BAT launches crucial innovation with a traditional cigarette that does not burn | Local

British American Tobacco Plc has unveiled its latest bid to close a significant market share and innovation gap in the traditional smokeless cigarette category.

BAT, the parent company of Reynolds American Inc., introduced the hyper X2 version of its glo brand in Tokyo this week. It is not available in the United States

The products will go on sale in convenience stores in August, as well as on the glo and Velo site on Monday. The performance of glo hyper X2 will be critical for BAT given that Japan is the world’s largest market, accounting for approximately 85% of traditional combustionless cigarette sales. The hyper X2 version offers “advanced induction heating technology in a smaller, lighter device…with a separate boost function for faster heating,” the company said.

Kingsley Wheaton, Chief Marketing Officer of BAT, said the hyper X2 “marks another key milestone in our transformation as we build the brands of our future.”

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“Since launching our first glo product in Japan in 2016, we have built glo into a billion-dollar global brand through our deep consumer insights, science and innovation.”

The hyper X2 is expected to be rolled out to the remaining 24 global markets where glo products are sold.

BAT said in June it reached 19.4 million consumers of next-generation products globally, up from 18.3 million as of December 31.

For fiscal year 2021, revenue from the new category, which is heavily influenced by Reynolds, was $2.79 billion, up 51.8% from fiscal year 2020.

Products in the new category are led by RJ Reynolds Vapor Co.’s Vuse – which recently returned as America’s top-selling e-cigarette, as well as modern and glo oral products led by Camel Snus and Velo.

Vuse is the world’s best-selling e-cigarette with a market share of 34.4% in April. BAT launched its Vuse Go disposable style in the UK in May with further market rollouts planned for the second half of 2022.

BAT chief executive Jack Bowles expressed confidence in June that BAT will meet its goal of at least $6.79 billion in new category annual revenue by 2025.

The manufacturer said it spent around $1.25 billion on next-generation product development in the first half of 2022.

game changer

Another reason Japan’s glo sales are key is that the country’s smokers illustrate how “the tobacco market can rapidly transform away from lethal inhalation of (traditional cigarette) smoke,” he said. David Sweanor, assistant law professor at the University of Ottawa and the author of several studies on electronic cigarettes and health.

A recent study co-authored by Sweanor found that traditional non-burning cigarettes in Japan led to “an astonishing 47.5% drop in traditional cigarette use in just six years.”

Philip Morris International introduced its iQOS devices – now marketed as Marlboro HeatSticks – in 2016. Japan Tobacco’s heat-not-burn Ploom product is glo’s only other main competitor.

“In Japan, unlike the United States, regulatory agencies and nicotine abstinence activists are not slowing this transition,” Sweanor said. “BAT must innovate to stay relevant in the Japanese market and prepare as other markets replicate Japanese success.”

Sweanor pleaded for the Food and Drug Administration to expedite its review of potential traditional cigarettes that don’t burn in the United States.

In September, BAT won a crucial legal victory in its patent infringement lawsuit against rival PMI.

The United States International Trade Commission has issued a final determination of a violation of the Tariff Act of 1930 by Philip Morris USA Inc. and Altria Client Services LLC with respect to two BAT product patents.

The lawsuit, filed in April 2020, relates to three non-combustion heat technology patents held by BAT. The patents were issued by the US Patent and Trademark Office between November 2012 and December 2019.

As a result, PM USA was prohibited from importing PMI’s traditional IQOS 2.4, IQOS 3, IQOS 3 Duo cigarettes, and also ordered to stop future sales of these products – marketed as Marlboro HeatSticks – already in the US

The international version of IQOS was cleared for sale by the Food and Drug Administration in April 2019 – with the caveat that this does not mean “these products are safe or approved by the FDA”.

IQOS products debuted in test markets in Atlanta in October 2019 and Richmond, Virginia in November 2019.

During the second quarter of 2021, PM USA expanded retail distribution of Marlboro HeatSticks in the Triad and other North Carolina metro areas, as well as northern Virginia and Georgia.

Piper Sandler analyst Michael Lavery said in September that because IQOS/Marlboro HeatSticks have a small presence in the US, “the short-term implications of the ITC’s unfavorable ruling are unlikely to be significant.” .

“However, we had high hopes for what iQOS could do in the United States, and believe that its early progress could have positioned iQOS for long-term sustainable growth, so we view this adverse decision as a negative.” Sweanor said heated tobacco products “are recognized by the FDA as less dangerous.”

“If such products and related risk information are made available to consumers, cigarette sales (in the United States) could plummet.

“Technology is improving rapidly and BAT has a choice between offering low-risk products or seeing other companies grab its market share.”

BAT lagging behind in the world

Third Bridge tobacco industry analyst Ross Hindle said in June that BAT remained behind Philip Morris International in terms of the global development of its next-generation products.

Barclays analyst Jain Gaurav said in June that “BAT’s non-combustion heat volumes are still only 22% of Philip Morris International’s volumes.

“BAT hasn’t launched a new glo device in almost 2.5 years, compared to Philip Morris International which releases a new device approximately every 18 months.

Hindle said the $6.79 billion in next-generation product revenue by 2025 “is certainly achievable.”

“However, given the rate of market growth and the PMI, our experts do not see BAT closing the gap with the PMI in this time frame, and more as a result, falling even further behind.

“PMI’s NGP division has already reached a state of profitability, with the group ahead in terms of regional roll-out and a stronger go-to-market strategy.”

Hindle said BAT’s glo Hyper “is still considered inferior to PMI’s IQOS in terms of flavors, sensory, taste and electronics”.

“BAT needs the next generation of glo to better compete with PMI, but long research and development cycles mean it won’t happen overnight.”

“BAT should additionally focus on penetrating the e-cigarette market in the United States, where growth potential remains high and Vuse remains the market leader.”

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