International tobacco giant British American Tobacco Plc (BAT) is losing market share in the United States due to a significant influx of illegal disposable e-cigarettes from China. The company is urging US authorities to step up enforcement efforts to prevent illegal products from flowing into the country.
On Thursday, BAT announced its financial performance for the first half of the year, with revenue totaling 12.34 billion pounds (15.88 billion US dollars), a decrease of 8.2% compared to the same period in 2023.
Among them, the reported revenue for new category products (including straws, heated tobacco sticks, and nicotine pouches) decreased by 0.4% to 1.65 billion pounds. The company stated that due to insufficient crackdown on illegal products by US law enforcement, it may struggle to achieve the new category revenue target of 5 billion pounds (6.4 billion US dollars) by 2025.
According to Bloomberg, BAT CEO Tadeu Marroco stated at the financial results announcement that “due to inadequate enforcement, the legal e-cigarette market is shrinking.” He called for stricter penalties for those illegally importing e-cigarettes into the US.
BAT has filed two claims with the US International Trade Commission, one involving patent infringement and the other involving the import and marketing practices of illegal e-cigarettes.
Additionally, BAT has been one of the tobacco manufacturers awaiting the Food and Drug Administration (FDA) review of the e-cigarette industry. This long-awaited review aims to clean up a market flooded with fruit and candy-flavored products from China that are attracting young users.
Marroco noted that this delay allows illegal product manufacturers to continue selling these products by exploiting the uncertainty. He emphasized that the FDA needs to “regulate which products can continue to be sold in the market and which products need to be removed from the market.”
As of early June, the FDA has issued 1,100 warning letters to manufacturers, importers, and distributors of unauthorized new tobacco products, including e-cigarettes, and fined 55 manufacturers and 140 retailers.
According to Reuters, in 2023, the US accounted for over 40% of BAT’s revenue, largely from traditional tobacco products. Despite the company’s efforts to increase revenue from smoke-free products, it faces challenges in this emerging market.
Consumers have been shifting from pricier cigarette brands to cheaper alternatives or e-cigarettes, with a large amount of illegal e-cigarettes flooding the market from China.
To adapt to market trends, BAT has been striving in recent years to create a “smoke-free world” outlook. According to the company’s financial report, the consumer base for its smoke-free brands increased by 1.4 million (reaching 26.4 million) in the first half of the year. Smoke-free product revenue currently accounts for 17.9% of group revenue, a 1.4% increase from the 2023 financial year.
The report stated that despite facing pressures, the progress made in introducing new product categories and investments in enhancing the US combustible tobacco product portfolio in the first half of the year is beginning to regain market share. The company mentioned that performance in the US for the second half of the year is expected to accelerate.
Reuters reported that due to its first-half profits exceeding expectations and investor attention on some positive factors and development expectations for its major US operations, British American Tobacco’s stock price rose nearly 3% early that day.
Tobacco industry investors believe that as regulations become stricter and smoking rates decline in some markets, the ability of companies to transition their business from cigarettes to alternatives is crucial.
Its competitor, Philip Morris International (PMI), also one of the world’s four major tobacco manufacturers, has been successful in this effort. The company raised profit forecasts on Tuesday (23rd), partly due to expected growth in its cigarette substitute products.