A brief overview of the tobacco industry in the last 20 years
- 1Tobacco Policy International, San Francisco, California, USA
- 2Tobacco Control Research Group, Department for Health, University of Bath, Bath, UK
- Correspondence to Dr Stella Aguinaga Bialous, 676 Funston Avenue, San Francisco CA 94118, USA;
- Received 26 August 2011
- Accepted 19 December 2011
Since the launch of Tobacco Control 20 years ago, there have been several changes in the tobacco industry worldwide. The goal of this commentary is to present some of the keys changes of the past two decades. This time is marked by mergers and acquisitions that led to the existence, today, of four major transnational tobacco companies: Philip Morris International, British American Tobacco, Japan Tobacco and Imperial Tobacco. The possible role of the China National Tobacco Corporation in the world tobacco market is also discussed. In addition, in the past decade there was an increase in tobacco companies' investment in non-cigarette forms of nicotine delivery. The impact of these changes for tobacco control policy is briefly discussed.
- Tobacco industry
- tobacco companies
- merger and acquisition
- industry documents
- environmental tobacco smoke
- non-cigarette tobacco products
- public policy
- harm reduction
- advertising and promotion
When Tobacco Control was launched in 1992, Philip Morris International's (PMI) global cigarette sales reached 400 billion sticks. Its volume has since more than doubled, reaching almost 900 billion sticks in 2010 (table 1).1 There have been several other subsequent changes in the global tobacco market, besides volume growth. What remains unchanged is that the transnational tobacco companies (TTCs) continue now, as then, to pursue shareholder value, market freedom and social acceptability for their products, and for themselves. Despite significant advances in tobacco control, including the advent of the WHO Framework Convention on Tobacco Control (FCTC) in 2003, tobacco companies (both private and state-owned) continue to reliably post significant profits. The tobacco leaf business, while economically and socially challenging for the growers, continues to offer profits for the handful of transnational leaf buyers and processors as well.
The past two decades were marked by a large number of privatisations, mergers and acquisitions that served to strengthen the position of the four largest TTCs in the world market (table 1).2 3 Other previously significant tobacco companies have been folded into one or another of the ‘Big Four’ (online supplementary table 1).
Notable mergers and acquisitions have included British American Tobacco (BAT) and Rothmans in 1999, UK-based Imperial Tobacco's acquisition of Germany's Reemtsma in 2002 plus Franco-Spanish Altadis and Commonwealth in the USA, both in 2007, and Japan Tobacco International's (JTI) acquisition of Gallaher, also in 2007 (after the latter had acquired several companies itself). This market consolidation translates to a very strong international presence by a handful of companies, challenging tobacco control advocates and policy makers to increase their level of coordination and collaboration in order to continue to implement the WHO FCTC.
Other changes in the USA market were designed to decrease the exposure of PMI and BAT assets to USA litigation. In 2003, United States' RJ Reynolds Tobacco Holdings and BAT's Brown & Williamson Tobacco Corp. combined their assets to create Reynolds American Inc, with BAT holding 42% of the shares of the new company. In 2008 Altria, until then the parent company of Philip Morris USA and PMI, spun off PMI, a separate legal entity.
Another significant development of the past two decades has been China's 2001 entry into the World Trade Organization. While China continues to be a desirable potential growth market for the TTCs, China's entry into the World Trade Organization did not immediately open doors to the Chinese market. The Chinese State Tobacco Monopoly Administration Association/China National Tobacco Corporation (CNTC), which in 2009 reportedly sold 2290 billion cigarettes (a 40% increase from 2002) making it the largest tobacco company in the world by volume,4 remains state-owned. CNTC has undergone a series of reforms in the past decade to become more competitive, including restructuring cigarette production facilities and developing business partnerships with countries such as Brazil and Zimbabwe. Notwithstanding those measures, as well as some (relatively minor) joint venture and licensing agreements reached with some TTCs for the manufacturing and distribution of cigarettes in China5 6 (online supplementary table 1), CNTC continues to firmly control the Chinese market. In addition, CNTC now focuses on a smaller number of brands, approximately 30 brands with high growth potential, with a slow phase-out of less lucrative brands.7 Market research company, Euromonitor International, suggested this move is about scaling back domestic brands and ‘grooming’ a few brands into global flagship brands,8 which may indicate that CNTC is planning to emerge on the international tobacco market.
Although the global tobacco market is now highly concentrated, limiting the opportunities for further mergers and acquisitions due to competition constraints,3 there are still some expansion possibilities. The Japanese ruling party recently requested that its parliament consider selling off the government's 50% ownership of Japan Tobacco Inc, and announced in November 2011 the sales of 17% of its shares.9 BAT and PMI have also shown interest in Egypt10 11 where the market is currently controlled by Eastern Tobacco, 66% owned by the Egyptian government. Euromonitor International recently identified Egypt as a top growth tobacco market (by volume) in the next 40 years, and forecasts it to become the fifth biggest tobacco market in the world.12 Furthermore, industry analyst Goldman Sachs has suggested that low debt levels, strong cash generation, below average valuations and a lack of organic growth among the TTCs, have created the right conditions for the ‘Big Four’ to become the ‘Big Three’, with Imperial Tobacco considered the most likely takeover target.13
However, with few acquisition options remaining in the cigarette sector, the TTCs' focus will probably continue to be on growing existing markets, as well as venturing into new commercial endeavours, exemplified by the last decade's increased emphasis on smokeless tobacco and more recently, pure nicotine products (figure 1).
In 2009 Reynolds American became the first tobacco company to acquire a pharmaceutical company, Swedish Niconovum, which develops and markets nicotine replacement therapy products. In April 2011 BAT launched a new company (Nicoventures) to commercialise non-tobacco nicotine products, shortly followed by PMI's announcement that it had acquired the patent for an aerosol-based nicotine delivery system. Despite BAT and PMI not yet selling pure nicotine products, these investments are inevitably tied up with the industry's survival. With growing regulatory pressure against cigarettes, particularly in the form of public smoking bans, tobacco companies seem to be reframing their business as maintaining nicotine addiction through other products, depending vastly on each market and the regulatory environment. Thus, it seems that now, as in 1963, tobacco companies remain firmly entrenched in “…the business of selling nicotine ….”16
While tobacco companies' involvement in the political process and in philanthropy are not new and have been researched, the past 2 decades have seen an increase in these companies' efforts to promote themselves as responsible corporate citizens as well as important partners in the development of legislation and regulation (a selection of papers can be found at http://www.library.ucsf.edu/tobacco/.docsbiblio). In 2002 BAT published its first Social Report in which it reported on economic, environmental and social dimensions of its activities.17 Similar efforts gained particular emphasis when it became clear to the TTCs that the WHO FCTC was making progress and would eventually be approved. The general approach by the ‘Big Four’ (and some of the smaller ones) is very similar, although the degree to which they promote themselves and their role as regulatory partners varies by company and market. Companies tend to be less subtle, and often more aggressive, in markets where there is less political support for tobacco control. As new threats to industry profits appear, we see new industry strategies develop, such as the exploitation of bilateral trade agreements to oppose national tobacco control measures and implementation of the FCTC, as was recently seen with Australia's plain packaging legislation and Uruguay's health warnings.18–20
While the activities of BAT and PMI have been well researched and documented due to the availability of millions of internal tobacco industry documents released following litigation in the USA,21 Imperial Tobacco and JTI have received somewhat less attention, creating a gap in tobacco control knowledge that needs to be addressed. To help inform future tobacco control policy, new research should focus on the behaviour and strategies of Imperial and JTI as they continue to expand, particularly in North Africa, the Middle East, and Asia and should continue to explore the similarities and differences in how the four TTCs operate. While potential changes to the industry have been highlighted above, including a potential takeover of Imperial Tobacco, the emergence of CNTC on the world tobacco market and, if regulation in the cigarette market increases further, TTCs becoming nicotine rather than cigarette companies, it remains to be seen what the next 20 years will bring for both the tobacco industry and in turn tobacco control.
Funding Work funded by EC FP7 Grant Agreement HEALTH-F2-2009-223323, ‘Pricing Policies and Control of Tobacco in Europe (PPACTE)’, contributed to this paper.
Competing interests None.
Provenance and peer review Commissioned; externally peer reviewed.