Category: Also in TR

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  • Can things only get better?

    Can things only get better?

    The tobacco and vapor industries under Trump

    Patrick Basham directs the the Democracy Institute and authored Butt Out! How Philip Morris Burned Ted Kennedy, the FDA & the Anti-Tobacco Movement, as well as other books on tobacco regulation.

    “Elections have consequences.” That was President Barack Obama’s declaration following his 2009 inauguration, one he repeated after last November’s presidential election. And he should know—and the tobacco industry should know, too.

    The validity of Obama’s observation was borne out with passage of the Family Smoking Prevention and Tobacco Control Act of 2009. This piece of legislation did finally succeed not because proponents brought new evidence or newly powerful arguments to the table; they won because two elections caused the political arithmetic to change significantly in their favor.

    The 2006 midterm elections, which saw the Democratic Party victorious in the House of Representatives and, crucially, regain majority party status in the Senate, and the 2008 presidential election, which witnessed Obama’s historic ascension to the Oval Office and cemented Democratic majorities in Congress, were the reasons Food and Drug Administration (FDA) regulation occurred.

    It required Democratic majorities for an FDA regulation bill to be ensured passage through Congress. FDA regulation also required an Oval Office occupant with President Obama’s interventionist, nannying instincts. Under his Republican predecessor, any FDA regulation bill was threatened by President George W. Bush’s veto pen.

    Over the coming four years, the tobacco and vapor industries have much at stake. The FDA’s Center for Tobacco Products is looking to strengthen warning labels on cigarette packages, and new, higher federal taxes are much-discussed.

    Another regulatory threat was underlined by the U.S. surgeon general’s recent, fearmongering report on vaping. The report is an empirically challenged, politically calculated hit-and-run on a nascent yet extremely promising (in economic and public health terms) industry.

    It is increasingly difficult to take seriously what the federal government proclaims or pronounces about tobacco or vaping. One topical, surreal illustration is the half-million dollars that the National Institutes of Health wasted last year sending “friendly reminder” text messages to rural Americans to quit chewing tobacco.

    Healthy skepticism

    After Donald Trump defeated Hillary Clinton, The Washington Post and The Wall Street Journal ran feature articles attempting to divine which industries will do well and which will do poorly under a Trump administration. Having dodged the interventionist bullet of an avowedly anti-industry Clinton administration, what can the tobacco and vapor industries expect from President Trump?

    With so little discussion of tobacco and vapor issues during last year’s presidential campaign, there are various methods for narrowing down the possibilities. One option is to ask whether the personal is political? That is, do Trump’s personal views inform his probable actions or inactions on these files?

    A lifetime nonsmoker and nondrinker, Trump is an advocate for an abstemious life, at least in those specific areas. But gambling is an example of a traditional vice that is clearly not on Trump’s “do not  do” list. His once industry-leading casinos tangibly demonstrated his encouragement of riskier lifestyles. Before assuming that Trump’s personal views on tobacco may dictate his policies, it is also worth noting that Obama, a long-standing cigarette smoker, signed FDA regulation into law, as well as a host of other dubious tax and regulatory schemes, including the forthcoming smoking ban in all public housing.

    Or will it be Trump’s attitude to government oversight of private industry that drives his regulatory approach? If so, both Big Tobacco and Little Vapor may be pleased with the results. Trump campaigned on a robust program of deregulation. He said he wanted to eliminate 70 percent of the regulations introduced by the Obama administration.

    Trump’s Cabinet selections suggest his will be a deregulating administration. The nomination of Scott Pruitt, the attorney general of the oil- and gas-intensive state of Oklahoma, to direct the Environmental Protection Agency is no less provocative to the country’s cottage industry of professional environmentalists than would be the appointment of a tobacco company executive to head the FDA.

    What is notable here is that Trump’s politically incorrect skepticism about global warming and man-made climate change indicates a willingness to defy conventional wisdom on such allegedly settled empirical questions. He exhibits a healthy dose of cynicism toward the public utterances and campaigning of the media-anointed “experts” in respective fields, refusing to accept that the latter are inherently correct or truthful on all matters.

    As a result, President Trump’s instincts and political antennae may enable him to see through the smoke and mirrors of the respective anti-tobacco and anti-vaping advocacy campaigns and, consequently, to identify the political, commercial and ideological agendas that drive the production of their research “evidence.”

    Trump’s nomination of fast-food industry executive Andy Puzder to be labor secretary sends another important signal. Despite Big Food’s political status as the new tobacco, this choice suggests Trump is unafraid of upsetting the nanny state’s army of activist-lobbyists.

    Most revealing may be Trump’s selection of congressman Tom Price, a physician, to head the Department of Health and Human Services. Price would oversee the National Institutes of Health and the FDA. The fact that, in 2008, he voted against allowing the FDA to regulate tobacco as a drug is quite encouraging.

    As is the expectation that Vice President Mike Pence will be Trump’s very influential right hand. A consistently rational voice on industry-related issues, as a congressman he voted against FDA regulation and was criticized by anti-tobacco groups for accepting tobacco industry campaign contributions.

    With Price’s, Puzder’s and Pruitt’s nominations, it is clear that whatever Trump’s ultimate decisions on the tobacco and vapor fronts, they will not be driven by anti-industry activists.

    On the flip side

    A potential trouble spot for the tobacco industry may be British American Tobacco’s takeover bid for Reynolds. Trump has indicated pessimism about the virtue of some other proposed mergers, most notably AT&T’s bid to take over media giant Time Warner.

    Critically, perhaps, for the rest of the industry, any forthcoming opposition to the tobacco merger would reflect Trump’s opposition to mergers per se rather than opposition to or concerns about the tobacco industry itself.

    In exclusively Republican hands, there will be little new trouble brewing in Congress. Trouble will come from outside the legislative arena, in the form of tobacco control groups and their rich patrons, such as Michael Bloomberg. Billionaire businessman Bloomberg is currently ramping up his latest anti-tobacco campaign. The good news for industry is that Bloomberg’s harsh and explicit opposition to Trump’s presidential candidacy will not endear his anti-industry narrative to the White House.

    The other predictable source of anti-industry propaganda and prescriptions will be the World Health Organization. Here, industry may benefit from Trump’s anti-globalism worldview and his specific disdain for United Nations-style policymaking.

    For Trump, good policy on tobacco and vaping would be good politics. His administration could, for example, reduce tobacco taxes, defund the Center for Tobacco Products, and cut funding for the Office on Smoking and Health.

    None of these measures would upset his loyal supporters. He won courtesy of blue-collar voters across the Rust Belt states of the American Midwest. These voters are disproportionately smokers (and drinkers, gamblers and fast-food eaters).

    But, should Trump end up governing in his predecessor’s mode on tobacco and vapor issues, both traditional smokers and the burgeoning vapor community may have their political revenge.

    America’s 10 million vapers are now a key, single-issue voting bloc. They are disproportionately situated in the so-called “swing states,” and they tell pollsters that they are both passionate about vaping and that they are prepared to vote based on this single issue, perhaps more so than any other group.

    Consequently, vaping voters may decide the outcome of the 2020 presidential election, as well as a number of senatorial and congressional races in 2018. It is possible that chasing the vaper vote will become a political fixture.

    It is in the hands of President Trump and congressional Republicans to ensure that both vapers and cigarette smokers are in grateful, not grouchy, moods when next they go the polls.

     

     

     

     

     

     

  • Cream of the crop

    Cream of the crop

    Demand for classical oriental tobacco remains remarkably stable.

    By George Gay

    Greece is thought to have grown about 18.5 million kg of classical oriental tobacco in 2016, made up of about 12 million kg of Basma and about 6.5 million kg of Katerini. If these estimates turn out to be correct (this story was written at the beginning of December, when both varieties were still being delivered), this is a small crop, even by the standards of the past 10 years, during which production has not been supported by subsidies. In 2015, the crop was about 21.5 million kg, so the drop from 2015 to 2016 will have been of the order of 14 percent.

    Yields of both the Basma and Katerini crops were said to have been down because of dry weather, which, by way of compensation, created an excellent-quality Katerini crop and a good, above-average quality Basma crop, and because of a disease problem that was more severe than is usual. But the Katerini crop was down, too, because fewer farmers than in the past decided to grow this variety.

    Part of the reason for this lack of interest among farmers was no doubt because of price, a problem whose most recent incarnation started in 2013 when all four of the main classical oriental tobacco producing and exporting countries, Bulgaria, Greece, Macedonia and Turkey, harvested big crops that, taken together, amounted to about 140 million–145 million kg and created an oversupply. The following year, quality suffered, with some observers declaring that the Greek tobacco was of the worst quality for 20 years; so again, prices were down. Prices were raised for the 2015 and 2016 crops, but not by enough to entice the required number of lapsed growers back to Katerini or new growers to enter the field.

    Despite the difficult economic situation in many oriental origins, the industry struggles to attract growers and workers.

    Making the job easier, slowly

    Looking ahead, Nikos Allamanis, doyen of the Greek classical oriental tobacco industry, said Greece believed that it could sell a 2017 crop of 23 million–25 million kg made up of about 14 million kg or more of Basma and 9 million kg or more of Katerini. Given reasonable weather conditions, it seems that the Basma target will be reached, but there is doubt about the Katerini crop. To raise the estimated 6.5 million kg of 2016 to 9 million kg in 2017 would mean, even given reasonable weather, an expansion of the area planted to this variety. Contracts for the 2017 crop have to be completed by the end of April, so there is still time for new and returning Katerini growers to sign up, but how many will do so is in doubt.

    One question that arises here concerns why, with Greece’s economy in the doldrums, would farmers not jump at the chance to grow some, or some more, Katerini. Well, the answer perhaps has to do with the fact that growing tobacco is not an easy task, that it has to be carried out away from the bright city lights, so that young people especially are not overly keen to become involved, and that it is one where producers can earn enough to survive, but little more.

    Price increases, when they occur, are often small, and growers are urged—and helped—to raise their incomes by increasing yields through the planting of improved seeds, employing good agricultural practices and the introduction of automation systems where possible. This is all very well up to a point, and some growers undoubtedly benefit from the fact that automation allows them to cut down on labor. The trouble is, it takes some time for the specialist oriental tobacco automation systems to be improved to the point where they can move from the test phase to general use—to the point where they can start improving yields and, therefore, raising grower incomes. For instance, Frederick de Cramer, coordinator at Sunel, told Tobacco Reporter in an email that the Vento, or “sock-curing,” method of drying tobacco, which has been tested in Turkey for some years now, was expanding, though the quality of the cured leaf was still “not too impressive.” The system needed to be further improved, he said, and farmers, who generally supported the system, still had to be educated in using it.

    Another problem with the automation approach has to do with the investment needed. Oriental tobacco transplanting machines have been improved, and they are helping some growers obtain higher yields by providing better spacing between plants and the establishment of better root systems. But such machines are clearly beyond the financial reach of these farmers, given their incomes, so financial support is needed if the use of these machines is to be expanded, and presumably that support must come from tobacco manufacturers—those who hold the purse strings.

    Estimates for the total 2016 classical oriental tobacco crop range from about 100 million kg to 120 million kg.

    Difficult demographics

    Finally, the age profile of oriental tobacco growers has to be a hurdle when it comes to introducing new systems. In Macedonia, where, according to Iqbal Lambat, CEO of Star Tobacco International, the age of oriental tobacco growers is about 28–40 years, learning new techniques is probably not a problem. But it is probably more of a problem in Bulgaria, where this demographic is said to be about 40–50 years old, and it could be difficult in Greece and Turkey, where many growers are older than 55.

    Turning such demographics around will not be any easy matter—though, according to Lambat, tobacco farming is still a multigenerational activity in Bulgaria and Macedonia. Greece and Turkey, in times of good economic growth, both experienced migrations of people to the cities, and while these countries have in more recent times suffered economic setbacks, there seems not to have been a rush back to the villages.

    Turkey has clearly suffered major political and social problems in recent times, but even though unemployment is said to have increased hugely, it doesn’t seem that tobacco growing is seen as a desirable career choice for too many people. De Cramer said that the 2016 crop of Izmir tobacco, the main Turkish classical oriental tobacco variety, is estimated to be 40 million–41 million kg, which puts it about 7 percent below that of the 2015 crop of 43.56 million kg, and nearly 27 percent short of the contracted amount of 55.28 million kg.

    As with the Katerini crop in Greece, however, a compensatory factor is that the 2016 Izmir crop is of good quality. The share of A/AB grade tobaccos within the whole crop is expected to be high, which should be in line with demand given that some manufacturers were unable to fulfil their A/AB grade requirements from the 2015 Izmir crop. The lower grades—kappa and double kappa—could be short, but these can be replaced easily by other varieties that fall into the blend group.

    Given the size and makeup of the Izmir crop, Turkish lira prices are expected to rise by about 12 percent, but export prices will probably be offset to some extent because, in the month before this story was written, the lira had been devalued by about 10 percent.

    Outlook

    On the supply side, there are some positive signs in Turkey. Returns for some competing crops have not been good, and so tobacco, for which half of the green price is paid in advance, is again being seen as providing a more reliable income. And on the demand side, the election of Donald Trump is seen as possibly providing some relief on the U.S. tobacco products market, the EU market seems to have stabilized, and the Russian market is increasing once again. In any case, the 2017 crop is expected to produce about 44 million–45 million kg, which would be an increase on the 2016 crop of about 5–10 percent.

    Estimates for the total 2016 classical oriental tobacco crop range from about 100 million kg to 120 million kg. Demand for this type of tobacco has its roots in premium American-blend cigarettes, and rough estimates based on the size of the market for these products and classical oriental tobacco inclusion rates have for years put that annual demand at 120 million, plus or minus. Of course, this premium American-blend sector has been under pressure because its heartland is in the West, where unemployment has risen and wages have stagnated in respect of the people who make up most of the consumers of these products. Undoubtedly, this pressure is down, too, to the illegal trade since it seems to be generally acknowledged that some nonclassical oriental tobaccos are being grown off-piste and finding their way into illicit cigarettes.

    But despite the problems that exist, classical oriental tobacco production seems to be remarkably stable. “Generally, demand for classical oriental is stable, and all of the Balkan countries have been consistently meeting demand over the course of the past four years,” Scott Burmeister, regional director for Europe at Alliance One International, told Tobacco Reporter in an email reply to questions. “However, there have been some shifts from one origin to another depending on the availability of higher-quality tobaccos.

    “Over the past few years, manufacturers have been rationalizing markets as they reduce blend complexities. Although the rationalizations have not directly affected classical oriental, we have seen that manufacturers are more willing to shift between origins that they believe to be interchangeable, as long as the leaf meets quality expectations.

    “The classical oriental market is moving into an undersupply position due to growing yield reductions. Although the quality of the rendered crops appears to be above average, a shortage of certain styles is predicted.”

     

     

     

  • Platform for growth

    Platform for growth

    Imperial Brands posts strong results despite declining unit sales—but progress has not been entirely painless.

    By George Gay

    Alison Cooper

    In presenting Imperial Brands’ preliminary results for the year to the end of September, chief executive Alison Cooper said that the company had delivered another strong performance with great results from its expanded U.S. business and had further improved the quality of its growth. “We grew the dividend by 10 percent for the eighth consecutive year and remain committed to this level of increase over the medium term,” she said. “Our strategy is delivering, and we see scope for significant further shareholder value creation by remaining relentlessly focused on the same four strategic priorities.

    “We are today [Nov. 8] also announcing further investment behind our strategy to support revenue growth over the medium term. This investment will be supported by a new phase of cost optimization, targeting a further £300 million [$373.5 million] of annual savings by 2020, at a cost of £750 million.

    “We have established an excellent platform for sustainable quality growth, which will continue to provide growing returns for shareholders.”

    These are the sorts of remarks that are often made by the heads of large tobacco companies—and presumably by the heads of other large companies—when delivering annual results. They make clear that the overwhelming emphasis is on delivering higher dividends for shareholders.

    Of course, one thing not mentioned is the fact that Imperial is a tobacco company and that these higher dividends are being predicted even though the company’s tobacco products shipments are in decline. Imperial’s volume shipments of cigarettes and other tobacco products calculated as “stick equivalents” (SE) during the 12 months to the end of September, at 276.5 billion, were down by 3 percent on those of the 12 months to the end of September 2015, 285.1 billion, even though shipments were boosted because the most recent financial year was the first to include full-year figures for its U.S. brand acquisitions. (In June 2015, a subsidiary of Imperial Tobacco, ITG Brands, acquired for about $7.1 billion from subsidiaries of Reynolds American Inc. the KOOL, Salem, Winston and Maverick cigarette brands, along with the Blu e-cigarette brand and other assets.)

    The company said that its acquired U.S. cigarette brands had contributed 12 billion SE (compared with 5.4 billion SE in fiscal year 2015 and 17.5 billion SE in fiscal year 2016), or a 4.2 percent increase. However, there had been a 1.5 percent fall during the first half of the year because of the impact of its performance in Iraq and Syria, a 0.9 percent decrease because of a decline in market footprint, and a 4.8 percent drop in the volume across the rest of the business.

    Shipments have been slowing for some time. Since 2010, Imperial’s SE shipments have fallen by more than 20 percent, from 348.5 billion to 276.5 billion. But, during the same period, adjusted tobacco net revenue and adjusted operating profit have both increased.

    Maintaining revenue

    ‘Brand migration’ features prominently in Imperial’s strategy

    So how can you increase revenue and profits when shipments are going south? Well, one way is to increase product prices either directly, where competition isn’t too fierce, or indirectly through what are known as brand migrations, a strategy at which Imperial has proved successful. For instance, Imperial’s “growth brand” volume during the year to September increased by 4.3 percent, from 145.1 billion SE to 151.3 billion SE, partly because of the company’s brand migration program, which basically encourages consumers to move from brand A to brand B, where brand B is at least as profitable, if not more profitable, than brand A. Such a migration allows, too, brand A to be delisted, which reduces portfolio complexity and, therefore, costs.

    This has been an important strategy. As Cooper reported in a results presentation, growth brands continued to outperform the market with volume and share growth. “We further simplified the portfolio through our successful brand migration program so our growth and specialist brands now represent more than 60 percent of net revenues,” she said.

    This strategy might seem harsh in respect of the loyal consumers of brand A, but even if it weren’t necessary to try to cut costs, the strategy would probably be inevitable given that regulations in a growing number of countries, such as those requiring standardized packaging and the covering of retail displays, make it more difficult to keep a lot of brand names visible.

    And there is evidence that consumers are not overly distraught by the migrations. “We have successfully completed 49 migrations to date, with a further 15 underway,” said Cooper. “These have achieved excellent consumer retention rates, continuing to average more than 95 percent.”

    Portfolio management is a major strategy that Imperial will be employing into the future. Cooper said that it was planning to cut radically the number of its SKUs, which can mean delisting whole brand ranges or just some variants within a brand. Imperial did have 250 brands; it is now down to 184 and is aiming to bring that down to 125.

    Reducing complexity

    Imperial is reducing complexity, too, through its brand chassis strategy, in which it harmonizes brands across different markets, while keeping the individual names of those brands where they contribute to their market success. So, the West chassis, as well as containing West, includes also L&B, Bastos and News. As Cooper said, “Our brand chassis approach enables us to leverage our marketing spend across a range of growth brands.”

    Imperial is looking also at its market footprint, at market prioritization, because it generates almost 95 percent of its profit from 32 markets. The U.S. market was large and profitable with high affordability and further pricing opportunities; so a decision had been made to expand the company’s presence in that market last year and to continue investing in the U.S. business, said Cooper. Russia was also a large market where affordability was good and profitability would grow over time.

    The footprint strategy meant investing to grow but also investing to defend share where necessary, as in the U.K., which was an attractive market with a large profit pool and where Imperial had strong in-market capabilities. In contrast, Imperial had highlighted markets such as Ukraine and Turkey where a combination of competitor discounting and adverse currency movements had caused the company to reassess its investment plans in the short term. Imperial had not withdrawn from these markets but had decided that investment to grow or defend at this time did not meet its criteria.

    But it isn’t all about product and market consolidation. Cooper said that Imperial was building its Blu electronic cigarette brand, which she described as “a very powerful brand in a nascent category,” one that was “well-positioned as a premium offering.” It was encouraging, she said, to see its brand equity building and how well it compared with competitor brands. Imperial had consolidated its presence around its second-generation product, Blu Plus+, “which we believe is the best closed-system vaping experience in the market,” and was investing in its third-generation product, Blu Max, “which we believe will further improve the consumer experience.”

    Feeling the heat

    Imperial has come in for some criticism because, for the time being at least, it has not extended its vapor product development into the field of heat-not-burn devices, as have Philip Morris International, Japan Tobacco International and British American Tobacco. This criticism, I take it, concerns the fact that these products seem to have met with good consumer acceptance, at least in Japan, as well as the fact that the business model of selling the consumable elements of these devices perhaps better reflects that of selling traditional cigarettes. However, looked at another way, Imperial should be admired for so far refusing to get drawn into offering a type of product that, despite its obvious attractions and benefits, tends to blur the divide between nicotine and tobacco products, much in the way that the U.S. Food and Drug Administration has done and for which it has attracted considerable criticism.

    Another way to reduce costs is to introduce efficiencies into your manufacturing processes directly, as well as through reducing portfolio complexity, and Cooper mentioned that Imperial was reviewing its manufacturing capacity and adopting lean operating principles across its factory footprint.

    But if such efficiencies aren’t enough, it’s always possible to close factories and reduce your workforce, and, toward the end of last year, several stories started to appear indicating that Imperial intended to do just that in France, Germany, Russia and the U.K. BBC Online reported that up to 100 jobs could go at Imperial’s Bristol, U.K., headquarters in what it described as “structural changes” that were part of its new phase of cost optimization. The BBC story made the point that the announcement about the structural changes followed the closure in May of Imperial Tobacco’s Horizon factory in Nottingham, U.K., with the loss of more than 500 jobs, a closure that bosses at the factory were said previously to have blamed on falling sales and an increase in the illegal tobacco trade.

    In addition, a Reuters story reported that Imperial had said it was closing its plant at Yaroslavl, Russia, this month. Imperial was said to have cited “regulatory hurdles such as higher taxes” as being behind the proposed closure, which, according to the story, was expected to result in the loss of 284 jobs.

    And then a Le Monde du Tabac story reported that Imperial’s French subsidiary, Seita, had said that it would close its Riom manufacturing facility and its Fleury-les-Aubrais research center, citing a “decline in sales and a resultant drop in production.” The restructuring moves in France were expected to affect a total of 339 jobs.

    Asked about whether these stories of closures and job losses were correct, Imperial issued an emailed statement: “We are talking to our employees about a number of proposed restructuring projects as part of our new phase of cost optimization, which we announced in early November,” the statement said.

    “These projects include the potential disposal of our factory and research laboratory in France, the closure of a factory in Russia, and structural changes in Bristol head office and Hamburg [Germany]. This will result in the potential loss of several hundred of the 34,000 roles we currently have across our global operations.

    “Potential job losses are always extremely regrettable, and we will ensure that anybody affected is treated fairly.

    “These are difficult but necessary steps for us to take to strengthen our competitiveness and sustainability.

    “Consultations with unions and works councils are ongoing, and we are therefore unable to make any further comment.”

    There are at least two ways of looking at this. One is to say that the phrases “extremely regrettable” and “treated fairly” sound rather hollow when people are being put out of work so as to “support revenue growth” that “will continue to provide growing returns for shareholders”—shareholders who, I take it, include at least some of the people making the closure decisions.

    On the other hand, Imperial is right in saying that it needs to strengthen its competitiveness, because otherwise it would simply become the target of a takeover by a bigger, more aggressive company that would almost certainly create even more factory closures and job losses when it restructured the acquired Imperial.

    The problem here is the system under which the globalized economy operates—a system that rewards companies for closing factories and reducing workforces (and then, in the case of the tobacco industry, whines about these impoverished people downtrading or heading toward the illegal trade for their cigarettes). It is a toxic, failing system that needs to be restructured, if it’s not too late.

     

     

     

     

  • The personal touch

    The personal touch

    Three decades after its creation, Tobacco Care remains as passionate about the freight-forwarding business as it was on day one.

    By Stephanie Banfield

    Veerle Denie

    The vast majority of tobacco industry players are well-versed in the process of transforming the golden leaf into a marketable product; however, the route tobacco takes from the time the leaves are harvested to the day the finished product hits the shelves of a retail store is often overlooked. From fumigation and marking to inspections, sample drawing and shipping, freight-forwarding companies play a pivotal role in tobacco’s journey from farm to finished product. One particular freight-forwarding company—Antwerp, Belgium-based Tobacco Care—has been organizing and executing international transports for the tobacco industry for more than three decades.

    “We are a shipping and forwarding company specializing in unmanufactured tobacco,” says Tobacco Care CEO Veerle Denie. “We organize worldwide shipments, as well as shipments in and out of Antwerp. In Antwerp, we can also offer warehousing, customs, documentation, handling and fumigation.”

    Tobacco Care was founded in 1981 by Denie’s father, Juergen Denie, who developed a passion for storage and logistics in tobacco while working at the shipping department of the tobacco trader Intabex.

    “When they [Intabex] moved offices to the U.K., my father decided to start his own company—Tobacco Care,” says Denie. He loved the job but didn’t want to move to the U.K. Based in the port of Antwerp and having the warehouses in Antwerp was more convenient to work than being based in another country—especially because in those days there were no computers to exchange documents.”

    Having been exposed to the industry at an early age, Denie also developed an interest in freight-forwarding and logistics. She sought higher education in the shipping aspects of the industry, earning her degree from Karel de Grote University in Belgium.

    “After my studies and [receiving] my degree in shipping and forwarding in Antwerp, I started working at Tobacco Care in February 1991,” she says. “Working in a small family business meant that I had to do everything myself—starting from negotiating quotations to organizing transports, sending out instructions, issuing documents, finding solutions and being flexible.”

    Armed with knowledge in virtually all aspects of the logistics and freight-forwarding industry, Denie set out to provide a series of top-notch services to companies in need of someone to organize and ship their unmanufactured tobaccos. Although Tobacco Care could have cast a wider net and offered its services to the entire tobacco industry, Denie recognized the importance of specialization and decided to stay true to the company’s roots when she came onboard.

    “Unmanufactured tobacco was, from the beginning, our main commodity,” she says. “I grew up with this; it is in my heart. Being a small company, it is better to specialize in one main product so you know the product and its needs [and can offer] a more specialized service to your customers.”

    By providing specialization in unmanufactured tobacco, Tobacco Care is able to exercise a cutting edge over its competition, companies that also offer freight-forwarding services but don’t provide specialized solutions to any issues that are encountered along the way.

    “Everybody can ship containers, but only those who know the product know what to do when problems occur and can provide the customers with a solution,” says Denie. “We never give up. We go for the personal touch, and we keep on fighting to fulfill the customer’s needs.”

    Thanks to its specialized services and its focus on providing exceptional customer service, Tobacco Care boasts a loyal client base of leaf merchants and manufacturers pleased with the services the company continues to provide in the unmanufactured tobacco arena.

    “Customer service is very important,” says Denie. “A happy and satisfied customer will come back and talk positively about your service. Our goal is to offer a personalized service. Every customer is different, and every company has a different way of working and different systems to follow. We aim to give a direct and personal service and listen to what the customer wants. Building up a relationship with trust is very important.”

    In order to provide high-quality, personalized services to its diverse client base, Tobacco Care forged a strategic partnership with a warehousing company in Antwerp that specializes in the storage and handling of tobaccos.

    “We have worked together with Zuidnatie NV for more than 30 years,” says Denie. “It is a general warehousing company based in the port of Antwerp. [There is] no need to say that trust and working closely together are very important. They take care of warehousing/handling/monitoring, and our tobaccos are stored in a separate warehouse at their terminal.”

    This partnership with Zuidnatie allows Tobacco Care to ensure the tobacco that ships to customers around the world is properly stored, free of infestation and of the highest possible quality—all aspects of freight-forwarding that Denie emphasizes as being extremely important to her company’s continued success in an ever-changing industry.

    “The business is demanding a higher level of service and flexibility in comparison with 20 years ago,” she says. “These are the main capacities you need to fulfill the requirements of your customers: to give the ‘a la minute’ service your customers require. Our customers have to follow the different rules and regulations being imposed to them by governments and worldwide organizations, which means that we have to think with them and offer them the service.”

    In addition to a series of ongoing changes faced by its customers within the tobacco industry, Tobacco Care is also presented with an assortment of challenges ranging from taxation to strict health regulations.

    “The business is changing enormously due to the international crisis—companies being taken over, the merger of companies and the pressure on the product: tax laws, health laws, etc.,” says Denie. “These are indeed challenges; we have to change the way of storage, handling, the way we issue documents and certificates as per the new implemented rules and regulations. The work is more complicated than [it was] years ago; it puts more pressure on the job.”

    But in the face of ongoing challenges that place pressure on the entire supply chain, from seed to storage and transportation, Tobacco Care has fought hard to find solutions to the issues they face and has worked diligently to combat such issues.

    “Due to all these different rules and regulations and company automation systems, personal contacts are disappearing,” says Denie. “Therefore, I believe that there will always be a need for small companies offering a personalized service, as we think outside the box. We can offer the service from beginning to end. We know how to fight to get the solution, the answer to the problem. We stay on top of issues [and are] willing to learn new things every day!”

    To stay on top of these changes in the industry, Denie and her team at Tobacco Care have embraced with open arms the challenges and hurdles they’ve faced and implemented new systems and programs to ensure their processes continue to run smoothly.

    “Mainly [we are] keeping an open mind, talking to customs, shipping lines, customers, etc.,” she says. “[We are] reading articles in specialized magazines, putting systems into place wherever required and installing programs when needed. We are doing whatever is needed to get the job done.”

    Due to its dedication to the industry and its efforts to embrace change, Tobacco Care has managed to stay afloat while many other firms have folded under the pressure placed on the industry from outside sources. And the fact that the company is still going strong after 35 years of coordinating and providing international shipments of unmanufactured tobacco via road, rail and sea is the very aspect of the company Denie considers to be its most significant accomplishment thus far.

    “After all these years and all the different and sometimes difficult situations we have been in, we still exist,” she says. “We are still in business, not only working for small companies but also for multinationals. In a world where companies merge and crisis hits business, we can still exist based upon our own identity and personality since 1981. People who know us know what we stand for. We offer a worldwide service, we are open to all ideas, and we make sure the work is done.”

     

  • Grass-roots approach

    Grass-roots approach

    Don’t be too surprised if you get a visit from General Cigar’s president, Regis Broersma

    By Stephen A. Ross

    Since November 2015, there’s been a revitalization around the Richmond, Virginia, headquarters of General Cigar Company. The presence of that energizing rebirth is made all the more intriguing because the catalyst, General Cigar’s new president, Regis Broersma, is often away, traveling to the company’s three factories and traversing the United States  visiting premium cigar shops everywhere—diving into the trenches, so to speak, and talking about the cigar industry and General Cigar’s brands with the retailers who sell them and the consumers who enjoy them.

    dsc_0456-webConsider his first week on the job after the announcement that he would assume the presidency of General Cigar Company. Broersma visited retail shops in Chicago, New York City, Richmond and throughout the state of New Jersey. It was a whirlwind reintroduction to the American premium cigar business for the 39-year-old Dutchman, who has been in the industry since 2002. Before returning to the U.S. last year, Broersma worked in the Netherlands, Denmark, the United Kingdom, the Czech Republic and Germany. Since his return to the U.S., Broersma has continued his intense education efforts, spending more time on the road than in the office.

    “It’s a grass-roots approach,” Broersma admits. “I’m giving retailers a signal that we care about them. Brick-and-mortar retailers are extremely important for us because that is where consumers go and get the advice and make the selection about the cigars they want. I think we can be much stronger there, and that is where we can learn the most about what our consumers want. We plan to focus and invest to help our retailer partners grow their businesses.”

     

    Broersma’s interest in getting out to speak to retailers and consumers is a refreshing change, which more CEOs in all manner of industries should adopt. It’s definitely been a change over the way General Cigar Company had been managed in the years immediately preceding Broersma’s promotion to president.

    ftc-web“In the past it was more of a top-down approach,” Broersma comments. “Now we are basically going in the complete opposite direction. We’re listening to what the consumers and retailers want, and we’re empowering our brand managers to tailor our products to fill those demands. The shackles are off now, and we’re going to be seeing some great innovations from our brand managers.”

    Normally, taking a tour of the General Cigar Company booth at the IPCPR show is always a fun endeavor. There’s usually a plethora of new products available for the company’s stalwart brands—Macanudo, Cohiba, Dunhill, CAO and Torano, among others. But this year, the excitement seemed a little more intense—and honest—than in previous years. To be sure, some of the intensity could be attributed to successfully reaching the finish line for introducing the new products before the Food & Drug Administration’s Aug. 8 substantial equivalency deadline, but it was more than that. The brand managers—folks like Rick Rodriguez, Ed McKenna and Michael Giannini—feel enthused and empowered that they are getting the support they need to drive their brands forward.

    “I think we have a lot of great faces who can activate our brands and create stories,” Broersma says. “I’m not an expert on these cigars yet, but we have a lot of people who are. That’s part of the cultural change that is happening in our company now. People have freedom now. They can listen to the consumers and react. It doesn’t have to go through me. They are free to do what they think is best because I trust them.”

     

    And this year, the output has been amazing. CAO is bringing back a classic cigar with a new name in Consigliere. There’s Partagas’ tribute to tobacco legend Ramon Cifuentes with the release of the Ramon y Ramon. There’s a new luxurious presentation for Cohiba with the release of Macassar. Macanudo is adding Mao, using vintage seeds that were in cold storage for years. And Foundry is continuing its heritage of innovation with the release of Time Flies.

    dsc_0581-web“The new direction is exhilarating,” says CAO blender/ambassador Rick Rodriguez. “We have the large resources of a company the size of General Cigar, but we’re encouraged to give our brands a boutique feel. Regis and Alan [Willner, General Cigar Company’s vice president of marketing] are encouraging us more than ever to listen to the consumers and encourage them to tell us what they want.”

    Gus Martinez, director of marketing for Macanudo, agrees. “This is a relationship business, and it’s important to have a humble approach to the products you’re introducing to the market. Without your consumers you have nothing, so their input is vital to the success of our brands. It means a lot to all of us to be given the sense of ownership for these brands but, at the same time, have the backing of the larger company and its vast resources behind you. Regis is a cigar guy and he’s an ambassador for all the brands. It’s an exciting time to be a part of General Cigar Company.”

    Innovation has always been much more than just introducing new products to the market, and that is even more true since the FDA’s Aug. 8 deadline has come and gone. To gain an edge, cigar companies are going to have to work all the harder to keep the market fresh. They’re going to have to dig deep into their employees’ creative reservoirs to find ways to make their products rise to the top. Thankfully for General Cigar, Broersma has been thinking along those lines for some time now.

    “A lot of things are already being worked on,” Broersma says. “We will see some great innovation beginning soon. For example, there will be keystone margins. We will support the brands more. We want our sales reps to work with retailers, and if something isn’t working out in their humidor, we will help them rotate it out and replace it with something else. These are things we have discovered talking to our retailers. Our sales representatives are there to share our insights, opportunities and take care of any issues that they may have. They have the real day-to-day experience of working in a cigar shop. I want us to be credible partners with them. Our philosophy is to make it happen. That is the way to go.”

    Since taking over at General Cigar Company, Broersma has seen hard evidence that the new policies are paying off. More retailers are buying into the philosophy. Rather than take the credit, Broersma is quick to spread it to the entire General Cigar team.

    img_5818-web“Alan took care of the company for three months, and quite a lot of things had improved,” Broersma says. “We know the direction we want to go. Our brands are strong, but there is room to make them stronger. General Cigar is in a very good position. I have heard retailers say that they weren’t open about General Cigar in the past but that they are changing their minds. If they have a problem, we will help them. We have the knowledge and we have to share it with our retail partners so they can make informed decisions.”

    And he promises that, together with the retailers, General Cigar will continue to build stronger relationships.

    “A lot of retailers are making more conscientious decisions about what they bring into their store,” he says. “We’re modest, but we have great brands and we want retailers to understand that these brands will fuel their overall growth. Right now, I think it’s important for me to get out to the shops and meet the retailers and consumers so they can get to know me. I give them my email address and encourage them to contact me if they have any  concerns. There are some great things to be excited about going forward, and I’m looking forward to working with our retailers in helping them succeed.”

  • Speaking up

    Speaking up

    The vapor industry faces an existential battle. By making their voices heard, companies and consumers can help turn the tide.

    By Tony Abboud

    Tony Abboud is national legislative director of the Vapor Technology Association.
    Tony Abboud is national legislative director of the Vapor Technology Association.

    Earlier this year, the U.S. Food and Drug Administration (FDA) announced that it was reflexively regulating the batteries, circuit boards, wires and constituents in e-liquids that constitute vapor technology products as if they were the same as those leafy tobacco products infused with 5,000 chemicals and wrapped in cigarette paper. “Tag—you’re tobacco!” the FDA said, as if that would make the public safer.

    The FDA has (un)wittingly placed the future of anti-smoking vapor product innovation in the hands of the largest cigarette companies, and our American “public health” groups have cheered them on. As a result, the FDA’s regulations will directly endanger public health over the course of the next three years by yanking responsibly manufactured vapor products from the hands of adult smokers and replacing them with the cigarettes they had been trying to give up. The FDA acknowledges that its antiquated regulations will eliminate 99 percent of vapor products from the market within two years. Under any mindset, eliminating options for smokers who are trying to quit is not sound public policy.

    Let’s be clear: As of Aug. 8, 2016, the FDA forbids every technology company in the vapor technology industry from offering any innovation or change to their products. As is the case with every other technology product, the technology innovates much more rapidly than government can regulate. Consider the short time it took to move from the iPod to the groundbreaking iPhone. Only a few years go by (sometimes only months) before new devices render old models obsolete. The same is true for vapor products. Right now, not a single change to any e-liquid or any battery or any component will be allowed without going through the FDA’s multiyear bureaucratic preapproval application process. In other words, no matter the significance of an innovation developed to enhance product safety, consumer safety or, for that matter, public safety, the FDA will place that safety innovation at the end of the incredibly long line of applications for keeping existing products on the market.

    Not only has the FDA banned innovation; it has locked into the marketplace products that the FDA claims—without evidence—are potentially dangerous. In other words, the FDA is forcing consumers for the next three or more years to rely on products that it claims are dangerous while at the same time prohibiting any changes that could be made to make those products safer. Once again, this is not sound public policy.

    However, we, as an industry, cannot simply sit back, complain about government regulation and fail to offer any solutions. Members of the Vapor Technology Association have been active across the globe in developing international product standards that protect children and ensure the safety and integrity of vapor products used by adult consumers. Now, we are bringing this constructive approach to Capitol Hill. We can and should do the same here in the United States, and several members of both parties in Congress took the first step toward a common-sense solution earlier this year.

    The answer: Support Cole-Bishop

    During a markup of the Agriculture, Rural Development FDA bill, U.S. Representatives Tom Cole and Sanford Bishop offered a bipartisan approach that would accomplish the goal of protecting small businesses and preserving the industry, while setting the stage for common-sense regulations that will protect youth and ensure the safety of consumers.

    The Cole-Bishop amendment is the first pro-vapor piece of legislation to actually move in Congress, and we need to capitalize on that support and momentum. No other piece of legislation has the opportunity to move in the few days left that Congress is in session this year.

    The language in the Cole-Bishop amendment is straightforward. First, it will keep thousands of small and mid-sized businesses, and their tens of thousands of employees, up and running by amending the “predicate date” from Feb. 15, 2007, to the effective date of the final deeming regulations. As importantly, the Cole-Bishop amendment does not limit the products regulated by the FDA. Contrary to misrepresentations made in the media and elsewhere, even with the Cole-Bishop amendment in place the FDA will have continuing authority to regulate all the newly deemed products on the market.

    Second, the Cole-Bishop amendment will restrict youth marketing and youth access to vapor products by limiting newspaper, magazine or other print advertising of vapor products to adult publications, requiring face-to-face sales, and requiring the FDA to issue labeling regulations within 12 months to include “Keep Out of Reach of Children,” “Underage Sale Prohibited” and accurate nicotine content. This necessary provision represents to those who might not have otherwise supported our efforts that we are a responsible industry committed to the highest-quality products, as well as the safety of adult consumers and children.

    Third, the Cole-Bishop amendment gives Congress the opportunity to address the issue of product safety by requiring the FDA to implement their rule-making on product standards for batteries within 12 months.

    Finally, the Cole-Bishop amendment merely requires retailers that are not already registered at the state level, to register with the FDA.

    Take action: #wearevapor

    It is up to you. We will only be successful if we stick together and make our voices heard. The Vapor Technology Association is issuing a call to action to all of the vapor product manufacturers, wholesalers, small-business owners and entrepreneurs, and all the customers that they serve.

    We urge everyone in the vapor community—industry leaders, manufacturers, small-business owners and consumers—to get behind this campaign that is already underway. Go to www.savevapor.org and get involved in our community-wide effort to save vapor. There you will be able to find your representative and participate in the #wearevapor campaign, a grass-roots effort to organize our community in a way to make your voices heard in Washington.

    As we all know, social media can be a powerful tool if we all come together around this common objective. This is how our vapor community’s first and only social media campaign directed at Congress works:

    Follow these three easy steps to make your voice heard:

    Take a photo

    Businesses: Take a photo in front of your place of business with your colleagues.

    Customers: Take a photo in front of your nearest vape shop.

    Tag your elected officials

    At www.savevapor.org you can look up the Facebook and Twitter handles of your two senators and one representative by using the Find Your Federal Officials module. Jot down the handles so you can tag them in your posts and tweets.

    Post your photo with a message

    Post your photo to Twitter and Facebook using #wearevapor and #supportcolebishop with one of the simple messages suggested by our public affairs team.

    All these details can be found at www.savevapor.org. Also, www.savevapor.org gives you many other advocacy tools to call your member of Congress and/or send him/her an email. Use social media as an avenue to make your position known. Write a letter for your local paper. Do your part to save the vapor industry now, before it is too late.

     

  • Sounding the alarm

    Sounding the alarm

    Having severely curtailed its tobacco industry, Canada is now going after the vapor business.

    By Luc Martial

    Luc Martial is a 25-year veteran of the tobacco wars in Canada, having held key postings in the tobacco control and national health communities, the federal government (Health Canada), and the industry. As a government-relations expert and lobbyist, Martial continues to argue and fight for public accountability in governments.
    Luc Martial is a 25-year veteran of the tobacco wars in Canada, having held key postings in the tobacco control and national health communities, the federal government (Health Canada), and the industry. As a government-relations expert and lobbyist, Martial continues to argue and fight for public accountability in governments.

    Fourteen years ago, I sounded the alarm, warning that Canadian governments were about to ban the display of tobacco products at retail. The market in Canada was about to go dark. Such a political initiative made no tobacco-control sense: At the time, 50 percent of each tobacco package was already covered by government-mandated graphical health warnings. (Today, the health warnings in Canada cover at least 75 percent of the pack surface; Quebec mandates 98 percent.)

    Prominently positioned within 40,000 points of sale across the country, these warnings had previously been touted as an important public health communication tool, allowing governments to warn potential new consumers against smoking, discourage current smokers from continuing and support those trying to quit.

    The industry, unfortunately, did not react swiftly or concertedly. Perhaps it couldn’t imagine that governments would abuse their authority to the point of publicly undermining their own public health agendas. But just walk into any corner store in Canada today and you’ll see just how far governments can go when left unsupervised.

    So what does this have to do with the vapor industry? Well, quite simply, as far as Canada is concerned e-cigarettes and associated products are the new tobacco. And governments are about to do to the vapor industry what they did to the tobacco industry.

    In Canada, the vapor industry is facing both federal and provincial governments, intent on overregulating their products and activities. It is worth noting at the outset that Canadian governments have a low tolerance for accountability. Public consultations have been marketed to the masses as due diligence and fair play, but to any experienced stakeholder, such consultations are just window dressing. Canadian governments have the authority—and predisposition—to arbitrarily destroy any industry they dislike.

    EMERGING MARKET AND LAW

    E-cigarettes, as a product category, first saw the light of day in Canada in 2007. They were sparsely sold outside of regular distribution channels and perceived mostly as a gimmick. But things changed quickly. Two years after the introduction of e-cigarettes into Canada, the federal government issued a public advisory, warning that vapor products had not been verified for safety by Health Canada and that the public should be apprehensive about ingredients such as propylene glycol and nicotine.

    Nonetheless, between 2009 and 2012, the e-cigarette industry in Canada grew exponentially. Innovations in vaporizers and related accessories, such as batteries, tanks and e-liquids, were well-received. Businesses, including general retail and specialty vape shops, increasingly found commercial value in distributing these new products.

    As for consumers, they came in droves. With and without nicotine, e-cigarettes allowed people to quit smoking tobacco where other cessation devices had failed. As a long-standing tobacco control expert, I was quick to recognize the potential of e-cigarettes in providing an alternative to minors who otherwise would experiment with combustible cigarettes. But you don’t have to be a tobacco control expert to figure that out—it’s common sense.

    By 2013, the government estimated that 9 percent of Canadians aged 15 and over—2.5 million people—had tried e-cigarettes. Many users were existing tobacco smokers, and only 25 percent of those surveyed reported that their most recently used e-cigarette dispensed nicotine. Consumers were turning to e-cigarettes as a way to never start smoking, reduce their tobacco consumption or quit altogether (2013 Canadian Tobacco, Alcohol and Drugs Survey).

    Interestingly enough, e-cigarette products were never marketed as health or smoking-cessation devices. That promotional momentum was purely self-generated among consumers. Adding to the popularity of these products, some physicians started reporting high smoking-cessation success rates among e-cigarette users.

    So how did the federal government respond? Underwhelmingly supportive. Instead of recognizing the promise presented by e-cigarettes, the government chose to create fear about using and selling these products. Federal government inspectors began arbitrarily issuing cease-and-desist letters to domestic distributors, general retailers and specialty shops. To their credit, many vape shop owners challenged the government, refusing to either cease or desist.

    Although the federal government ensured that no e-cigarettes or accessories containing nicotine were imported into Canada, domestically sourced product remained and prospered.

    Despite a March 2015 parliamentary review and regulatory action report, the federal government has yet to introduce a regulatory framework for e-cigarettes. But make no mistake; serious and stringent federal regulations are set to emerge. Fearing the “renormalization” of tobacco—through mimicry—along with a gateway effect, the Canadian government is considering regulating the new category under existing tobacco or pharmaceutical frameworks.

    As for provincial governments, their recent regulatory efforts have not only compared e-cigarettes to traditional tobacco products but even paired them with combustible cigarettes. Effectively, seven out of Canada’s 10 provinces now have convoluted laws regulating e-cigarettes/vaporizers and their accessories. Provinces have either defined e-cigarettes as tobacco or developed product-specific legislation.

    Current regulations include: prohibiting sales to those under age 19; banning the use of e-cigarettes in public places, restaurants, bars and outdoor patios; banning e-cigarette use in cars if a person under age 16 is present; banning displays and product signage in general stores; restricting displays and  product signage in adult-only stores; banning product sampling and instructional demonstrations; and banning promotions, advertisements and marketing activities overall.

    The most outrageous abuse of authority can be found in Quebec, Canada’s second-most populous province. Arguably the most anti-tobacco and anti-business jurisdiction in Canada, Quebec’s politicians in November 2015 introduced amendments to their tobacco law that set a dangerous precedent for all industries. Despite the clear differences between the product categories, Quebec defines e-cigarettes as tobacco. With the exception the tobacco flavoring ban thus far, all tobacco rules now apply to e-cigarettes, as well. One of the law’s provisions effectively excludes retailers from an exemption previously afforded to all industry stakeholders. This exemption? The ability to promote and advertise product within the trade. As outrageous as it may seem, it is now against the law in Quebec for manufacturers or distributors to: (1) show their products to retailers, either at trade shows or during in-store visits; (2) provide promotional samples to retailers; (3) send promotional information or advertising directly to retailers; or (4) allow retailers to access company websites to view and order product. It is also against the law for manufacturers or distributors to advertise and sell e-products through the internet, or to promote the category using social media. If a manufacturer or a distributor is located in Quebec it becomes illegal for them to advertise in a foreign or domestic magazine that is distributed in the province.

    If e-cigarettes are such an obvious benefit to smokers who want to quit and an ideal alternative for youth who would otherwise start smoking, then why are governments acting this way? The answer is that what’s currently happening is not about health or safety—it’s about politicians and anti-tobacco groups. Anti-tobacco groups rely on government funding derived from their attacks on all things remotely associated with tobacco, making e-cigarettes a perfect new target. By depicting these products as a potential threat to Canada’s tobacco control agenda, they are generating new wind for their sails. Out comes their playbook of orchestrated fear, statistical pump and dump, government manipulation and a martyred battle against Goliath. Consequently, to protect their reputations and funding, governments and anti-tobacco groups have every interest in publicly describing e-cigarettes as a gateway to tobacco.

    Left unsupervised and unchallenged, Canadian governments can be expected to introduce ever-increasing and unwarranted regulations against the vaping industry.

    WHAT TO DO?

    The vapor industry has an advantage not usually afforded to others. It knows who the enemy is and has seen its playbook. It should act swiftly and concertedly, before things go too far. To help prevent things from getting worse, stakeholders should consider the following actions:

    • Be present, everywhere, and insist on keeping everyone honest.
    • Sustainably expose malfeasance within governments and anti-vaping groups.
    • Work toward securing product-specific legislation for e-cigarettes, removing vaping products from tobacco regulatory frameworks.
    • Monitor, question and—if necessary—expose government surveys on the vaping industry to ensure accountability.
    • Provide a face to the industry by publicly promoting your consumers and their stories. As for those who quit smoking or avoided starting with the help of e-cigarettes—collect, maintain, distribute and promote their stories to every politician in Canada and the media. Their personal testimonies will likely prove the most effective tool for protecting the vaping industry.

    Welcome to the show.

     

  • Disruptor disrupted

    Disruptor disrupted

    The announcement of NJOY’s bankruptcy shows just how much the vapor market has changed.

    By Steve Hong

    Steven Hong is the principal and founder of Roebling Research.
    Steven Hong is the principal and founder of Roebling Research.

    A few weeks ago, I walked into the office and instead of a “Good Morning” I was greeted with the news that NJOY was bankrupt. I slumped down in my chair as I took in the new information. It felt like an ailing family friend had died much too soon.

    It wasn’t totally a surprise, but it’s sad because they were a company I admired. As industry pioneers, NJOY has been part of vaping in America since the very beginning. And of course, their role in the 2009 lawsuit against the FDA is part of industry lore.

    Of course, we still don’t know what the final outcome will be for the company. Someone may buy it or possibly pieces of it. But regardless, somewhere along the line, NJOY went from industry pioneer to industry has been. A quick review of some sales figures from their bankruptcy filing might clue us into when the downfall began.

    Gross Sales of its NJOY King product were $92.9 million in 2013. That number plummets to $22.6 million in 2014. By 2015, the company was earning less $7.5 million, a more than 90 percent loss.

    Sadly, it obvious that sales of NJOY’s disposable e-cigarette product began to fall off just when the industry started to see a seismic shift toward open systems. Go figure. Not to mention the increased competition within the cigalike sector from large tobacco companies with the introduction of products such as VUSE (R.J. Reynolds) and Mark-Ten (Altria).

    The reason this is doubly sad for me is because just a couple of years ago, I thought they were the one. NJOY was the company that would fulfill the promise that vaping held. They were independent. They had the right backing, prominent lobbying efforts and were employing some of the most professional people in the industry; a winning combination.

    From a market standpoint, they also had a large consumer base of vapers. But by 2014, NJOY’s customer base was ready to defect from the cigalike format to open systems. NJOY did get into open systems that year with the release of an ego-style kit with some basic juices for the c-store channel, as well as the Artist Collection, an artisanal line of e-juices for the vape shop channel. In a certain sense, they were the most diversified vaping company because they were able to play in all channels where vapor was sold.

    Though they were sometimes suspected of being affiliated with Big Tobacco by less informed vapers, their credibility as a grand daddy vapor company opened many doors for them. So what happened? Was it a case of falling behind in technology as consumer preference shifted to open systems?

    As I tried to answer this for myself, I thought of a line a college friend of mine would use to start conversations with girls he met at parties. He’d ask, “Would you rather fight seven 70-year-olds or 70 7-year-olds?” Now before you accuse me of child or geriatric abuse, remember, this was in the ’90s, when intellectuals on a liberal University of Wisconsin campus could ponder hypothetical scenarios asked to elicit a laugh because of the ridiculous nature of the scenarios and not be accused of being a horrible person. But I digress.

    This ridiculous scenario is exactly the one that NJOY found itself in. Would they rather fight against the handful of cigalike brands backed by major tobacco companies or would they rather take on the hundreds of e-liquid manufacturers and the thousands of juice flavors that they offer?

    If the choice is the cigalike route, you’re staying in a shrinking segment that may be less risky from a regulatory standpoint. However, you’re also competing with a limited set of brands who make very deliberate moves and have nearly unlimited funds.

    In choosing the e-liquid manufacturers, you’re in a fast-growing segment. And as a single product, NJOY’s brand recognition could easily outperform individual brands head to head. However, taken collectively, the market is difficult to impact. Both hardware and liquid manufacturers innovated quickly and released new products at a rapid pace. Also, given the fractured nature of the market, each competitor will likely get only a small slice of the pie.

    There is also the likelihood that NJOY’s financial structure was designed more toward hockey-stick-like growth of the cigalike market due to the anticipated rapid disruption of the analog cigarette market. When all of this started, no one thought that open systems would disrupt the disruptor.

    Ultimately, not keeping up with technology and consumer demand may have been the undoing of NJOY. It was a company built to do battle with the combustible cigarette giants in a market that is slowing disappearing. Most of the growth in vapor over the past couple years has been in open systems, while the cigalike market has been in a decline.

    I don’t believe that many vapers will mourn the loss of the NJOY King on store shelves, but from an industry perspective, we will likely mourn the loss of a leader. No other company has been better able to span market segments and reach all the “tribes” in vape. Especially at this moment of uncertainly, the void left by NJOY leaves me feeling a bit uneasy.

  • Staying relevant

    Staying relevant

    Innovation continues even in the time-tested roll-your-own and make-your-own tobacco categories.

    By George Gay

    Are the roll-your-own (RYO) and make-your-own (MYO) categories innovative and dynamic, do they constitute an appendage of the smoking tobacco division of products that should have atrophied years ago, or do they lie somewhere between those extremes? I tend to the view that these are innovative products, but possibly not in the way that innovation is usually understood. Product innovation is normally the result of changes wrought by the manufacturer, perhaps after formal or informal consultations with consumers. But whereas this sort of innovation is delivered to some extent in the case of RYO and MYO, to my mind, the more important innovations are those that the consumer can conjure up because of the flexible nature of the materials that manufacturers offer.

    It hardly needs to be stated that whereas factory-made cigarettes are bought as a product that is ready to consume, RYO and MYO comprise items that have to be put together before they can be enjoyed. And whereas flat-packed furniture, for instance, should be put together only in one way (assuming you want opening rather than just decorative doors), MYO and, especially, RYO can be put together in many different ways—even with panache. Think of the huge number of blends that could be made by combining in various ratios two or more of the main types of fine-cut tobacco on offer—American-blend, Virginia, “zware” and “half-zware”—and then add in what one industry insider described as the “bewildering array” of cigarette papers on offer.

    And while it is useful to talk about RYO and MYO as if they are completely different categories, it should be remembered that sometimes the divisions between them become blurred. Indeed, in the U.S., there is no difference, except for the small amount of “shag” that is rolled exclusively. The purpose of MYO cigarettes is to mimic factory-made cigarettes (FMC); so, generally speaking, in Europe MYO tobacco is expanded while RYO tobacco is not. In addition, MYO tobacco has shorter strands than does RYO tobacco and is sold with a lower moisture content. But, as one observer noted, RYO and MYO tobaccos tend to form a spectrum rather than two distinct categories.

    In the same vein, it is necessary to bear in mind that it is somewhat misleading to talk of FMC, RYO and MYO smokers because a lot of smokers will smoke both FMCs and RYO, or FMCs and MYO, and, presumably, some will smoke all three.

    Staying relevant

    Ryan Hopkins
    Ryan Hopkins

    This flexibility must be one of the reasons why RYO has been around for so long. During a visit to Imperial Tobacco at the beginning of August, I was told by the company’s senior global category and innovation manager, Ryan Hopkins, that Imperial’s Golden Virginia brand, which is one of the world’s top-selling RYO tobaccos, would next year celebrate its 140th anniversary. And it is something of a baby. Gorgi Keckarovski, the global brand manager with Imperial’s Rizla business unit, told me that the Rizla brand of cigarette papers dates back to 1796.

    Republic Technologies International’s (RTI) OCB brand of cigarette papers, meanwhile, has been around for 190 years, during which time it has hugely expanded its reach. RTI’s managing director, Santiago Sanchez, told me that his company’s cigarette paper booklets now come in more than 100 formats—one product for each segment of consumers in the various countries and regions where they are sold—and format diversity must be one measure of innovation.

    Of course, in the case of products with such long histories, most of the big manufacturer-introduced innovations have been done, and now it is mainly a matter of making sure that the products are tweaked regularly so as to keep them relevant. And this tweaking is perhaps more important than it appears to be at first sight. Hopkins mentioned that much of what Imperial had done with its RYO and MYO brands during the past 10 years had been aimed at helping smokers stay away from the illegal trade in tobacco products. “As more tax is levied on FMCs, more smokers are looking for cheaper ways to smoke,” he said. “And if you don’t offer them legitimate product categories that offer value, they will buy counterfeit or smuggled brands from the guy in the pub.”

    The biggest major innovation, I guess, saw RYO beget MYO, which required the development of filter tubes and the home machine for inserting fine-cut tobacco into the tubes. But there have been plenty of other important changes. The increasing availability of good-quality expanded tobacco, for instance, has helped the MYO category maintain its value proposition. And there is now a movement away from MYO’s traditional tub-and-bucket packaging toward square formats.

    Sanchez said that his company had launched the long filter tube—24 mm as opposed to 15 mm—and a shorter, smaller-diameter mini tube. And it had been active in creating table injectors, which were proving very successful in a number of markets, including those in the U.S. and Germany. A good innovation, he added, had been RTI’s “inject-a-roll” machine, which allowed the tubing of any kind of tobacco, including that specially designed only for RYO.

    In the U.S., where Republic Tobacco is the biggest distributor of smoking tobacco, cigarette papers, filter tubes and accessories, the company’s marketing director, Tamas Malacsina, said it was constantly working on improving product quality. “The biggest innovation in the past couple of years was the introduction of electric cigarette machines,” he said. “We introduced PoweRoll in 2014, and it quickly became the leader in the electric cigarette machine segment.

    On the RYO side, Hopkins mentioned the arrival of the zip-lock pack, which Imperial first launched in the U.K. but has since been rolled out across other markets by Imperial and other companies. As its name implies, the zip-lock pack helps retain the freshness and general quality of the tobacco for longer, an increasingly important factor as tax-induced tobacco price rises mean that smokers try to eke out their tobacco for longer.

    Getting slim

    Gorgi Keckarovski
    Gorgi Keckarovski

    Imperial and RTI mentioned the introduction of the biodegradable filter made from paper rather than acetate tow, and the arrival of smaller and slimmer filters to cater to smokers’ tendency to roll thinner cigarettes. And in the same vein, the two companies talked about the launch of unbleached cigarette papers made of various materials, and papers that were extremely light and translucent. Keckarovski said that thinner papers were being launched regularly as smokers, especially those in the West, were tending to roll slimmer cigarettes. For the uninitiated, thinner papers are preferred as cigarettes become slimmer because, otherwise, the taste of the paper can become a noticeable factor in the smoking experience. Meanwhile, Sanchez said that, with OCB Ultimate, Republic had introduced a cigarette paper with a weight of 10 grams per square meter, which he described as the finest paper available.

    It is difficult to know why there has been this tendency toward rolling slimmer cigarettes, but it probably has to do in part with smokers wanting to control their consumption and expenditure. Another factor, however, could be the fact that some of these rolled cigarettes are being smoked during short breaks taken outside pubs, and in this case, the development of smaller filters and thinner papers could be seen as regulation-driven innovation.

    It is even the case that some regulation can be seen, though not necessarily welcomed, directly as “innovation,” as is the case with the EU’s revised Tobacco Products Directive (TPD2) and its insistence on a minimum 30-gram pack weight for fine-cut tobacco. It is too early to know what effect this change might have on sales because, in the U.K., for instance, retailers have until May next year to sell stock manufactured before the cut-off date for the production of smaller packs, May 2016. But the chances are that it won’t make a lot of difference. As Imperial pointed out, there can be few consumer products that have been the subject of so much legislation as has tobacco, with the consequence that smokers now take it in their stride. Presumably, such a positive attitude will stand them in good stead as the prospect of Brexit raises a host of other unanswerable questions.

    Nip and tuck

    While a lot of RYO and MYO innovations were introduced some years ago, at least one has its roots in 2015. Michael O’Malley, president of Curved Papers, is not bashful when describing his patent-pending cigarette papers, which, as the name implies, have one curved edge. “I think Curved Papers will rock the world,” he said in an email. “Everybody loves them, and they have a jaw-dropping effect when experienced users use them for the first time. They don’t switch back. I think that in five years half the papers in the world will have a curved edge.”

    O’Malley says that Curved Papers solves what he sees as the classic RYO problem. “When you don’t keep your top and bottom edge parallel, the front corner doesn’t tuck,” he explained. “It goes up instead of down. This is the same problem that cut corners solved, but Curved Papers are 10 times better than are cut corners as a solution to this problem, and they offer the additional benefit of making them even easier to roll. Besides eliminating the catching corner completely, they give you a smooth edge that can be rolled straight up every time.” Later, O’Malley made the point that “ease of use is a great thing to sell in any industry.”

    And the innovations keep coming. O’Malley said his company was making tobacco wraps, called Curved Blunts, and another type of wrap that was made of cannabis. It was making also biodegradable hemp tubes to replace the plastic tubes that joints come in at cannabis dispensaries in the U.S. and Canada. The cannabis industry was being implemented in some not-green ways, O’Malley said, and his company was not happy with such developments. “We continue to strive to make our packaging more minimal and more green,” he added.

    O’Malley first mentioned cannabis in response to questions about the state of the market. Different observers had different takes on the market, but from what they said I would surmise that the overall market for RYO and MYO is broadly flat, with the MYO sector—concentrated mainly in Germany, France and the Benelux countries—perhaps performing marginally better than the RYO sector—concentrated mainly in the U.K., the Netherlands, Germany, France and Italy. But there are some encouraging signs. The profile of the typical RYO and MYO consumer is widening to take in more age and social groups. And Sanchez said that he was starting to see some growth in places such as South America and Asia, though these new markets, he added, still had a long way to go until they reached European levels of consumption.

    O’Malley, talking about North America, made the point that as tobacco was going down, cannabis was coming up. Cannabis held the largest potential, he said, though he was quick to point out that, for the time being, legislative changes were not increasing the cigarette papers market significantly since people had been smoking what they wanted to smoke for years. O’Malley said that his main markets for papers were Canada and the U.S. states where cannabis was legal. Then came European head shops. “Next will be the rest of the U.S., when we get our FDA order for our new brand Easy Edge,” he said. “Then the U.K. and the rest of Europe.”

    Increasing competition

    Of course, if the geographic, demographic and usage aspects of the market are expanding, it is likely, too, that competition will expand as new players see opportunities appear. Hopkins believes that RYO and MYO have always been competitive sectors and that the trend of the past decade has been for more competition. The bigger manufacturers were launching RYO brands with the same names as FMC brands as more smokers moved to RYO.

    Sanchez, too, said that these sectors were becoming more competitive. “Newcomers, mainly from Europe, are appearing and, unfortunately, with the only sales argument of being ‘cheap,’” he said. “More worrying news comes from China, not only because in our opinion some of its products do not meet the minimum quality criteria but also because it is the source of fakes that are difficult to control.”

    O’Malley took the view that the market situation was complex. Yes, he said, there was intense competition, and there were major players that were very hard to compete with. Also, due to advances in printing, everyone could have their own rolling papers. The white-labeling business was a whole new thing. There was such a strain for innovation that people would try anything.

    Not surprisingly, the man who started BeMade, Luc Van de Perre, is keen that more players should enter the cigarette papers market because his company supplies the machinery, technology and expertise to allow companies to set up their own papers manufacturing businesses. He told me in an email exchange that whereas the RYO habit was growing geographically, cigarette papers were made by fewer than 10 manufacturers and were generally made in Europe. “The fact that there are still no producers in the USA still amazes me,” he wrote.

    Technology, he says, is key, because while a booklet of cigarette papers seems to be a very simple product, the technology needs to take bulk paper through the processes of watermarking, gumming, interleaving, packing, box making and filling.

    Van de Perre, who has spent nearly all of his working life in the tobacco industry, including spells as a papers production manager and process development manager, said that he realized in 2005, the year that he started BeMade, that the next generation of papers machinery had to be format-flexible so that there would be no need for a manufacturer to invest in several machines. “This is not only true when a manufacturer has just one machine, but applies when it has more machines, because the need for capacity in the different formats can vary a lot when a manufacturer is supplying private-label customers,” he said. “This built-in format flexibility should allow also for the creation of new formats with an acceptable level of investment.”

    Innovation seems set to continue. As O’Malley said: “This is a little bit of a golden age of innovation, the likes of which has not been seen in rolling papers since the ’70s.”

  • The passion pit

    The passion pit

    Stakeholders talk nicotine in Warsaw

    By George Gay

    Just before the start of the consumer advocates meeting, which was one of three parallel sessions that kicked off the Global Forum on Nicotine (GFN) in June, one of the panelists asked another, “Who’s in charge?”

    It was to prove to have been a good question. Although the meeting was well-run (in Euro 2016 football competition terms, say, the referee let the game flow), there was always a sense that anarchy could break out at any moment—an anarchy born of passion. Of course, there was plenty of passion to be found elsewhere at the forum as scientists showed their frustration at having to counter the media stories emerging from the publication of poorly designed and misleading studies into noncombustible tobacco and nicotine products, and as tobacco control advocates expressed dismay that some of their colleagues refused to embrace the concept of smoking harm reduction. But such academic passion is not on the same scale as the passion stirred in people who believe that various authorities are trying to ban or restrict products those people see as lifesaving and, indeed, life-enhancing.

    In fact, though the 2016 GFN, which was held in Warsaw, Poland, had as its theme “Evidence, accountability, transparency,” a subtheme was surely passion. And there should be no surprise here. This year’s GFN, the third such meeting, attracted 350 participants—including 40 speakers—from 55 countries, which put it a little over capacity. It attracted consumers, scientists, regulators, manufacturers, distributors, public health professionals, policy analysts and media representatives. And, crucially, these participants came in different shapes and sizes; so, unlike at some conferences, they weren’t all in agreement.

    Lack of vision

    In fact, the passion was there from before the start of the formal sessions on June 17 and June 18 because, prior to the forum’s social event on the evening of June 16, participants had the opportunity to attend a viewing of A Billion Lives, a documentary by Aaron Biebert that traced the history of the tobacco industry and the emergence of lower-risk products, mainly vapor products. The documentary showed, with a passion that film can provide so well, how the promise of these new lower-risk products was in danger of being squandered by some of those with vested interests in their not being successful and by those too set in their ways to embrace this new phenomenon. And clearly there are a lot of people with such vested interests and with such lack of vision.

    Step forward the World Health Organization with what one forum participant described as its policy-based evidence, and its secretive offspring, the Framework Convention on Tobacco Control with its bizarre—given that it is purportedly committed to harm reduction—insistence that smokers consume licit cigarettes rather than illicit cigarettes—or, heaven forfend, vapor products.

    Step forward the EU Commission and its revised Tobacco Products Directive with its vapor product provisions seemingly aimed at nagging these products out of existence. And step forward the U.S. Food and Drug Administration (FDA) with a perfect demonstration of the science of obfuscation. The FDA has taken a long look at vapor products and turned what is a simple concept into an incredibly complex one. If the courts don’t rein in this agency, it will strangle these products in gobbledygook, which should be the subject of prominent, graphic health warnings. The irony is that in the one area where consumers could use some help—the area of exploding batteries—the relevant agencies seem to have completely failed.

    If these organizations cannot help consumers, they should be removed from this field. Consumers are perfectly capable of navigating their way around vapor products. And as one forum participant suggested, vapor products are simply not risky enough to spend energy and resources on regulations beyond those to do with their construction.

    Passion and compassion

    But perhaps the forum’s passion subtheme should be expanded. One of the participants said that she had been hugely encouraged by the passion and compassion that she had seen displayed during the event. And her observation was spot on. A vapor advocate who spoke made the point that while the vapor sector had made alliances with various groups, including with public health, smokers had tended to be sidelined. He asked whether it wasn’t time to invite smokers—whom he described as the nine-tenths of the smoking/vaping iceberg still submerged—to take part in the debate. That is worth thinking about from two perspectives: from the perspective of whether this isn’t a good idea in itself, and from the perspective of how a person fighting against the odds to advance the cause of vaping still had enough energy, courage and compassion to speak out on behalf of those who so far have continued to smoke.

    He wasn’t alone. A number of speakers made the point, one way or another, that while smokers should be encouraged to quit their habit, they shouldn’t be bullied into doing so by being marginalized socially or being ground under foot by unconscionable levels of taxation. In fact, the word “quit” seems to be becoming something of a dirty word. Smokers shouldn’t be encouraged to quit, it was said, but to shift to less risky products.

    There was, in fact, a general groundswell of sympathy for smokers, who tend to be relatively less well-off financially. It was pointed out on a number of occasions that these smokers, especially those living outside the developed countries, but in some cases indigenous people living in developed countries, would find it difficult if not impossible to access vapor products, given the initial outlay necessary. And in the future, of course, it is possible if not likely that vapor products will, like cigarettes, be taxed.

    If this is starting to make the forum sound like a late 1960s love-in, that’s probably because it was to some extent. And, of course, there are dangers here. As Mr. Lebowski was all too keen to point out: “Condolences! The bums lost!” But while there are similarities with the late 1960s, there are differences, too. The dreams of the 1960s were summoned up partly by the consumption of illicit products, whereas the movement in evidence in Warsaw is based partly on—in most places at least—a licit product. Also, importantly, in the 1960s the “straight” community was still in thrall to the existing social, economic and political structures, whereas now it is looking at structures fracturing in the realization, post-2008, that they are, if not rotten, in need of considerable remedial work.

    Division

    I have to step a little carefully here because I have introduced a division between licit and illicit products, and the GFN was most decidedly not about division. One speaker made the point that the use of heroin blighted lives, not because it was inherently dangerous but because its categorization as illicit often led to the use of contaminated equipment to deliver a degraded product obtained from criminals.

    But there was one division that I noticed, and that was in A Billion Lives, where there were no interviews with the major tobacco manufacturers about harm reduction. I can understand why this was the case, but I think it was a pity. Say what you like about the major tobacco manufacturers, but, after a late start, they seem in general to be trying to advance the cause of harm reduction. It might be the case that independent suppliers of vapor products are more consumer-friendly and more innovative, and it might be the case that the major tobacco manufacturers are seen to be being handed an advantage because of their ability more easily to meet regulatory demands, but it has to be acknowledged that the bigger manufacturers have the financial and intellectual resources to make an important contribution.

    To my way of thinking, the film dwelled too long upon the undoubted misdeeds of tobacco manufacturers in the past. These are generally well-known. What we need to focus on—as indeed the film did—is the one thing that matters: helping those smokers who want to do so to shift from tobacco cigarettes to less risky cigarette substitute products. This is certainly not, to my mind, an argument for increasing the participation of the major tobacco manufacturers at the GFN; they can all too easily take over such forums. And I don’t think that anybody should take their eyes off these companies’ lobbying and competitive arrangements. But it is undoubtedly the case that their scientists have an important contribution to make to debates surrounding harm reduction.

    I should point out, however, that while the film sidelined the major manufacturers in respect of harm reduction, the GFN and its participants didn’t. At the start of the consumer advocates meeting, attendees were asked to explain who they were, and one person, representing a major manufacturer, added that he was sitting at the back in case the other attendees tried to kill him. But I can report that the man left the session unharmed.

    Which is how it should have been. The forum, after all, was largely about harm reduction. Journalists were told during a press conference before the opening that the number of smokers was increasing worldwide and that during this century 1 billion people were expected to die prematurely from causes related to smoking. But while there were available nicotine-delivery devices whose consumption was 90–95 percent less harmful than was smoking, some people and organizations were discouraging their use through the application of bad science, scaremongering and poor legislation, often concocted behind closed doors. As one person said, people had been lied to—they had been told that vaping was as harmful as was smoking.

    The encouraging thing is that in some jurisdictions at least consumers are savvier than they are perhaps given credit for. The point was made well enough that, for some people, e-cigarettes made giving up smoking enjoyable, which is presumably why 6.1 million people in the 28 member states of the EU are said to have quit smoking using vapor products. (It is necessary to say “quit” here because some of those who stopped smoking might also now have stopped vaping.)

    But consumers have to be given a fair go. It is worth mentioning that the severity with which some countries treat people involved in the e-cigarette trade is difficult to comprehend, given that all but the one-eyed must admit these products have the potential for delivering huge public health improvements. It was mentioned during the advocates meeting with which this piece starts that people in Australia and India had been treated with what I could only describe as irrational vindictiveness. It makes you wonder who is in charge of such matters in these countries.

    The GFN presentations are at: https://gfn.net.co/2016-presentations.