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Sales Of 'Alternative Tobacco' Products Set To Double Over Next Two Years: Moody's

By Steve Wynne-Jones
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Sales Of 'Alternative Tobacco' Products Set To Double Over Next Two Years: Moody's

Sales of ‘alternative tobacco’ products, such as Philip Morris’s IQOS brand, are likely to double over the next two years, however, their share of the overall nicotine market will remain relatively small, a new report from Moody’s has found.

According to Moody’s, while sales of alternative products ‘continue to grow rapidly’, the sector’s contribution will remain relatively modest, at around 3% to 4% of the market, while the profitability of the sector is ‘uncertain’.

‘Modest’ Acceptance

It reported that the modest market acceptance of these products reflects still-limited consumer satisfaction, particularly for e-vapour products.

‘Another reason for the still limited market share of alternative products is their limited geographic coverage: smokeless products have so far been introduced on a large scale in only a few countries, with the US and the UK representing around two-thirds of the global sales of e-vapour products sales in 2017,’ it added.

Ambitious Targets

In some markets, such as Japan, the heated tobacco market, headed up by IQOS, has gained around 22.7% of the market, as of the first quarter of 2019, leading several of the major tobacco firms to have ‘ambitious targets’ in this sector, according to Moody’s.

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It reported that Philip Morris is aiming to generate between 38% and 42% of its revenue from alternative tobacco products by 2025, up from around 13.8% in 2018.

Elsewhere, British American Tobacco is targeting 15% to 20% of its sales to come from said products by 2023/24, up from 2.8% in 2018, and Imperial Brands previously reported that it is eyeing 10% to 15% of its sales to come from alternative products by next year, up from 1.0% last year.

Cigarette Volume Decline

The alternative tobacco market is likely to see like-for-like growth of 3.3% in 2019 and 3.8% in 2020, according to Moody’s, which will largely be driven by price increases, more than offsetting declining cigarettes volumes.

Cigarette volumes are likely to decline between 4% and 5% in the US and by 2.5% to 3% in the rest of the world, excluding China, over the next 12 to 18 months.

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The alternative tobacco market could face regulatory challenges as well, Moody’s added.

‘The US Food and Drug Administration (FDA) plans more regulation, but so far has not enacted any which could exacerbate the pressure on the industry,’ it reported. ‘Several combustible tobacco related litigation cases are pending but we do not expect any final decision or settlement in the next 12-18 months. Revenue growth targets for their alternative products portfolios, but if they can achieve them remains to be seen, given relatively low take-up so far, at least partly thanks to limited geographical coverage and competition from other producers.’

© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.

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