ITC may have to focus on non-tobacco space now

By Kiran Somvanshi
It remains to be seen whether the pressure tactics of Indian cigarette companies of shutting down their factories cause the Indian government to relent on its diktat of having pictorial warnings cover 85% of the front and back panels of cigarette pack. Yet, ITC cannot afford to let its cash cow business suffer as it earns over 80% of its profit and provides funding for the expansion of its non-tobacco segments. Emulating the global trend, the company will have to increase focus on tobacco-free nicotine products to reduce the regulatory risk on its main business and to appeal to health-conscious consumers.

The declining consumption of tobacco products globally has pushed the cigarette majors towards innovation, which includes developing or acquiring businesses that make devices intended to simulate cigarette smoking without the combustible smoke tied to the health risks.

According to Euromonitor, global tobacco sales may go up 4.3% annually through 2019. Cigarettes, which account for more than 91% of industry sales, may underperform the rest of the industry with 4% projected annual growth, led by Asia-Pacific markets.

To support growth, industry leaders are introducing non-combustible products such as vapour devices. According to an industry report by Bloomberg, these products only account for 1% of global tobacco sales, but going forward may make up a steadily growing proportion. While leading global cigarette companies have forayed into the e-cigarette market, only a few of them are developing more specialised devices such as ‘heatnot-burn’ products, nicotine inhalers and aerosol-nicotine delivery systems.

Product innovation is estimated to be a key theme for the tobacco industry. In July last year, Altria and Philip Morris International entered into an agreement to work jointly on research, development and technologysharing framework for developing their unconventional cigarettes.

ITC has also introduced differentiated products. It forayed into the electronic vaping device category with the launch of ‘Eon’ in 2014. After its initial launch in Hyderabad and Kolkata, the brand has been extended to Bengaluru, Delhi and Goa, and is also sold online. ITC also expanded the market presence of KwikNic, its nicotine chewing gum, adding the pharma channel to the product’s distribution footprint.

Yet, the amount spent on innovation is still remarkably less.