Tobacco companies fight falling sales

PETALING JAYA: Tobacco companies are strategizing aggressively to compete in a tough market environment following shrinking margins, the influx of illicit cigarettes and the rapid growth of the illegal vaping segment.

Tobacco majors around the world have announced a significant downsizing amid declining cigarette sales as they struggle to cope with the shift from smoking to vaping.

British American Tobacco Plc and rival Japan Tobacco Inc, among some notable names in the industry, said plans were underway for job cuts around the world. Their units in Malaysia would also be downsizing, for example British American Tobacco (M) Bhd (BAT), which is the main player in the country, is considering laying off 20% of its workforce, as reported, while the second largest, JT International Bhd (JTI Malaysia) is reportedly reducing 40% of its workforce over the next 12 months, including shutting down the company’s shared services operations. The BAT share price plunged 6.7% last Friday and closed at RM11.14 with a market cap of RM 3.18 billion.

Philip Morris (M) Sdn Bhd, who is also a major player in the tobacco industry, is not looking in that direction at the moment despite a difficult market.

The company’s new chief executive, Naeem Khan, told StarBiz that he currently sees no need to downsize.

“Philip Morris International (PMI) is a global company and in the normal course of business we regularly review our footprint and cost base globally as well as in Malaysia.

“We do not see the need for such action in Malaysia at this time. We will constantly review and monitor our business operations and revise our plans to maximize cost optimization.

“As we began to embark on our transformative business initiatives over the past two years, we are confident in the resilience of the Philip Morris Malaysia organization to continue transforming our business to achieve our vision of a smoke-free future.” , did he declare.

Philip Morris Malaysia would focus heavily on its smoke-free products as a strategy to strengthen its presence in the domestic market.

The company’s market share based on analysts’ estimates is around 20% of the market, behind BAT and JTI Malaysia.

To date, PMI has invested nearly US $ 5 billion in the research and development of innovative smoke-free products.

Naeem said that thanks to significant investments in R&D, PMI now has a portfolio of smoke-free products for smokers that have the potential to significantly reduce health risks compared to smoking.

“We are devoting more and more resources to the development, evaluation and commercialization of these smoke-free products. We are strengthening our current organizational strengths and integrating our new capabilities and skills to achieve our vision of a smoke-free world as soon as possible, ”he said.

Philip Morris embarked on this bold journey with the introduction of one of its most advanced smoke-free products using “Heat-Not-Burn” technology under the IQOS brand in November 2018.

Naeem said adoption so far has been strong, with eight in 10 of those who buy IQOS converting entirely to smoking, joining the 8.8 million adult smokers who have already quit and switched to IQOS.

Meanwhile, JTI Malaysia Managing Director Cormac O’Rourke said that despite serious market problems, the company surpassed 25% market share in Malaysia last year, more than 2% more. than the previous year.

Philip Morris (M) Sdn Bhd Managing Director Naeem KhanPhilip Morris (M) Sdn Bhd Managing Director Naeem Khan

“This has been largely attributed to the success of our value brand LD, which now represents almost 8% of the total market.

“Going forward, we will continue to focus on share growth in the fuel-ready cigarette segment while exploring new opportunities in the area of ​​reduced risk products (RRP),” he said. he adds.

At the same time, he said the company will continue to push for greater action to be taken to tackle the illegal trade in cigarettes and e-vaping, as restoring scale in the legitimate market is essential for ensure long-term sustainability.

“Our ability to invest will remain uncertain as long as the trend of illegal trade continues,” said O’Rourke.

He said JTI Malaysia is awaiting clarification from the Health Ministry on how it plans to regulate e-vape.

Expressing his concern about the e-vape, he added that as it is nicotine is controlled under the Poisons Act 1952 with no one so far approved for import and sale. of nicotine contained in the e-vape.

However, by the ministry’s own admission, more than 90% of e-vape products on the market contain nicotine.

“While we urged the Ministry of Health to be involved in the consultation process leading to the drafting of the new regulations, our demands fell on deaf ears.

“Last year, the Department of Health announced that new regulations governing e-vape would be in place by March of this year. So far, the legitimate industry has yet to hear anything concrete from the ministry on this matter, ”he said.

Until new regulations are in place, O’Rourke said the ministry needs to take stronger action against those who sell illegal e-vape products.

Naeem said that from an industry perspective, illicit trade will continue to be a major problem in 2020.

However, he acknowledges that the Ministry of Finance, Royal Malaysian Customs and other relevant authorities are taking proactive steps to tackle the problem of illicit trade and hopes smuggling rates continue to decline.

He also noted that all tobacco and nicotine products should be regulated.

This has been largely attributed to the success of our value brand LD, which now accounts for almost 8% of the total market.

“Going forward, the company will continue to focus on growing its share in the fuel-ready cigarette segment while exploring new opportunities in the area of ​​reduced risk products (RRP),” added O’Rourke.

At the same time, he said the company will continue to push for greater action to be taken to tackle the illegal trade in cigarettes and e-vaping, as restoring scale in the legitimate market is essential for ensure long-term sustainability.

“Our ability to invest will remain uncertain as long as there is illegal trade,” said O’Rourke.

He said JTI Malaysia is awaiting clarification from the Health Ministry on how it plans to regulate e-vape.

Expressing concern about the e-vape, O’Rourke added that at present, nicotine is controlled under the Poisons Act of 1952, with no one so far approved for it. import and sale of nicotine in e-vape.

However, by the ministry’s own admission, more than 90% of e-vape products on the market contain nicotine.

“As we urged the ministry to get involved in the consultative process leading up to the drafting of the new regulations, our demands fell on deaf ears.

“Last year, the ministry announced that new regulations governing e-vape would be in place by March of this year.

“So far, the legitimate industry has yet to hear anything concrete from the ministry about this,” he said.

Until new regulations are in place, O’Rourke said the ministry must take firm action against those who sell illegal e-vape products. Naeem said that from an industry perspective, illicit trade will continue to be a major problem in 2020.

However, he acknowledges that the Ministry of Finance, Royal Malaysian Customs and other relevant authorities are taking proactive steps to tackle the problem of illicit trade and hopes smuggling rates continue to decline.

He also noted that all tobacco and nicotine products should be regulated.


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