LAS VEGAS – Risk-reduction technologies, including electronic cigarettes and heat-not-burn devices, have ignited an “arms race” of portfolio development and global consolidation, according to a panelist at this week’s Tobacco Plus Expo.
Speaking about London-based British American Tobacco’s (BAT) recently solidified buyout of Reynolds American International (RAI), Winton-Salem, N.C., Bonnie Herzog, managing director of tobacco, beverage and convenience-store research for Wells Fargo Securities LLC, New York, told opening-session attendees that pressure to cut costs, expand into lucrative markets such as the United States and China and take the lead on innovation and emerging product technologies are driving consolidation among the major manufacturers.
Herzog expects New York-based Philip Morris International (PMI) and Richmond, Va.-based Altria Group to merge in some form within the year, expanding the reach of PMI’s “heat-not-burn” product iQOS into the lucrative U.S. market. The technology has already done extremely well in Japan, having seen huge consumer-conversion rates and market-share growth.
Referring to recent comments from PMI CEO Andre Calantzopoulos, Herzog said, “When you have [Calantzopoulos] publicly stating that the future of [PMI] is smoking free and that [eliminating] combustible tobacco is the goal, I absolutely think this is the future.”
She predicted that companies will have multiple lines of risk-reduction products, appealing to different consumer demographics and situational uses.
In terms of consolidation drivers, she sees additional reasons behind the completion of the recent BAT-RAI deal and the potential PMI-Altria merger, given market conditions. Among these factors are the strength of the dollar, possible tax cuts in a Republican administration, pressures from a declining product core in traditional cigarettes and operational synergies. She even alluded to the Chinese National Tobacco Corp. (CNTC), Beijing, as being a potential player that’s “big enough to acquire both” entities in BAT-RAI and the possible PMI-Altria combination.
Other topics Herzog spoke about were Altria’s recent acquisition of New York-based Nat Sherman and the blurring of lines within the tobacco-retail space. Of the Nat Sherman acquisition, Herzog said the deal gives Altria strong and growing premium cigar and cigarette lines, which bodes well for the company especially in a time of flux within tobacco retail. With federal regulations creating uncertainty, many vape and tobacco retailers will probably vanish, with the stronger ones needing to expand current offerings and blur channel lines, she said.
A second speaker, David Bishop, managing partner of Balvor LLC, Barrington, Ill., spoke about the need for retailers to upgrade customer service. New statistics show that retailers need to continually train and assess employee knowledge and skills, especially with regard to customer interaction, he said.
While attendance numbers were not available by press time, the general session appeared to have about 400 people, and there were about 250 exhibits representing traditional tobacco, vaping and alternative nicotine-delivery systems. Sponsored by Kretek International, Moorpark, Calif., the Tobacco Plus Expo was held Jan. 25-26, 2017 in the Las Vegas Convention Center.