Fun in, harm out
Glo iFuse, a hybrid vapor device, is the latest innovation in British American Tobacco’s expanding next-generation products portfolio.
By Stefanie Rossel
In the light of the ever-increasing regulations for tobacco products worldwide, declining global volume sales of traditional cigarettes and the phenomenal success of the e-cigarette, the race among the leading tobacco manufacturers to bring to the market next-generation products (NGP) has accelerated. All big tobacco companies have implemented a broad range of tobacco harm reduction strategies, ranging from smokeless tobacco to specifically treated, toxicant-reduced cigarettes and heat-not-burn products. Through acquisitions and in-house development, they all have also secured their share of the e-cigarette market.
Much has been said by the vapor community about the tobacco industry entering its product category, and not all of it was friendly. Basking in the glow of apparently having found the Holy Grail of reduced-risk nicotine delivery products that tobacco companies had long been searching for in vain, vapor enthusiasts would argue that Big Tobacco was too old-school, too stolid to fully comprehend this new, technology-driven product category and, in particular, cater to users’ dynamic consumer behavior and evolving preferences. Tobacco companies initially offered cigalikes targeting smokers, critics claimed, neglecting the trend toward open systems among more advanced users.
The key to success for all harm reduction initiatives, however, is consumer acceptability, and not every smoker who wants to quit is willing to switch over to e-cigarettes. Some may prefer a product that is more reminiscent of their traditional smoke—without the exposure to most of the toxicants contained in tobacco smoke. The quest for the Holy Grail, it seems, is far from over.
Catering to all consumer needs
Focusing on the ever more heterogeneous consumer needs, British American Tobacco’s (BAT) NGP strategy takes a fresh approach. During its investor days in September 2015, the company declared its ambition to achieve global leadership of NGPs by 2020. To achieve this, BAT has developed a portfolio of products spanning three categories: tobacco heated products (THP), e-cigarettes and licensed medicinal products. The company expects the global NGP market outside the U.S. and China to triple from £2.8 billion ($4.09 billion) in 2015 to £8.4 billion in 2020.
BAT’s most recent innovation is in the THP category. In November 2015, BAT started test-marketing in Romania Glo iFuse, an electronic tobacco device that is designed to work with specially engineered “Kent NeoPod” cartridges, containing tobacco and a nicotine liquid, to deliver a real tobacco taste and aroma. The Kent NeoPod cartridges comprise three main sections: a heating element, a liquid tank and a tobacco cavity. The heating element atomizes the nicotine-containing liquid into an inhalable vapor, which then passes through a tobacco section, delivering tobacco-flavored vapor to the consumer. A range of different tobacco flavors and aromas can be achieved by using different types of tobacco.
Containing e-liquid as well as tobacco, the Glo iFuse is a hybrid. “We believe we have a unique product,” says Kingsley Wheaton, managing director of next-generation products at BAT. The tobacco itself is not directly heated, he goes on to explain, comparing the process to the warming of mulled wine, where warming enhances the flavors whereas boiling would destroy some of the aromas. To release the tobacco flavor in the Glo iFuse and create an authentic tobacco taste, a comparatively low temperature will suffice, he says. By avoiding combustion of the tobacco, toxicants in cigarette smoke that cause the majority of smoking-related diseases will not be set free, making the product potentially less harmful than a conventional cigarette. Basic toxicological studies conducted by BAT suggest that the aerosols that come out of the iFuse are similar to the aerosols released by vapor products, according to Wheaton.
Out of its five combustible cigarette “global drive brands,” BAT selected Kent to partner with the Glo iFuse device. According to Wheaton, Kent has always been “a natural home” for innovations, with a consumer base that is constantly looking for something new. Romania was chosen because it is an important market for BAT but not a very developed vapor market, as Wheaton points out—and it is a big market for Kent, which has a share of 29 percent there.
Romanian users will have to pay ron100 ($24.02) for the iFuse hardware and ron30 fora pack containing two Kent NeoPod cartridges. One NeoPod cartridge, BAT claims, is equivalent to one packet of cigarettes. For comparison: A pack of traditional Kent cigarettes retails at ron15.
BAT chose a rather unconventional test-marketing method, recruiting a selected group of consumers and explaining the new product to them; Glo iFuse was then offered to them via the Internet. “This approach is new to us; we are committed to testing and learning fast about the category,” explains Wheaton. “Although it is still early days, Glo iFuse is performing ahead of expectations,” he adds. The next step will be to bring the product into Romanian retail outlets.
Glo iFuse is the first product on the market that contains both tobacco and a liquid; because of its tobacco share, the hybrid is classified as a tobacco product and will be regulated and taxed as such. Tax, however, is expected to be lower than for conventional cigarettes, since the amount of tobacco by weight in the Glo iFuse is small. Packaging and health warning requirements, such as those associated with the revised EU Tobacco Products Directive, will apply only to the cartridge packs.
More novelties to come
Glo iFuse is one of BAT’s current two core THP platforms under the Glo master brand. The second innovation in this segment will be a heat-not-burn device named Glo, scheduled for launch in the second half of this year. Glo will have a two-part design, consisting of an intuitive device that can be charged and also serves to heat the second component, the consumables, which look like a slim, filter version of Kent cigarettes.
Placed into the device, the tobacco stick is warmed by a heating system surrounding it completely. BAT claims that its new tobacco heated product device will have enough battery life to allow for the consumption of 20 tobacco sticks.
The company has also further developed its second pillar of NGPs, vapor devices. In 2014, it added the Vype eStick and Vype ePen to its original Vype e-cigarette. In July 2015, BAT became the first among the international tobacco companies to introduce an open-system device: The Vype eTank is a refillable e-cigarette that gives users control over the nicotine strength and flavor combinations that suit them. The company has also launched a variety of e-liquid flavors for its Vype range in various nicotine strengths, which are manufactured with pharmaceutical-grade nicotine in Italy and the U.K.
In September 2015, BAT acquired the CHIC Group, Poland’s leader in the vape segment with a market share of around 65 percent. In addition to manufacturing nine of Poland’s leading e-cigarette brands, including Volish, PI, Provog, Cottien and LiQueen, the group has more than 800 retail stores in Poland. And the country has growth potential: Poland’s vapor market was valued at pln500 million ($125 million) in 2014, according to data provided by STEP, Poland’s association for e-smoking. In 2014, about 1.2 million Poles used e-cigarettes, according to data from the eInstitute, a Polish advocacy group for e-cigarettes.
BATs third NGP category is managed as a pharmaceutical business. At the end of 2015, its e-cigarette e-Voke, designed in compliance with medicinal standards, became the first of its kind to be licensed by the U.K.’s Medicines and Healthcare products Regulatory Agency (MHRA) to help smokers reduce, replace or stop smoking. Given the rapid change and innovation that characterizes the e-cigarette category, BAT is currently evaluating the commercialization and consumer resonance of the e-Voke offer.
BAT’s earlier development in this category, Voke, was the first cigarette-shaped, breath-activated nicotine inhalation product to be granted a medicinal license by the MHRA in September 2014. Work toward its launch continues.
Comprehensive product selection
“We are very proud that we have a comprehensive, diversified portfolio to meet every adult consumer taste,” says Wheaton. Such versatility is vital for success because each of the NGP categories has its pros and cons, as Wheaton points out. While THPs allow for a closer experience to smoking and the utilization of established tobacco brands, they also require users to develop new rituals and are regulated and taxed as tobacco products. Vapor devices benefit from greater social acceptability, sensory variety and choice, as well as relative marketing freedoms and lower excise. On the downside, the category operates in regulatory uncertainty, and product development still needs to be driven much further.
Licensed medicinal products have market freedoms other products lack and can make health claims. In the U.K. they also enjoy a preferential VAT rate, but product development and regulatory approval procedures are expensive and time to market can lengthy. As a result, by the time a product is licensed, its technology may no longer be state-of-the-art.
With its combustibles and NGPs, BAT is capable of covering the entire continuum of risk, from conventional cigarettes to tobacco-heating products, e-cigarettes and licensed medicinal products.
Today, the tobacco industry is at a crossroads, says Wheaton. “At BAT, building on over 100 years of history, we are at the vanguard of what it means to be a tobacco company.”
Worldwide, consumer interest in nicotine alternatives, such as e-cigarettes, is increasing. Despite its promising growth rates, however, the global vapor sector continues to be dwarfed by the tobacco industry, the value of which is estimated at $800 billion. Clearly, the combustible tobacco business will remain the mainstay of BAT’s commercial delivery for a long time to come, says Wheaton.
“And yet,” he points out, “it is that commercial delivery which generates the investment funding for research and development activities—funding which will enable the pipeline of products that consumers demand, and upon which category growth is predicated.”