1 of 10
BMJ - Omar Rahmanadi.
2 of 10
MDR - Christian Adi Njoto Njoo.
3 of 10
KT&G - Bang Kyung Man.
4 of 10
Mane - Fabrice Taulane.
5 of 10
Messe Dortmund - Sabine Loos.
6 of 10
22nd Century - Michael Zercher.
7 of 10
ITGA - Dr. Antonio Abrunhosa.
8 of 10
JEB - Jay Barker.
9 of 10
Nicobrand - Mark McQuillan.
10 of 10
Essentra - Hugo Azinheira.
Posing 3 specific questions to 10 companies yielded some rather intriguing answers. Here is the second and third installment of a three-part series in our Tobacco Asia newsletter.
The tobacco sector, including manufacturers and suppliers of anything from cured leaf to paper and packaging, has always been an industry in constant flux. Changing laws and regulations, consumer trends, supply bottlenecks due to natural disasters or economic developments, and even the restless anti-tobacco lobby – they all exert influence, sometimes on a global level.
For this inaugural issue of our “executive forum”, Tobacco Asia carefully handpicked top executives from all relevant industry sectors and from around the globe, ensuring a representative spread. By drawing on their years of experience, we first wanted to know from the panelists what developments they thought changed the industry most in the past and during the pandemic and what lies in the future.
Which positive changes instituted by the tobacco industry as a response to Covid-19 will continue into the post-Covid era, remaining here to stay?
Omar Rahmanadi, BMJ
“The collaboration through digital channels with our partners and clients intensified during the pandemic, of course. In an extended context, the business contingency plans set up by many industry players finally could be put to the test. One result of that may have been that companies revisited their supply chain strategies to cope with greater uncertainties in the future. More investment and continuous improvements in the health and safety arenas is perhaps also a direct outcome of the Covid-19 episode. However, the economic trauma induced by the pandemic will remain here to stay even long after the pandemic has finally been overcome. Not only the tobacco industry but pretty much every business sector is going to take years to fully recover.”
Fabrice Taulane, MANE SA
“Every company had to ‘reinvent’ itself in order to face the challenges brought on by the Covid-19 pandemic. At the tobacco industry level this was characterized by developments in several areas; the digitization process was important, whether at company-internal level or anything related to customer relations. This digital revolution reduced the companies’ carbon footprint as travel became severely limited and physical meetings gave way to virtual meetings. At the same time, companies also were forced to develop new sales techniques through other than the traditional communication channels. The strengthening of r&d projects enabled companies to position themselves under a new, more natural, and ‘healthier’ approach to tobacco as a commodity and consumer product.”
Sabine Loos, Messe Dortmund
“The Covid-19 pandemic certainly raised pivotal economic and social questions in the area of digitalization. Over the past few years, we were able to observe this not only in the exhibition arena but also across other industry sectors. Numerous processes have become increasingly more efficient thanks to interfaces, automation, and support tools. In our era of working from home, event bans, and lockdowns, digitalization has even accelerated to ensure uninterrupted exchange with colleagues and marketing departments, but also to acquire new clients.
The pandemic had a sustained effect on InterTabac and InterSupply, too, requiring Messe Dortmund to develop solutions for new exhibition and event formats. As far as the tobacco industry sector is concerned, it proved a particular challenge to present the familiar range of topics and possibilities in an online setting. The physical exhibition experience will remain our core business, but will be supplemented by smart and user-focused features. For instance, as of September 16, 2021, our ‘dual exhibition event’ of InterTabac and InterSupply has been augmented by a new online platform, Business Insights. Unrestricted by time zones or national borders, it allows tobacco industry players to stay informed around the clock and seven days a week. Yet the demand among wholesalers, retailers, and manufacturers to interact face-to-face with customers and business partners alike is as strong as ever. And what better event to achieve all that than at InterTabac and InterSupply in Dortmund?”
Mark McQuillan, Nicobrand Ltd.
“I think it is quite clear that the tobacco industry is going through a transformation process which will establish a much wider range of reduced-risk products capable of satisfying adult consumer demand. Covid-19 is a global pandemic and as such focuses minds on human health and well-being. I think the transformation process implemented by many tobacco companies is aligned to providing end consumers with less harmful choices, and we have seen this evidenced by their actions to develop much wider product portfolios, including ENDS and modern oral products. I think this will continue to grow as tobacco companies seek to tap into new products, to which they can apply their technology, know-how, and market access, ultimately to provide the consumer with an even wider range of choices.”
Bang Kyung Man, KT&G Corporation
“As the pandemic intensified last year, KT&G put its best efforts into minimizing the business impact. In order to achieve our goal of raising our market presence to more than 200 countries by 2025, consistent accomplishments needed to come from our global business operations despite the pandemic situation. Direct interaction with overseas markets was limited due to extensive lockdowns and entry restrictions. To overcome these limitations, KT&G implemented digitalization in the overall sales and marketing process. To continue pioneering new markets, KT&G utilized local market experts and research firms. As a result, KT&G succeeded in entering 23 new markets last year alone. Thanks to strong global performance, KT&G also achieved its highest annual sales and operating profit ever last year. I believe that these accomplishments were the result of the company’s swift and agile reaction to deal with the pandemic and quickly revising its business strategy to better cope with the new challenges. The digital operating model has been proven effective and efficient during the pandemic and thus it can be reasonably predicted that it will also prove itself useful in the post-Covid era as well.”
Michael Zercher, 22nd Century Group, Inc.
“The pandemic showed us how difficult it is for smokers to quit their addiction to cigarettes. In fact, smoking went up in many countries despite the risks that Covid-19 presented to respiratory health. As respiratory complications made headline news, some of the world’s biggest tobacco companies committed to making less toxic products the focus of their future, and I look forward to them accelerating their efforts in this area. On the flipside, we also saw the possibilities for plant science and public health in action, with tobacco being used as a tool in vaccine development. While the ongoing pandemic is tragic in so many ways, I am hopeful that the increased focus on respiratory health will continue to drive the industry and policy makers to work together to end addiction to cigarettes, which remains the world’s leading cause of preventable death and disease.”
António Abrunhosa, ITGA
“In the early stages of the pandemic ITGA launched a campaign to raise awareness about Covid-19. Throughout 2020, we monitored the evolution of the virus, provided up-to-date information to tobacco farmers around the world, and assisted in market-specific approaches. For example, we translated our campaign to local languages, such as Swahili, to make sure it would reach a wider audience even in rural, remote areas. We also partnered with the ECLT Foundation, developing [information] materials and sharing them around the globe. The documents are aimed at educating people about how to protect themselves against the virus. Based on our experiences, we can highlight a few positive changes that are likely to carry on in the future. One of these is the demonstrated agility of the [tobacco] sector and its readiness to adapt to challenging circumstances. ITGA’s annual general meeting was held online for the first time in 2020. Since then, we have built the digital capacity to continue working and improving our operations regardless of negative externalities.”
Jay Barker, JEB International Tobacco Co Inc.
“I have seen a flurry of different approaches to operations since Covid-19 arrived in January 2020. Many factories permanently spread out employees. Canteen flows were modified. Clean rooms were created. Shift changes are now more organized than previously to keep people from cross-infecting one another. Less procurement travel has occurred, while trading tobacco by samples has increased. Although companies were forced to make these adjustments, I believe these changes are for the better and are here to stay.”
Hugo Azinheira, Essentra Pte. Ltd.
“Covid-19 certainly brought higher health consciousness and sustainability considerations to the forefront of consumers’ minds. Of course, that only accelerated developments in the heated tobacco product category, with major multinational companies constantly launching new and improved products. But, the pandemic also sped up the development of non-plastic alternative materials for cigarette filters, including Essentra’s new ECO range, which was recently launched by a multinational in Europe.”
What changes will the next decade bring for the industry in general and for your business sector in particular?
Christian Adi Njoto Njoo, PT Mangli Djaya Raya
“The most important thing that needs to be addressed quickly are freight rates. If shipping costs continue to be as high from Asia to western countries [as they presently are], Asian tobacco’s attractiveness for western manufacturers will decline. This will also raise tobacco product prices, which are already under pressure from government duties and taxes as it is. In Indonesia, tobacco taxes are increasing every year, which will lead to more contraband and counterfeit cigarettes swamping the market. To rein in that deteriorating situation, we need stricter law enforcement from our government.
Looking at the global industry, I see more mergers and takeovers occurring post-Covid. That will further shrink the customer base of tobacco suppliers, leading to more suppliers closing down. And as tobacco taxes continue to rise worldwide, I also would expect to see alternative products with cheaper duties, such as electronic devices like Juul and IQOS to continue growing. Additionally, I would consider ‘lifestyle products’ such as premium cigars to grow as well, especially due to the rapidly expanding middle class in countries like Indonesia, China, and India. If, as a leaf supplier, we can bank on the market growth of these alternative products, there can still a bright future ahead for us. Otherwise, it could be dire straits.”
Omar Rahmanadi, BMJ
“The Covid-19 pandemic has demonstrated that people have the capability to tolerate change more often than what they thought they could. This could mean that people might be willing to sacrifice convenience for environmental sustainability, for example by using paper-based materials instead of plastics. People will be more reluctant to use single-use plastics.”
Fabrice Taulane, MANE SA
“The tobacco industry underwent a big change at the beginning of 2020 with the introduction of the European Union’s new Tobacco Products Directive (TPD2). Each company active in the tobacco sector had to find solutions to adapt to this new legal framework. It seems obvious that traditional cigarette consumption is going to further decrease [because of TPD2]. Consequently, substitute products such as electronic cigarettes, snus, and heat-not-burn devices have entered markets on a massive scale.
These new reduced risk products (RRPs) appear ‘healthier’ than traditional cigarettes, as they are either smoke-free or tobacco-free. They [offer] smokers viable possibilities for adjusting their consumption habits. The tobacco industry has recognized the opportunities as well. The main players are vigorously augmenting their product portfolios with RRPs and actively leading consumers towards new perceptions of smell, and taste.”
Sabine Loos, Messe Dortmund
“One aspect that will be carried over into the post-pandemic era will be the supplementation of physical events with digital features. These features will offer organizers, visitors, and exhibitors alike a multitude of new and interesting engagement possibilities, as well as more outreach and additional experiences. Simultaneously, they provide an opportunity to explore new formats. As an example, the company profiles published on [our integrated website] Business Insights can yield new client contacts, while frequently updated product news, text links to company websites and product shops offer further possibilities. Through their presence on Business Insights, firms can expand their international reach, too, which can only be beneficial for their visibility. Business Insights gives the tobacco industry a first taste of how trade fairs are going to be perceived in the future by all stakeholders, but also how players will from now on be able to remain in contact with one another during trade fair interims.
And another thing can be predicted quite precisely for the tobacco industry in the years ahead: it is going to be the consumers who will ultimately decide which new products or innovations they want to embrace and which ones they do not. With this in mind, the tobacco sector is probably going to drive innovation even harder than before. The retail sector consistently demands new products, too, so there really is no other way around for the industry. In addition, topics like advertising bans and regulatory issues also will considerably influence future developments.”
Michael Zercher, 22nd Century Group, Inc.
“Industry innovation will continue to create less harmful nicotine products, which will be widely adopted by many adult smokers. However, without other policy changes, 10% or more of smokers of combustible products will continue their habit, with even higher rates in the developing world. To address that problem, FDA will need to successfully implement its mandate requiring all cigarettes sold in the US to be non-addictive, and despite fierce legal challenges from some – but not all – tobacco companies. As a result, smoking rates in the US will quickly drop to 1% or less. Many countries will follow FDA’s example. Modern plant science will continue to evolve rapidly and with our world-leading biotechnology, 22nd Century will continue to develop tobacco, cannabis, hops, and likely a range of other plants to produce countless compounds with health and wellness benefits. With 22nd Century’s bioengineered plants, tobacco companies will also become cannabis, pharmaceutical, nutraceutical, and food and beverage companies.”
António Abrunhosa, ITGA
“In the immediate future, we foresee a growing share of alternative products in the total tobacco industry sales mix. The spread of specific categories of emerging products is highly dependent on the nature of regulations, for example taxation, ease of access, and advertising opportunities, but also on whether the risk element is recognized by relevant institutions in each market and on regional and global level.
We are already also seeing the beginning of a process where the lines between tobacco and other industries are increasingly blurring. The [gradual] transformation of major manufacturers may see these key players increasingly engage in the cannabis, pharma, and general wellness business.
For growers, all of this could mean a need to reinvent themselves in some markets, and in most cases giving up on tobacco growing altogether. There are many uncertainties and open questions regarding the future of the sector. Some markets with the ability and the resources to do so are already switching, while others are trying and doing their best. Quite a few even will disappear overnight given the short timeframe in which important decisions must be made.”
Bang Kyung Man, KT&G Corporation
“The global tobacco industry has encountered various changes in recent years. Different types and platforms of e-cigarettes, such as HNB, were introduced in the markets, and major tobacco companies carried out their own revolutions accordingly. Considering that, it is reasonable to say that the industry will face many more different changes in the next 10 years. Consumer needs will diversify and manufacturers will have to establish a much broader product portfolio that can address these needs. Along with some of its competitors, KT&G likewise will establish an extensive product portfolio that embraces both conventional cigarettes and NGPs, and which will be based on consumer-centric considerations. Especially in the case of NGPs, we will develop diverse, revolutionary platforms in order to successfully compete in the future market.”
Jay Barker, JEB International Tobacco Co. Inc.
“I believe we will continue to see consolidation amongst manufacturers. There are still significant cost savings throughout our supply chains that need to be tightened. On the product side, I am convinced that the trend will be into HNB products globally. I believe consumers should have a choice and that there will remain a market for traditional combustibles in many countries. Yet my crystal ball is clear: reduced risk products are coming on increasingly stronger. And they will be our future.”
Mark McQuillan, Nicobrand Ltd.
“I believe that within the general population there is a high degree of ‘nicotine illiteracy’. What I mean by that is that many people still see nicotine as a consumer product ingredient as unhealthy, whereas we must clearly understand that the risks from legacy tobacco products are not directly nicotine-related. We can do well to reflect on the 30+ years of NRT use. Historical evidence here tells us that these products have been used safely for a long period of time without any detrimental health effects. I think this is a key point and one which needs to be understood by the wider audience. The speed of innovation which we have seen within the NGP category is likely to continue unabated in the continued pursuit of developing products that deliver nicotine in a safer way and which satisfies consumer demand. At Nicobrand, we have several r&d flows running, whereby we are developing nicotine and indeed non-nicotine formulations with a wide range of differing characteristics – for example release profile and organoleptic properties – to service this burgeoning market. An important point to note with all these developments is the need to ensure consistent product quality compliance, as well as clear regulation and control of these products and their supply chains. This ultimately will ensure consumer safety and indeed consumer confidence at all times.”
Hugo Azinheira, Essentra Pte. Ltd.
“The introduction of stricter regulations for the tobacco industry, such as plain packaging, certain flavor bans, single-use plastics bans, and lower tar and nicotine yields, coincided with the pandemic and will of course be carried forward into the future. For instance, while Essentra has launched its ECO range of products, we continue to work towards the development of a gold-standard non-plastic filter with all the strengths of cellulose acetate filters while still being sustainable and biodegradable. Meanwhile, in certain markets like Japan and the UK, the consumption of heated tobacco products will overtake traditional combustibles. To cater to this rising segment, Essentra aims to launch an optimized filter design for tobacco heated product sticks.”