Suppliers of primary equipment hold their own in the rapidly transforming cigarette market.
By Stefanie Rossel
One would think that the downward trend in global cigarette sales would give manufacturers of primary equipment little reason for optimism. Market data increasingly suggest that the entire tobacco industry is well on its way to what has become Philip Morris International’s declared goal: a smoke-free world. According to Euromonitor International, the share of combustible cigarettes as a proportion of the total global tobacco sales value in 2016 fell below 90 percent for the first time in decades. The business intelligence provider predicts that this share will decline to 86 percent by 2021, driven by restrictions on the manufacture, sale, marketing and packaging of tobacco products in nearly all markets.
Logic suggests that lower cigarette consumption would mean less demand for manufacturing equipment. For the time being, however, this is not necessarily true for primary equipment. Several companies told Tobacco Reporter that they remain confident about the segment’s potential. “An economist said that, due to the global economic crisis, having a time horizon projected to six months would be a success—our time horizon is projected to one to two years,” says Lorenzo Curina, sales director at Godioli & Bellanti, an Italian supplier of leaf processing equipment. Curina says his firm has recently witnessed a revival of demand. “We hope it will continue for a long time,” he says.
Marco Morandin, sales director at Hauni subsidiary Garbuio, which is also based in Italy, says that 2018 started positively for his company, continuing the encouraging trend shown last year. “Investments in green-field plants for conventional cigarettes are generally slowing down. Global cigarette consumption is certainly shrinking, especially in western countries,” he states. “However, to keep up with technology, our customers continue to invest in state-of-the-art equipment to run their factories efficiently, profitably and, of course, digitally. Consolidation of existing factories, renovations and technology upgrades are presenting Hauni/Garbuio with opportunities to continue leading the primary business.” The investments, he says, are extending the life cycle of machinery, allowing the company to offer services such as maintenance and after-sales assistance.
Stefan Hahn, sales director at Heinen Koehl, a Luxembourg-based supplier of processing and logistics equipment, is equally upbeat. Change is the only constant, he says. “Heinen Koehl must see the changes as an opportunity,” says Hahn. “In recent years, the tobacco industry has demanded a number of new products that we have been able to develop with our customers and sell successfully.”
Focus on quality
Each supplier has his own strategy to navigate the challenging environment. To Godioli & Bellanti, quality is key. “We want to assure our client that his investment will be valuable and profitable,” says Curina, adding that the company’s equipment is durable and 100 percent made in Italy. This strategy pays off, according to Curina. Investment in “cheap, cheap” machines does not pay off, he says. “We are serving our customers with valuable machines.”
Godioli & Bellanti emphasizes continuous innovation. Recently, it launched new solutions for the automatic handling of cases and cartons. In addition, the company has introduced technology for the supervision of existing primary departments.
Apart from that, the company has diversified its business: It now offers solutions for the processing of medicinal herbs and plants, food, and biomass. “Tobacco machinery still is our main pillar; it represents 90 percent of our annual turnover,” says Curina. “But diversification is a must at any time, especially now.”
CPM Wolverine Proctor, a specialist in tobacco thermal processing, has also opted for diversification. In addition to the tobacco industry, the company serves customers in the food, snack, chemical, fiber and breakfast cereal markets. Declines in the tobacco market are offset by increases in its other markets.
Sales manager Ed Wozniak points out that, even in the “golden years” of tobacco processing, it was not uncommon for investments to drop at times, forcing suppliers to diversify their operations. “This multimarket approach has allowed us to weather these lean years in tobacco relatively painlessly,” he says. Primary processing remains an important part of CPM Wolverine Proctor’s business, however. “There is the need for relocating equipment, upgrading and most certainly increasing the overall operating efficiency of the equipment,” says Wozniak. “These are the areas that we are focused on at present in the tobacco sector, together with requests for full conversion of tobacco dryers, to drying other products, such as vegetables and even snacks.”
This approach requires more experienced field personnel who are capable of supervising and auditing equipment on-site. “To meet this demand, we have had to invest in a greater number of field service, project management and technical staff,” says Wozniak.
The greatest steps to increased quality and reduced manufacturing costs have been made in electrical control systems and programs, according to Wozniak. The company has been testing a “smart” dryer, which, with the help of sensors and machine-learning technology, can run without an operator. “Dryers rely on a number of factors running correctly,” says Wozniak. “Change one and it affects all others—e.g., temperature, air velocity, process speed, humidity. We anticipate, in the near future, to have this [technology] perfected and available to our customers.”
Tailor-made approaches
For Morandin, flexibility is the key factor to remaining competitive. “We not only have the ability to design, manufacture and install high-quality bespoke green-field primaries, but we can take the best of a customer’s existing equipment—from several locations—overhaul and modify it and then reinstall [it] in another part of the world. This process can be carried out for full processing lines, complete primaries or just single items. [Equipment can be] overhauled to suit a technical specification, budget and timeline, including new control systems, digital management information packages and operator/maintenance training.”
The consolidation of Garbuio and Hauni into a single organization has enhanced flexibility, too, according to Morandin. “This has resulted in a very broad portfolio of products that meet the ever-increasing demands of our industry, across all sectors and technical abilities. This adds to our strengthened research and development activities that are fully engaged in new projects, from conventional primary processing through to snus, shisha, heat-not-burn [HnB], and digital transformation and upgrade packages. The worldwide Hauni sales network maximizes the global reach and support network for our combined primary operations and customers.”
Customization, Morandin adds, still plays a major role: “In an environment that demands more from factory optimization by using the latest in controls and digital technology and/or tailoring of machines and projects to meet our customer’s specific demand, it is the added value we deliver into every single project.”
One example of this is the entry-level primary, which Hauni introduced in early 2016. It enables small and medium-sized cigarette manufacturers to manage their own tobacco preparation and processing. Morandin says the concept had generated considerable interest among the company’s customers. “We’re discussing various prospects,” he says. “The experience taught us that customization is again of the utmost importance in meeting customer needs for smaller-scale primaries. The smart solutions we offer enable customers to start cut rag manufacturing at very competitive conversion costs.”
Customer requirements have changed significantly, he notes, with new products coming to market ever more quickly. “Time to market is another core value we grant our customers,” says Morandin. “Whether this is for a new product launch, an emerging market or trend, thanks to the combined capacity of Garbuio and Hauni manufacturing facilities in Hungary and Italy, supported by engineering divisions located in Hamburg, Treviso, Winchester and Pecs, we are certainly supporting our partners with [a] fast-track response to consumer trends.”
Customization is at the center of Heinen Koehl’s strategy, too. “With innovative, customer-specific project concepts from our widespread business units and through the on-time delivery of state-of-the-art technology from a single source, we are able to respond flexibly to individual customer requests,” says Hahn. “We strive for long-term partnerships with our customers.”
Heinen Koehl’s new primary solutions include an improvement of the Twister, a multipurpose processing machine for expansion and conditioning of short-fractured tobacco products such as raw stems, CRES, cut rag, cigar filler and cloves. “Due to its compact design and highly effective closed-chamber process, significant savings of tobacco, energy and investment costs can be achieved,” says Hahn.
New opportunities
As is the case in other parts of the supply chain, next-generation products are an increasingly promising field of business for manufacturers of primary equipment. As early as the 1990s, Godioli & Bellanti had developed a process to remove nicotine from tobacco leaves. The tobacco used in HnB products requires processes and equipment similar to those used for conventional cigarette leaf. To provide a taste close to that of a combustible cigarette, the consumables contain custom-engineered reconditioned tobacco leaf.
Even as they have been closing cigarette factories, cigarette manufacturers have been setting up production lines for new products, creating opportunities for processing equipment suppliers. “We trust and believe deeply in this new segment,” says Curina. “We consider HnB an important way out for the future of the tobacco world and therefore also for tobacco machinery manufacturers.”
“For sure, HnB products are attracting considerable investment at this time and have certainly contributed to the global market spend on primary,” echoes Morandin. “Processing of HnB can, in some instances, utilize similar technologies to that of conventional primaries. Other products, however, are totally different and require new processes. These require tobacco processing expertise to achieve the product design and preserve or enhance aromas and flavors of the tobaccos. We’ve combined R&D efforts to provide our customers with a full range of alternative tobacco-producing methods, including a more traditional recon process, a modular rolled-cast sheet line and a very efficient extrusion production line. Orders have been received for these products, and we anticipate strong growth in the coming years.”
Heinen Koehl, too, has received orders relating to HnB products, according to Hahn. “We consider HnB products as very important,” he says. “In addition to the primary projects, we successfully placed a numerous amount of our flavor application system, FAS, from a total output of approximately 310 units, in the HnB secondary.”
Wozniak is less enthusiastic about the new tobacco category. “While HnB products still utilize tobacco, it is very much in a reduced volume and different form of manufacture,” he says. “Quite simply, in no way do these products replace the volume [of] business in loss of primary processing equipment. These ‘new’ products themselves are anticipated to further evolve and require new and different processing equipment.
“It would be tempting for a multimarket company, such as CPM Wolverine Proctor, to focus its entire resource toward other markets. However, we must not—and will not—forget the valuable contribution that the tobacco sector has played in our success, and indeed the multitude of equipment that we have globally. There is a commitment to keep on supporting this equipment for its entire lifespan, no matter if it is with the original customer or not. If possible, we will increase its efficiency or, if required, convert it entirely for other forms of processing.”
Moving east
As far as future potential for tobacco processing equipment is concerned, suppliers of primary equipment name Southeast Asia and the Middle East as promising regions. Morandin expects Asia to play a major role both in the conventional cigarette business and HnB category. “We’ve seen a revolution in Japan and Korea driven by the HnB category, and we are also seeing a very strong commitment in the traditional cigarette market, not only in Asia but the Indian subcontinent and Europe, where our customers have committed to significant investment in new green-leaf threshing lines and primary.”
“I would say that thanks to the revived demand of tobacco machinery, we have interesting markets in very many countries of different geographic areas of the world,” says Curina. “In some areas, the relocation of processing plants and primary processing lines are more in demand. We have acquired a lot of experience in reconditioning and relocating old processing lines, and our reputation is very good. In other areas, our brand-new machinery is sought after. Finally, in other areas, we notice a lot of demand for rebuilt and refurbished secondhand machinery.”
Remaining relevant
