the year to December 31, said its vapour business had now been extended to 10 markets.

In the UK, it’s share of the vapour market is now 40pc, according to independent data from AC Nielsen, thanks to its Vype brand and acquisition of Ten Motives.

The move towards a greater reliance on alternative products – the company also launched its tobacco heating product glo in Japan in December – is becoming even more important as the growth in the consumption of conventional cigarettes stalls.

British American did manage to halt the decline in cigarette volumes it saw in 2015 but only registered a marginal 0.2pc volume rise to 665bn in 2016.

There was, however, a 0.8pc drop on an organic basis but this was better than the average 3pc decline for the industry, British American said.

The weakness of sterling benefited the company, with revenue up 12.6pc if currency movements are factored in. This is because sales in dollars translate handsomely into the now weaker pound. Sales still rose an impressive 6.9pc on a constant currency basis.

But the currency markets weren’t entirely beneficial for the group. On a constant currency basis, adjusted operating profit rose 4.1pc – a figure which would have been 10pc were it not for the “significant ongoing effect of adverse foreign exchange movements on our cost base during 2016″.

This meant underlying operating margins actually fell 0.9pc to 37.2pc if currency movements are included. Underlying operating margins rose 1.6pc excluding transactional foreign exchange and acquisitions.

Management said the proposed deal to buy the 57.8pc of Reynolds American it does not already own would give it a “world class portfolio of tobacco and Next Generation Products”, and that it would enhance earnings at the enlarged group. The transaction is expected to close during the third quarter subject to shareholder and regulatory approvals being sought. If the deal goes ahead, the company would become the world’s largest listed tobacco company by sales.

How Much Of Big Tobacco’s Sales Come From Vape Products?

https://www.benzinga.com/news/17/01/8912943/how-much-of-big-tobaccos-sales-come-from-vape-products

The $49 billion purchase by British American Tobacco PLC (ADR) BTI 1.62% of the remaining stake available in Reynolds American, Inc. RAI 0.83% comes in a tobacco market that’s a lot less hazy than before, with leading manufacturers investing in alternatives to the traditional cigarette.

Tobacco industry sales as a whole may have contracted by 2.5 percent in 2016, Wells Fargo analyst Bonnie Herzog was quoted as saying last week in the Winston-Salem Journal — and Herzog is forecasting a 3.4 percent decline for 2017.

At the same time, Herzog forecasts $400 million in growth in the e-cig and vaporizer sectors in 2017.

Growing Smokeless Revenue

Reynolds has its own electronic cigarette brand, Vuse, and holds about one-third of the American e-cigarette market. The Winston-Salem Journal reported in 2015 that while Reynolds’ e-cigarette revenue isn’t separately reported, but rather included in an “all other” revenue category. That category had $386 million in sales in fiscal 2015, according to Reynolds’ annual report — a 39.9 percent leap from $263 million in 2014.

The e-cigarette venture remains a fraction of Reynolds’ traditional tobacco business, which saw $8.6 billion in net sales in 2015 (24 percent of the U.S. market), according to the Motley Fool. Reynolds acquired Lorillard LLC (previously traded NYSELO for $25 billion in 2015, taking over the Newport cigarette brand in the process.

Reynolds is developing products such as e-cigarettes and nicotine gum under the umbrella of RAI Innovations Co., CEO Susan M. Cameron wrote in a letter to shareholders last year.

Competitor Altria Group Inc (NYSE: MO), which markets the MarkTen e-cigarette, has “single-digit shares” in the e-cigarette sector, according to the Motley Fool.

British American’s equivalent e-cigarette device, Vype, is sold overseas

Traditional cigarette sales remain on decline in December

http://www.journalnow.com/business/business_news/local/traditional-cigarette-sales-remain-on-decline-in-december/article_58d80fb5-09f0-571c-8495-f306118d437e.html

R.J. Reynolds Tobacco Co.’s gain in Newport sales and increased pricing were not enough to help the company defy an overall industry sales decline during December.

Reynolds experienced a 2.4 percent drop-off during a four-week period that ended Dec. 31, slightly above the industry’s 1.9 percent decrease, according to Nielsen data released this week.

The Big Three U.S. manufacturers — Reynolds, Philip Morris USA and ITG Brands LLC — all raised their list prices in November by 8 cents a pack. The list price is what wholesalers pay manufacturers for their products. The increases typically are passed on to customers.

Newport, the top-selling menthol cigarette and No. 2 cigarette overall, had a 0.2 percent drop during the period. Sales are up 0.8 percent year over year.

Reynolds spent $29.25 billion in June 2015 to buy Greensboro rival Lorillard Inc., essentially to acquire Newport.

Since the completion of the deal, Reynolds has increased sharply the amount of marketing for Newport. By comparison, Lorillard was content with a status-quo market share of about 12 percent.

Wells Fargo Securities analyst Bonnie Herzog projects Newport increasing its market share to at least 15 percent.

Herzog said she projected overall industry sales to have declined by 2.5 percent during 2016. Her forecast for 2017 is a decline of 3.4 percent.

Sales of Top 10 super-premium cigarette Natural American Spirit were up 12.1 percent over the four-week period.

By comparison, Camel, the No. 3 traditional cigarette brand, was down 4.2 percent. Pall Mall, the No. 4 brand, fell by 9.6 percent, as more smokers have more disposable income to spend on higher-priced options.

Marlboro, the top-selling traditional cigarette brand, was off 2.4 percent. Its market share is at 46.8 percent.

Herzog said ITG Brands’ cigarette sales have stabilized in recent months, down 1.1 percent over the four-week period.

ITG’s market share was 7.5 percent, down from 10 percent in June 2015 when it acquired three Reynolds brands (Kool, Salem, Winston) and one Lorillard brand (Maverick) brand as part of parent company Imperial Brands Plc’s $7.1 billion purchase from Reynolds.

“Overall, Imperial continues to underperform the industry,” Herzog said.

Turning to sales of electronic cigarettes, Herzog said e-cig and vaporizer sales exceeded $4 billion in 2016. She is projecting growth of another $400 million in 2017.

Nielsen data tracks the e-cig mass channel and convenience store marketplace. Vaporizers, which typically are lower in price, are sold mostly in tobacco and vapor shops where Nielsen has limited tracking.

Tobacco products introduced into the marketplace after Feb. 15, 2007 — including almost every e-cig and vaporizer — have to retroactively go through additional Food and Drug Administration requirements to prove they don’t cause public harm. That includes providing more detail on liquid nicotine ingredients and manufacturing details.

Some smaller e-cig manufacturers have either gone out of business since the FDA regulations debuted Aug. 8, or are selling off inventory in anticipation of shutting down.

“Our outlook for 2017 is more cautious for the total vapor category given stifled innovation due to FDA regulations, as well as expected increased competition from iQOS given its superior heat-not-burn technology,” Herzog said.

In December, Philip Morris International has entered the FDA regulatory gauntlet to have its electronically heated cigarette, branded as Marlboro HeatStick, reviewed as a potential reduced-risk product.

“We continue to expect iQOS to be commercialized in the second half of 2017,” Herzog said. Reynolds recently completed a test market in Japan for Core, its latest heat-not-burn version.

Herzog said the top market share of R.J. Reynolds Vapor Co.’s Vuse brand dropped from 35.7 percent to 33.6 percent.

Blu eCigs, sold by ITG Brands, remained second at 17.4 percent, while the MarkTen XL product of Altria Group Inc. was third at 15.7 percent.

British American Tobacco drops its nicotine inhaler Voke to prioritise vapour and tobacco heating products

British American Tobacco (BAT) today announced it would drop its medical nicotine inhaler Voke to focus more directly on products like e-cigarettes aimed at consumers.

http://www.cityam.com/256448/british-american-tobacco-drops-its-nicotine-inhaler-voke

BAT said it will give up its manufacturing, intellectual property and know-how assets to Kind Consumer, from which it licensed the product, in return for deferred, contingent payments.

No financial details were disclosed.

Kind will take back ownership for the commercialisation of Voke, which was the first device of its kind to be approved as a medical prescription to people trying to quit smoking.

Like e-cigarettes, Voke uses liquid nicotine, but it does not use a battery to heat it into a vapour.

Manufacturing issues have delayed the commercial launch of the inhaler, which was supposed to hit the market in 2016.

Kind chief executive Paul Triniman said the company will be looking for a new global partner or several regional partners to speed up distribution this year.

Kingsley Wheaton, managing director of next generation products at BAT, said Kind’s focus and single-mindedness will bring about a quicker commercialisation of the product.

BAT on the other hand will focus on its Vype e-cigarette and glo tobacco heating products, which are broadly considered to be safer than traditional cigarettes.

BAT, the world’s second-largest international tobacco company, is also in talks of a $47bn (£37bn) takeover of US cigarette maker Reynolds American.

Local Anti Tobacco Advocate Busts E-cigarette Myths

http://www.caledonianrecord.com/features/health/local-anti-tobacco-advocate-busts-e-cigarette-myths/article_65ee5497-ed23-5131-b69d-a503312368c3.html

According to a recently released report by the US Surgeon General, research has confirmed that there has been a significant increase in electronic cigarette (e-cigarette) use in recent years. Just last year alone, in 2015, the increase of electronic cigarette use has more than doubled particularly among our youth (ages 11 – 14), adolescents (ages 15 – 17) and in our young adults (ages 18 – 25) with more than 3 million youth in middle and high school using electronic cigarettes within the past 30 days. A cash cow for the tobacco industry, these numbers are increasing daily. More than 85 percent of electronic cigarette users ages 12 – 17 use flavored e-liquids, which come in a large variety of flavors, and are especially appealing to youth. And the flavors are the leading reason for youth use, according to the Surgeon General’s report.

Tobacco companies have been ramping up their marketing strategies to attract and cause young people to start using electronic cigarettes. In the United States, $3.5 billion dollars in sales is big business for the industry. Electronic cigarette manufacturers spent $125 million dollars in advertising their products with retail stores becoming the most frequent source of youth exposure to the tobacco industry’s advertising approaches. The tobacco industry has gone back to its old tactics that are much the same as the ones used to promote the conventional tobacco products.

Unlike the marketing campaigns of yesteryear, advertising approaches and themes today have a significant advantage with the use of internet and social media creating a more effective and wider outreach to attract youth and young adults, causing them to start using tobacco products at a much earlier age. In 2014, more than 7 out of 10 middle and high school students stated that they have been exposed to tobacco advertising. Research has shown that youth who use tobacco products like electronic cigarettes or chew, are most likely to go on to use other tobacco products like the traditional tobacco cigarette. In 2015, nearly 6 out of 10 high school cigarette smokers were also using electronic cigarettes.

The tobacco industry has claimed that electronic cigarettes are safer than the traditional tobacco cigarette. The tobacco industry has also claimed that the chemicals in e-liquids are not harmful to the user. The tobacco industry has suggested that electronic cigarettes can and may be used as a cessation tool to quit smoking. On the contrary, the newly released US Surgeon General’s report has confirmed these claims to be myths. The US Surgeon General’s report has busted these myths by saying;

The use of products containing nicotine poses dangers to youth, pregnant women, and fetuses. The use of products containing nicotine in any form among youth, including electronic cigarettes, is unsafe.

The liquid usually has nicotine, which comes from tobacco, flavoring; and other additives. Many electronic cigarettes contain nicotine, which is highly addictive. The nicotine in electronic cigarettes and other tobacco products can prime young brains for addiction to other drugs, such as cocaine and methamphetamine. Electronic aerosol is not harmless. The aerosol or vapor created by electronic cigarettes can contain ingredients harmful and potentially harmful to the public’s health.

There have been no conclusive study results or evidence to confirm that electronic cigarettes are a possible cessation tool for those who want to quit smoking. On the contrary, there is sufficient evidence to substantiate that the use of electronic cigarettes promotes users to use both electronic cigarettes along with smoking the conventional tobacco cigarette and that can potentially place the user at risk for exposure to higher levels of nicotine in the body that may ultimately lead to acute toxicity and possible death from over-exposure to nicotine.

The US Surgeon General’s full report titled: E-Cigarette Use Among Youth and Young Adults, can be found on the Surgeon General’s official website: https://e-cigarettes.surgeongeneral.gov.

E-cig patent lawsuits heading to mediation

http://www.journalnow.com/business/business_news/local/e-cig-patent-lawsuits-heading-to-mediation/article_92efcac8-a014-5aa6-bacd-34eb1e22be55.html

One set of patent-infringement lawsuits addressing electronic cigarette technology is heading to mediation, according to legal filings Thursday.

Fontem Ventures BV and Fontem Holdings BV, owned by Imperial Brands Plc of England, is suing NuMark LLC, a subsidiary of Altria Group Inc. of Richmond. NuMark has filed a counter suit.

Fontem and NuMark have chosen Lex Brainerd of San Francisco as the mediator.

Fontem has filed at least three similar lawsuits against R.J. Reynolds Vapor Co., which makes top-selling e-cig Vuse.

In a separate filing Thursday, Reynolds Vapor Co. and the Fontem companies have asked to have until Jan. 12 to agree on a mediator.

Other leading U.S. e-cig companies sued by Fontem include: ITG Brands LLC, which makes blu eCigs; NJoy Inc., Ballantyne Brands LLC of Charlotte, maker of the Mistic brand; and Vapor Corp.

A federal judge in the Central Circuit of California agreed Aug. 8 to R.J. Reynolds Vapor Co.’s request to transfer the lawsuits to the Middle District of North Carolina so that the cases can be heard closer to the defendants. The transfer was completed Oct. 26.

Reynolds Vapor manufactures Vuse, which owns a 37.3 percent market share, at its Tobaccoville plant.

The Fontem companies are suing for what they call unlawful use of seven patented technologies. They focus their claims on patents for rechargeable e-cigs, cartridge refill packs, batteries and disposable e-cigs. Fontem said it obtained patents on its technology in February 2013.

Reynolds claims it has developed internal e-cig technology.

Fontem accuses Reynolds of patent infringement in its Vuse solo rechargeable digital vapor cigarettes and its Connect power units.

For example, Fontem repeats the legal accusation it made against Lorillard Inc. that Reynolds Vapor is in infringement with its cartridge technology, in particular when it says it does not allow another e-cig product to be used with Vuse products.

Fontem is suing for an undisclosed amount of damages because of “irreparable harm” done to the companies, including lost market share and lost profits on infringing sales.

Altogether, the Fontem companies have been a party in 89 complaints just in the Central Circuit court, including 15 that are open. The filings began March 5, 2014, with undisclosed settlements reached in some lawsuits.

Big Tobacco Gets Into Retail Storefronts

British American Tobacco and Philip Morris International have both opened stores to educate consumers on how to vape.

http://www.nacsonline.com/Media/Daily/Pages/ND1202162.aspx

Big tobacco firms are getting into the retail business more directly than in past years. British American Tobacco (BAT) has opened a store in Milan to sell Vype, its e-cig product, while Philip Morris International has stores in England, Italy, Japan and Switzerland to promote its heat-not-burn product iQOS, the Wall Street Journal reports.

For BAT, the strategy to having an actual store extends beyond selling electronic cigarettes. The firm wants to use the location as another way to promote new products, such as Pebble, a Vype-branded vaping device that debuted yesterday. “If we’re going to massify the market—inject life into it—we have to come up with these innovative, groundbreaking products,” said Kingsley Wheaton, who heads BAT’s next-generation products.

This increased emphasis on connecting with customers on the ground comes as sales of cigarettes continue to soften. Philip Morris even said this week that the company could stop selling traditional cigarettes one day and is focusing on developing tobacco alternatives.

BAT CEO Nicandro Durante has a long-term view in mind when it comes to e-cigs and other vaping devices, which have experienced slow growth. Wheaton predicted that next-generation products will reach $18.7 billion within five years, but he doesn’t see cigarettes disappearing altogether.

BAT Bets on Vaping as Tobacco Makers Do Battle With New Devices

http://www.swissinfo.ch/eng/bat-bets-on-vaping-as-tobacco-makers-do-battle-with-new-devices/42723034

Trailing Philip Morris International Inc. in the contest to move smoking alternatives beyond e-cigarettes is just fine with British American Tobacco Plc.

According to Kingsley Wheaton, head of BAT’s next-generation products, longer-established electronic products hold more promise than the heat-not-burn technology pioneered by its main rival. The high acceptance of Philip Morris’s iQOS tobacco device in its debut market of Japan won’t be easy to replicate elsewhere, he said in an interview Thursday.

“Are we behind Philip Morris on the tobacco-heating journey? The answer is yes,” Wheaton said. “But we have a different take. Vapor is going to be a bigger category worldwide.”

More than 1 million smokers have switched to Philip Morris’s iQOS since it first went on sale in 2014. Demand has proven strongest so far in Japan, where Philip Morris has had a two-year headstart on BAT. While analysts at Exane BNP Paribas and Wells Fargo say the Marlboro maker has invented the most promising smoking substitute, BAT contends that heat-not-burn will only become dominant in a few countries, and that Japan alone may represent as much as half of the potential demand.

“Japanese consumers are very tech-savvy and vapor is banned,” Wheaton said. “The consumer is highly socially considerate and really worried about their hygiene impact on others. When you put all that together, you create a real melting pot of reasons why tobacco heating will work in Japan.”

Companies Divided

Tobacco companies are divided on where the future of their $770 billion industry lies. Philip Morris Chief Executive Officer Andre Calantzopoulos has said his company may one day stop making traditional cigarettes as the market for alternative products takes hold. His non-combustible iQOS devices have taken a 5 percent share of the Japanese market.

While BAT plans to compete against its rival with a heat-not-burn product called Glo, Wheaton said the bulk of his company’s efforts will remain in the vapor market.

In the second half of next year, BAT will start selling a new product called Vype Raptor. The device gets nicotine into the bloodstream faster and more closely mimics the sensation of smoking because the vapor particles are larger, according to BAT.

The company is also opening a store in a fashionable neighborhood of Milan as well as pop-up shops in London to sell Vype-branded vapor products. And it will introduce a 17.99-pound ($23) brightly-colored plastic device called Pebble that delivers nicotine infused with flavors such as wild berry and smooth vanilla.

BAT aims to sell vapor products in more than 15 markets by the end of next year, according to next-generation marketing director Frederico Monteiro. It currently has a presence in 10 and plans to be in 30 to 40 markets by 2020.