Tobacco firms combat falling sales


  • Corporate News
  • Tuesday, 28 Jan 2020

JTI Cormac ORourke

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

Tobacco majors globally have announced major downsizing amid declining cigarettes sales as they struggle to deal with the shift in smoking to vaping.

British American Tobacco Plc and rival Japan Tobacco Inc, among some notable names in the industry, said plans are afoot for job cuts worldwide. Their units in Malaysia would also trim their workforce, for example British American Tobacco (M) Bhd (BAT), which is the leading player in the country, is looking to lay off 20% of its workforce as reported, while the second largest one, JT International Bhd (JTI Malaysia) would be reducing 40% of its staff strength over the next 12 months, including the closure of the company’s shared services operations. BAT’s share price plunged 6.7% last Friday and closed at RM11.14 with a market capitalisation of RM3.18bil.

Philip Morris (M) Sdn Bhd, which is also one of the leading players in the tobacco space, at the moment is not looking into this direction despite a challenging market.

The company’s new managing director Naeem Khan told StarBiz he does not see any need of cutting its workforce currently.

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

“We do not see any need of taking such measures in Malaysia at this time. We will constantly review and monitor our business operations and revising our plans to maximize cost-optimisation.

“As we have started embarking on our transformative business initiatives in the past couple of years, we are confident in the resilience of the Philip Morris Malaysia organisation to continue transforming our business to realise our smoke-free future vision, ” he said.

Philip Morris Malaysia would focus strongly on its smoke-free products as its strategy to gain stronger domestic market presence.

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

PMI to date has invested close to US$5bil in the research and development of innovative smoke-free products.

Naeem said through extensive investment in R&D, PMI now has a portfolio of smoke-free products for smokers that have the potential to significantly reduce health risks when compared to smoking cigarettes.

“We are increasingly shifting resources to the development, assessment and commercialisation of these smoke-free products. We are building our current organisational strengths, as well as integrating our new capabilities and skill sets to bring our vision of a smoke-free world to reality in the earliest possible future, ” 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 the uptake so far has been strong, with eight out of 10 of those who purchase IQOS fully converting from cigarettes, joining the 8.8 million adult smokers who have already stopped smoking and switched to IQOS.

Meanwhile, JTI Malaysia managing director Cormac O’Rourke said despite severe market challenges, the company has surpassed 25% share of market in Malaysia last year, which was more than 2% higher than the previous year.

Philip Morris (M) Sdn Bhd managing director Naeem KhanPhilip Morris (M) Sdn Bhd managing director Naeem Khan

“This was largely attributed to the success of our value brand LD, which now stands close to 8% of the total market.

“Moving forward, we will continue to focus on growing share in the combustible ready-made cigarette segment while exploring further opportunities in the Reduced Risk Products (RRP) space, ” he added.

At the same time, he said the company would continue to push for more significant measures to be taken to combat the illegal cigarette and e-vaping trade as restoring scale in the legitimate market is key to ensuring long term sustainability.

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

He said JTI Malaysia was awaiting clarity from the Health Ministry on how they plan to regulate e-vape.

Expressing his concern on e-vape, he added that as it stands nicotine is controlled under the Poisons Act 1952, with nobody thus far being approved for the importation and sale of nicotine containing in e-vape.

Yet by the Ministry’s own admission, over 90% of e-vape products in the marketplace contain nicotine.

“While we have pressed the MOH to be involved in the consultative process leading to the drafting of the new regulations, our requests have fallen on deaf ears.

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

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

Naeem said from an industry perspective, illicit trade would continue to be a major issue in 2020.

However, he acknowledge that the Ministry of Finance, Royal Malaysian Customs and other relevant authorities are taking proactive measures to address the illicit trade issue and hopes that smuggling rates would continue to decline.

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

This was largely attributed to the success of our value brand LD, which now stands close to 8% of the total market.

“Moving forward, the firm will continue to focus on growing share in the combustible ready-made cigarette segment while exploring further opportunities in the Reduced Risk Products (RRP) space, ” O’Rourke added.

At the same time, he said the company would continue to push for more significant measures to be taken to combat the illegal cigarette and e-vaping trade as restoring scale in the legitimate market is key to ensuring long term sustainability.

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

He said JTI Malaysia was awaiting clarity from the Health Ministry on how they plan to regulate e-vape.

Expressing his concern on e-vape, O’Rourke added that as it stands nicotine is controlled under the Poisons Act 1952, with nobody thus far being approved for the import and sale of nicotine in e-vape.

Yet by the Ministry’s own admission, over 90% of e-vape products in the marketplace contain nicotine.

“While we have pressed the Ministry to be involved in the consultative process leading to the drafting of the new regulations, our requests have fallen on deaf ears.

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

“Until now, the legitimate industry has yet to hear anything concrete from the ministry on the matter, ” he said.

Until new regulations are in place, O’Rourke said the ministry needs to take firm action against those selling illegal e-vape products.Naeem said from an industry perspective, illicit trade would continue to be a major issue in 2020.

However, he acknowledge that the Finance Ministry, Royal Malaysian Customs and other relevant authorities are taking proactive measures to address the illicit trade issue and hopes that smuggling rates would continue to decline.

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

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Tobacco , ORourke , combat , falling , sales , illegal , trade , taxes , Philip Morris , Naeem ,

   

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