Introduction: In this insightful opinion piece, BAT Travel Retail underlines the importance of harm reduction in the tobacco industry and transforming its portfolio to offer more reduced-risk tobacco alternatives in line with its ‘A Better Tomorrow’ corporate strategy.
In 2020, BAT unveiled its corporate strategy to build ‘A Better Tomorrow’ by reducing the health impact of the business by offering a greater choice of enjoyable and reduced risk* products.
BAT was founded in 1902 and was first listed on the London Stock Exchange in 1912. A constituent of the FTSE 100 since its creation in 1984, we have evolved, becoming the only truly global company in our sector.
BAT’s evolution continues as we enter the next chapter of our history. We know combustible products pose serious health risks. The only way to avoid those risks is to not start – or to quit – smoking. That’s why we are changing our approach and creating new science-backed products that provide adult smokers with less risky* alternatives.
The combustible business
We understand that this transformation won’t take place overnight.
Whether we launch New Category products in a market depends on many different factors, such as the regulatory environment and degree of consumer acceptance for new products.
We are constantly exploring the evolving space of reduced risk* alternatives to smoking. We’re working to create dialogue for sensible regulations and clear product standards to enable access to scientifically substantiated, reduced-risk* alternatives to smoking.
We are working with retailers around the world to prevent underage access to these products and halt the growth of the illicit market. At the same time, we continue to work with all our stakeholders to accelerate our sustainability ambitions — reducing our environmental and social impact, while tracking and sharing progress.
Portfolio transformation
We will build A Better Tomorrow by offering a multi-category portfolio of non-combustible products, tailored to meet the preferences of adult nicotine consumers. We are moving our revenue streams and becoming a business that defines itself not by the product it sells, but by the consumer needs that it meets. We are creating the brands of the future – brands with purpose.
To demonstrate our commitment to build A Better Tomorrow, we have set bold targets. By 2025, we aim to reach £5 billion in revenue for our New Category products, and by 2030, we aim to have 50 million consumers for our non-combustible products.
Today, our business is radically different, with ’New Category’ products accounting for almost half our Group revenue growth in 2021. By June this year, we have reached 20 million consumers with our non-combustible products.
BAT Travel Retail Chief Executive Jack Bowles, Chief Executive said, “I am very proud that our continued New Categories growth momentum is driving faster transformation with revenue growth of +45%* in the first half of 2022, on top of +51%* growth in FY2021. We are delivering strong operational performance and transforming the business.
“I am especially proud that the number of consumers using our non-combustible brands has passed the milestone of 20m in the first half. Our ‘A Better Tomorrow’ purpose, partnered with our well-established multi-category strategy, continues to drive growth,” he concluded.
Our focus on scientifically substantiated, reduced risk* tobacco and nicotine products continues and we will not stop there. We are expanding our portfolio ‘beyond nicotine’. That means delivering products that stimulate the senses of adult consumers, while enhancing satisfaction, enjoyment and wellbeing. By driving value from our combustibles business and simplifying our organisation, we will accelerate this ambitious transformation.
Why harm reduction matters
Tobacco harm reduction is a public health strategy that is all about minimising the negative health impact of smoking.
We have been clear for many years that our business needs to be built on outstanding products, informed consumer choice and a drive towards a reduced-risk portfolio, underpinned by world-class science. We are doing this by providing consumers with diverse and less risky ways of consuming nicotine if they do not want to quit.
Non-combustible products offer a compelling option for the estimated over 19% of the world’s adult population who smoke[1].
BAT Global Travel Retail Head of Customer Management Tony Clayton added: “Our purpose is to reduce the health impact of our business by offering adult smokers a range of enjoyable, less risky* alternatives to smoking, and building A Better Tomorrow for all our stakeholders. Tobacco harm reduction stems from the widely accepted proposition that most of the harm associated with cigarettes is caused by the toxicants in the smoke produced by the burning of tobacco. This is why our growing range of reduced risk* products contain nicotine but involve no burning of tobacco and emit far fewer and lower levels of toxicants compared to cigarettes.”
“We have invested heavily to develop, commercialise, and scientifically substantiate these alternative products, investing more than £1.2 billion since 2018 to develop products that satisfy consumer preferences.”
Over the years, BAT have built three strong global brands for its New Category portfolio – Vuse, glo and Velo.
Vuse, BAT’s flagship vapour brand, claimed the world’s first global carbon neutral vape brand status last year. This is based on the ePod, ePen, eTank mini, and Alto devices and consumables internal sales forecast for 12 months starting from April 2021. Vuse’s carbon neutrality has been independently validated by Vertis, based on product Life Cycle Assessment data provided by an independent third party.
BAT’s flagship tobacco heating product (THP) brand, glo, and modern oral product VELO, which is a nicotine pouch, are also rapidly expanding its global footprint.
Step-up change in travel retail industry
Another key enabler to accelerate our journey towards A Better Tomorrow is ensuring that adult smokers are aware of what we call ‘New Category’ products. This enables them to switch from cigarettes. We believe that this is where the travel retail industry will play a crucial role in supporting the transformation of the industry – creating a platform for adult smokers to learn about these products and make informed choices.
Recently, BAT opened revolutionary pop-up stores in Dubai and Frankfurt, both featuring ‘New Category’ products and offering a variety of immersive consumer experiences.
In Dubai, BAT launched its first pop-up store to promote our New Categories brands — VUSE, glo and Velo — to international travellers and support consumer retention in strategic locations. The pop-up store takes a consumer-centric approach; featuring highly digitalised brand experience and a dedicated product trial area for adult nicotine consumers which invites adult consumers to learn and try out products before purchasing.
The store is the first step in our travel retail transformation journey, upgrading our brand presence and touch points across the consumer journey. This allows us to engage with global travellers and showcase our New Categories brands.which will further help accelerate our objective to deliver A Better Tomorrow. We also created interactive digital touch points to deliver a product personalisation experience alongside educational content on key brand features and reduced risk messaging.
While in Frankfurt, BAT unveiled its Inspiration Store pop-up in July this year. This activation takes advantage of the city airport’s position as a key international hub and Germany’s position as one of the largest vapour markets globally. This New Categories store highlights our leading vaping brand Vuse, and delivers a digital consumer journey and immersive experience for customers at Frankfurt airport Terminal 1. The pop-up’s core message is that Vuse contains -99%* less toxicants than cigarettes.
The store is managed by a dedicated team of brand ambassadors and has an innovative sensorial flavour experience.
At a sensory bar, scent cards for each flavour — as well as beverages that match the flavours — are offered. In addition, customers can personalise their Vuse ePod 2 device, with an engraving machine on-site.
“We’ve noticed a gradual change towards A Better Tomorrow in the travel retail space already, with our global New Category brands – Vuse, glo and Velo – available at airport shops around the world,” Clayton added. “Travel retail is playing a key role in facilitating conversations and educating adult consumers in all locations about the reduced-risk potential of these products.
“With the increasing accessibility of these innovative products, approximately 100 million adult smokers have switched to reduced-risk products globally. The key to accelerating the movement of smokers to less risky alternatives cannot be solved by our industry alone, but will need the support of all travel retail stakeholders.
Accelerating our transformation to A Better Tomorrow
We have highlighted three key drivers that are accelerating our journey towards building A Better Tomorrow.
The first driver is consumer insights. At BAT, we are using deep analytics and big data to forecast trends and guide the development of products that encourage consumers to switch to better alternatives. We understand the key drivers of adult consumers’ choice to switch from cigarettes to non-combustibles products.
Global consumer insights show that there are three primary drivers which account for this decision. First, it is essential that brands fit with their identity and values. Second, consumers want highly satisfying products. Third, consumers are looking for high quality products that they can trust, to reduce risk to themselves and others.
Responding to consumer insights is critical to our transformation, and that’s why our evolved portfolio of New Category products delivers increased value and enhanced sensorial experiences.
The second driver behind our accelerated transformation is science. These innovations must be backed by science in order to provide consumer confidence and truly accelerate our tobacco harm reduction mission. Globally we have more than 1,500 dedicated R&D specialists who drive the research needed to back the reduced-risk potential of these products.
The final driver of our acceleration is innovation. Innovation is a driving force within our business. Innovation helps us anticipate trends and deliver new products that meet evolving consumer needs. As the world changes at an unprecedented speed, driving innovation is critical to a multi-category company like us.
At BAT, we pride ourselves on our cutting-edge innovation. We invest over £300 million a year in R&D, doubling since 2017, to meet consumers’ needs.
Since launching our first vapour device in 2013, we’ve made real, lasting progress. In less than 10 years, we now offer the widest range of non-combustible products to adult consumers worldwide. We are creating the brands of the future across three product categories – vapour products under Vuse, modern oral products under Velo and, of course, tobacco heating products under our glo brand. These products were introduced to the world with the technology and design to address consumer preferences, enhance taste satisfaction and support convenience and ease of use. Most importantly, they were designed to encourage adult smokers to switch to alternatives to smoking.
Enterprise of the future
The BAT of tomorrow will be a high-growth, consumer goods company: global, consumer-centric, multi-category, with sustainability at our core. We are no longer just a tobacco company. By combining existing and new capabilities, we are radically redefining our organisation. Digital transformation, technology, and innovation will drive that transition. It will be actioned by our people, through our culture and value. We are bold, fast, empowered, responsible and diverse. Together, we will build A Better Tomorrow.
[1] 1 Euromonitor International (2020)
