Pujadas of Barcelona, Spain, is celebrating its 125th anniversary this year, marking a major milestone for the family-owned business that has experienced a series of ups and downs throughout the decades and is currently enjoying considerable success in a highly competitive industry.
Pujadas’ roots can be traced to 1890, when Domingo Pujadas i Amigo founded a business with a focus on marketing chemicals for the textile industry. Twenty-five years later, the company had expanded its scope and extended its activities to include the manufacture of adhesives, sulfonated oils, softeners and auxiliaries for the textile, tanning and papermaking industries. By 1917, Domingo Pujadas i Amigo—a man well-known for his entrepreneurial spirit—became a founding member of the American Chamber of Commerce in Spain, where he worked to promote and develop new international alliances.
Four generations of Pujadas.
When Europe entered World War I, a wide array of raw materials was needed in order to supply and sustain the ongoing warfare, requiring Domingo Pujadas i Amigo to offer the support of his chemistry solutions to numerous European companies during the war. Following the social and political strife of World War I, as well as the passing of Domingo Pujadas i Amigo, his nephew, Josep M. Pujadas Badia, continued the family tradition and took control of the company in 1924. With Badia at the wheel, the second generation of the business was born, and the company began to expand its post-war activities—namely extending its business to the manufacture of sulfonate oils, softeners and auxiliaries for both the tanning and papermaking industries.
Though Pujadas had begun experiencing success manufacturing products for use in various industries, the company soon found itself face to face with two significant hurdles: the Spanish Civil War, from 1936–1939, and World War II, which lasted from 1939–1945. Because Spain was placed under a closed dictatorship system from that point on, the third generation of the family-owned company was forced to primarily develop the business from the Iberian Peninsula. Brothers Josep M. Pujadas i Calzada and Domingo Pujadas i Calzada greatly expanded the company’s manufacturing initiatives, and Pujadas soon had a presence within the food and beverage labeling industry—a significant new activity to add to the company’s growing portfolio.
Marc Subias Pujadas
In 1960, under Josep Pujadas Domingo—the fourth generation to take a leadership position in the family business—the company made its foray into the tobacco industry, manufacturing industrial adhesives for cigarettes, and six years later, construction of a new 1,300-square meter plant in Barcelona began. In 1970, the company’s export activity was well underway, with Pujadas supplying industrial adhesives throughout Europe, the Middle East and Africa, and another new plant and laboratory was constructed in 1980. With a decades-long dictatorship coming to a close, and the start of the transition to a democratic system beginning in Spain, the company sought to initiate a second stage in its international endeavors.
In the 1980s, a new location with the capacity to produce 14,000 tons of product per year was constructed, giving Pujadas the ability to develop its production capacities and further expand its international presence. And in 1990—the year that marked Pujadas’ 100th anniversary—the doors to a series of new offices on the 12,000-square-meter premises that house that plant and laboratory were opened.
At the turn of the 21st century, Pujadas’ international presence blossomed into global expansion within the tobacco industry. Led first by Raimon Pujadas Uriach and currently by Marc Subias Pujadas, the fifth generation to run the company focused on the development of the business with multinational cigarette companies. Today, Pujadas is present in more than 35 countries and has started its expansion in new areas, including Southeast Asia and America. With a focus on innovative formulations and best international manufacturing practices, Pujadas currently plays a significant role within multinationals’ supply chain networks.
Pujadas’ development in the cigarette industry is opening the adhesives category, offering to the cigarette industry new alternatives and a long-term competitive category, providing the industry with significant new options and innovative solutions. With more than 55 years of experience in the industry, homologated at all the multinationals, working also for significant independent cigarette companies and daily partnering with major OEMs, the company is promoting a more balanced adhesive category, in mutual interest of all the agents of the tobacco industry.
The company also prides itself on diversifying its product offerings as well as formulating and distributing “green” and healthy chemical specialties with a focus on reducing energy consumption and increasing environmental efficiency during the production and manufacturing phases.
After obtaining ISO 14001 and OSHAS 18001 certification in 2010, Pujadas set out to analyze and control its carbon footprint, reduce emissions and improve its waste management initiatives.
Keeping a close eye on the environmental impacts of manufacturing adhesives for the past half-decade, the company now boasts a greener product range that includes sustainable raw materials and glues that are based only on ingredients that can be classified as completely natural.
With 125 years of experience under its belt, Pujadas is well-positioned to offer innovative new alternatives to the adhesives used in traditional cigarettes and to infuse a breath of fresh air into an industry that has begun to demand “green” adhesives derived from natural and sustainable sources. As the company celebrates its 125th year of operations, Pujadas continues to keep a close eye on the environmental impacts of the development of its products while striving to be recognized as a world-renowned global adhesives company that provides exceptional formulations and chemical solutions for not only the cigarette industry but also an assortment of additional industrial sectors for another century to come.
Changing consumer preferences and stricter regulations bring about a range of new business opportunities for suppliers of tobacco testing equipment.
By Stefanie Rossel
“Transition” is probably the word that best describes the state the tobacco industry has been in for some years now. In 2013, global cigarette sales volumes shrank for the first time, even when including China. At the same time, a new product category, electronic nicotine-delivery systems (ENDS), experienced unprecedented growth and sparked further innovation, such as heated tobacco products.
Regulation continues to increase around the world, the implementation of the revised Tobacco Products Directive (TPD2) in the EU and the launch of the Food and Drug Administration’s (FDA) deeming regulations in the U.S. being the latest examples. Following these developments, the leading tobacco manufacturers have closed down many of their cigarette factories in developed markets and concentrated production at other sites, mainly in Asia.
Whether the changing business environment presents more challenges or more opportunities to suppliers of laboratory testing equipment depends on various factors, including their specific focus, their ability to adapt to customers’ evolving needs and, of course—the great unknown—the future development of the ever more fragmented tobacco products market.
“The big majority of the testing equipment for the tobacco market so far was designed to meet the requirements of uniform products, such as conventional cigarettes,” says Marc Naruga, managing director of Borgwaldt KC, a German supplier of smoking machines and equipment for physical testing. “While these requirements still have to be satisfied, a complete new field of next-generation products [NGPs] have arisen on the market. [These products] vary in shape, size, function and testing requirements from the conventional tobacco product. Enhanced engineering and customization is necessary to meet these new requirements.”
In terms of testing instruments, he adds, the market is moving away from a “one size fits all” approach toward a customized-solutions philosophy. “Working in such a transition time requires adjusted skill sets for the entire company, adding to a manufacturer of testing equipment the agility and know-how of an engineering company,” says Naruga.
Meanwhile, regulation is affecting testing equipment suppliers in different ways. More manufacturers are seeking the services from suppliers of testing and testing equipment, according to Mike Taylor, director of scientific development at Essentra Scientific Services. “Many manufacturers prefer independent testing of their products for regulatory purposes from reputed and accredited laboratories, allowing them to highlight that their products have been tested externally and giving credibility to the validity of the results.”
In contrast, Juergen Kroeger, key account manager of tobacco at Tews Elektronik, has noted considerably reduced investment in new equipment following the introduction of TPD2: “The industry was occupied with internal projects to fulfill TPD2 requirements. We expect that the industry’s investments into measurement equipment will get back to normal from next year on when all regulations have been fulfilled.”
A similar effect came from cigarette manufacturers’ efforts to optimize their production footprints. “Clearly we are seeing a reduced demand for instrumentation, as there are a lot of plant consolidations and closures; though, having said that, China after a period of delayed business is now opening up again,” says Ian Benson, global marketing director of NDC Technologies.
“For companies like NDC, with a large installed base of instrumentation, there will continue to be a replacement market which in itself will be quite significant,” he adds. “This is offset with the industry change where plants that are closing redistribute their instrumentation; in the past this would not have happened.”
Benson says NGPs could represent an opportunity for his company. Heated tobacco products in particular require many measurements. However, if NGPs end up being dominated by vapor products, the future may be less rosy for traditional tobacco instrumentation suppliers. “We are keeping a careful eye on the changes,” says Benson.
More complex requirements
As the market gets more complex, so do customers’ requirements for analysis. Manufacturers are asking for more precision, greater flexibility, further automation, more consistent results and the ability to measure more parameters, among other things.
In vitro testing, too, is becoming more important. Paul Glenn, sales and marketing director of Cerulean, says there is increased emphasis on compliance with current good manufacturing practices and good laboratory practices. “Layered on this are the demands of regulatory testing, which have driven so many thoughts in the last 12 months,” he says.
“The world is changing at a faster pace,” observes Hannjoerg Steiner, sales and business development manager at Carl Zeiss Spectroscopy. “Yesterday it was enough to measure moisture with a lot of drawbacks of an outdated technology; now the customer wants to understand his whole process, for example in the primary, by measuring all parameters. The future will be the ‘industry 4.0,’ which means that web-based communication between PCs, machines and humans is the name of the game; our equipment has already been designed for these challenges,” says Steiner.
“Customers want to get more connected instruments with quicker response and less labor cost,” says Eric Favre, managing director of Sodim. “Besides, they are in a hurry to develop new smoking products, and testing equipment suppliers have to adapt and respond more quickly than in the past. These new smoking products need, for example, automatic aspect/visual controls requiring new types of sensors like cameras or, for vaping products, a new range of devices.”
According to Naruga, many of the new tobacco products also have testing requirements that cannot be fulfilled by today’s equipment, so new, different testing methods are needed, as well.
A host of novelties
Recent developments in testing equipment and services reflect instrumentation suppliers’ efforts to serve the evolving market. Essentra Scientific Services, for example, has greatly increased its capacity for e-cigarette testing ahead of TPD2. “We have a seen a large increase in testing of these products over the last three to four years,” Taylor explains. “In addition, the TPD has driven a significant number of enquiries this year as customers aim to meet the requirements.”
Glenn has also noted considerable TPD2-related activity as e-cigarettes manufacturers, particularly those outside the Big Tobacco fold, must decide whether to develop in-house testing and quality- assurance facilities or contract those activities to a third party. “Consequently, there has been a notable expansion of testing capability in the industry, and this has demanded more equipment to perform tests,” he says.
Cerulean is constantly developing and evolving products and aims to bring two or three new products to market each year. “Over the past 12 months our focus has been very much on laboratory testing. Inevitably, with the adoption of the deeming regulations in the U.S. and TPD2 in Europe, this has meant testing of products other than the traditional burn-down cigarettes we are familiar with,” says Glenn.
“We have released a high-volume smoking machine specifically designed for testing emissions from shisha tobacco, a 20-port e-cigarette vaping machine to up the throughput in ENDS testing over our utilitarian CETI8 machine, and we are just about to release the Orbit 20, which is a rotary smoking machine optimized for intensive burn-down regimes and quick changeover for ENDS testing. This last product has taken the research that shows the inconstancies associated with large capture dead volume and eliminated these in a reliable mechanical package,” he says.
According to Glenn, new product categories are always challenging, as the certainties of testing traditional products are no longer there.
“There is a desire to service customer needs, and we have had to take a view on these products and try to anticipate what will be required for testing—often when the people making these new devices are equally unsure what they require!” he says. “We identified a need for e-cigarette testing and produced a modestly priced vaping machine before the needs of this new category were known. The rapid development of emission testing standards led the way to obvious test equipment improvements.”
In June 2015, Coresta published a recommended method for aerosol generation with a puffing regime that is used by many laboratories. “Consequently, in nine months we went from the MK1 to MK3 as these needs emerged,” says Glenn. “The next development in heat-not-burn or e-cigarettes may bring with it the need for equally radical products and an equally rapid development cycle.”
Focus on NGPs
For Vitrocell, the changes in the tobacco landscape have generated additional business, too. In the past 12 months the company has introduced more than 10 new products in the areas of exposure systems, smoking machines and dosimetry, according to managing director Tobias Krebs.
“For the requirements of smoking e-cigarettes as well as conventional cigarettes we introduced the smoking machine VC 10 S-Type,” he says. “The machine has a new platform concept, which allows for easy handling, fast cleaning and quick product change times. In this product segment we also just introduced our new multichannel VC 1 smoking machine with up to eight independently working syringe units, which perfectly complement our exposure systems for higher throughput, such as the well-characterized Vitrocell 24/48 system. The new Ames 48 and 6/48 systems for mammalian cells are also based upon this technology.”
Following the customized-solutions philosophy, Borgwaldt KC has launched a family of smoking machines covering several applications. “This family consists of a syringe module hosting also the control unit, as well as several smoking or even vaporing racks for applications such as smoking conventional cigarettes or cigars but also e-cigarettes and heat-not-burn products,” says Naruga.
“Either mainstream smoke or sidestream smoke can be captured, and even an add-on module for in vitro smoking is available,” he adds. “In addition, Borgwaldt KC debuted a new rotary smoking machine designed for efficient and fast rotary smoking under Health Canada’s “intense” standard. Concerning physical testing we have added to our portfolio a module to determine pressure drop of vaping products to satisfy the increased demand for such a device.”
Meanwhile, Borgwaldt KC’s sister company, Analytical Service Laboratory (ASL), has extended its range of analytical services. “Together with Hauni Maschinenbau, Borgwaldt Flavor, ASL and Borgwaldt KC, a competence center has been established to look at new vaping and heat-not-burn products or conventional products with new features in their entirety. It is unique to offer customers consulting and guidance as well as product solutions completely out of one hand covering manufacturing, flavoring, liquids, analytical testing service, as well as testing instrumentation.”
Assuring quality products
Sodim offers a range of modular “plug and play” solutions for rod analysis, including a rod channel-detection system designed to recognize off-line the family of cigarettes and, in the case of a double rod maker, the channel that produces the cigarettes. It is compatible with different makers and filter colors.
There are also a section inspection system, designed to analyze any type of rod with a high- performance camera, and a cutter module. The latter has been developed to reduce the labor required for preparing samples for the Sodiline series test station, with which all systems are fully compatible.
Sodiscan-MWS, a fast automatic measuring device, detects capsules inside a rod. “Because of TPD2, the pack design will no longer be a differentiation factor of the brand,” says Favre. “The differentiation is now made inside the cigarette packs, mainly through the filters section. This new approach has been taken into account by Sodim in its strategy of product development for analyzing/controlling this particular visual aspect.”
Tews, meanwhile, is constantly developing its software and hardware. Recently the company implemented a hardware upgrade that doubled the accuracy of its MW 4420 test station. The industry, says Kroeger, requires quick and precise determination of the moisture content at all relevant measuring spots in a primary department. “Tews lab instruments deliver results within a second while drying ovens or other methods require up to half an hour or even more,” he says.
Two measurement options
In the primary, as well as in green-leaf threshing, the main parameters remain moisture and oven volatiles, nicotine, and sugar. As regulation increases, however, customers are interested in additional parameters, such as menthol, nitrates, chloride, ammonia and glycerin. How these can be best analyzed has become a matter of debate in recent years.
Perten Instruments believes that diode array (DA) near-infrared technology (NIR) is the way to go since it accurately measures moisture and total volatiles without the need for constant recalibrations. At the end of 2015, the company introduced the DA 7440T on-line NIR diode array sensor. “Seamlessly integrating into existing control systems, the unique capability of the DA 7440T separates it from previous generations of moisture meters with its ability to provide full spectral analysis of more components of tobacco and additives than is possible with older filter technology,” says Malcolm Littlewood, business development manager at Perten.
The company also launched the DA 7250, an at-line/laboratory spectrometer that provides rapid analysis of product samples. “The performance of the instrument is equivalent to the reference method but providing results in less than 10 seconds,” says Littlewood. “Using the same spectrometer design as the DA 7440T, it provides a valuable reliable link to validate on-line instrument performance whilst maintaining the standard analysis reference method.”
According to Perten, both the DA 7250 and the DA 7440T require only one calibration model for all of a customer’s tobacco blends, thus reducing laboratory work. As both instruments utilize a “full spectrum” design, effects of ambient conditions are accounted for, providing a robust and reliable prediction for control systems, according to Perten.
Carl Zeiss Spectroscopy’s instrumentation is also based on DA technology. “The main problem is that, by the reference method, loss on drying (LOD), all volatile components—not only water—are being determined, whereas conventional filter NIR instruments only measure water,” Steiner explains. “Therefore there is always a difference in values measured by LOD and filter NIR.”
The company has developed two instruments, Corona Turnstep for laboratory use and Corona Process for on-line use. “Both can measure the following parameters in raw tobacco, cut leaf, cut-rolled stem, cut rag and reconstituted tobacco: moisture, nicotine, sugar, propylene glycol, glycerin, ammonia, nitrate, chloride, menthol,” says Steiner. “What sets Corona Process apart from its competitors is that it can also measure the color of tobacco.”
NDC Technologies follows a different path. The company has launched several products this year, among them the on-line/in-process TM710e V, which measures more closely what the laboratory oven test measures—that is, weight loss on drying, which is expressed as total volatiles or oven volatiles by the industry, Benson points out.
“The same unique measurement has also been added to the new InfraLab at-line analyzer. We have achieved some very good results in the field, and in competitive tests have shown outstanding performance positioning us as the only supplier to offer a truly robust measurement of this key parameter,” says Benson.
Because NDC now offers a total volatiles measurement instead of just moisture, the measurement correlates better with the oven reference test and so reduces hugely calibration requirements.
“An on-line or at-line instrument must not be affected by ambient lighting, atmospheric humidity, tobacco pass height, ambient and product temperature,” says Benson. According to him, NDC’s instruments offer robust measurements unaffected by these attributes and so can be confidently used in closed-loop control to optimize a tobacco process. NDC also has laser, X-ray, microwave, nucleonic and ultrasonic measurement capability.
Originally developed to reduce cost, reconstituted tobacco helps tobacco companies custom-design their blends, including for novel nicotine products.
By George Gay
As is my custom, I would like to start off by writing about something of which I know very little: in this case tea. Although I’m English, I’ve never drunk tea, but I have spent years surrounded by people who are steeped in it, and I have noticed that whereas some years ago the people of my acquaintance who drank tea mostly brewed it from leaves, now they mainly use teabags. At first, people tended to look down their noses at teabags because they didn’t contain ‘real tea’, and I often heard people say that teabags contained only tea-dust swept up from the factory floor. I have no idea whether or not this was true, but it is obvious that people came to see the advantages offered by such a product, not least its convenience. It was a product that had been engineered for its time; or perhaps it was a piece of product engineering that allowed cultural shifts that people were ready to embrace.
Tea can be compared with tobacco in this regard. Once upon a time, tobacco waste was waste; but 40 or so years ago it was found that this “waste” could be swept up and made into reconstituted tobacco, which could be included as a proportion of a tobacco blend. As with tea, at first, reconstituted tobacco was seen very much as the poor relation of the blend, but manufacturers came to realize that this tobacco offered advantages, especially in regard to blend stabilization and, of course, costs.
Across the world, the products that we use are becoming more engineered, and, wherever possible, waste is being eliminated, if not for its own sake, at least in the name of cost savings. Reconstituted tobacco virtually eliminates tobacco waste, and its engineering is becoming ever-more sophisticated—even to the point where the possibility of customized tobacco, and therefore customized tobacco products, is a reality. Reconstituted tobacco might not be the future, as some might imagine it to be, but it has to be a significant player in the future.
Designer tobacco
Most people working within the tobacco industry are probably aware of this direction of travel, but what some probably don’t appreciate is just how far this tobacco engineering can go in helping manufacturers develop their products.
Perhaps the ultimate engineering of a tobacco product to date is to be seen in heat-not-burn vapor devices, which, by including tobacco, have been engineered so as to nudge up close to traditional combustible cigarettes in relation to their taste profiles, but, in not burning that tobacco, have been designed so as to open up a gap in relation to the level of risk that they pose to the consumer.
Reconstituted tobacco, I am told, is a necessary component of heat-not-burn products, because the tobacco they contain has to be closely designed. This, apparently, is not possible to achieve with leaf tobacco even if a manufacturer were willing to use genetically modified leaf, but reconstituted tobacco can deliver, for instance, a single American-blend sheet that includes specified levels of flue-cured, Burley and oriental tobaccos, and that delivers a specified level of nicotine.
Looking at this issue from another direction, Iqbal Lambat, the CEO of Star Tobacco International, said it was clear that the use of reconstituted tobacco in novel nicotine products (NNPs), such as heat-not-burn devices, was logical because it was significantly cheaper than most cheap tobaccos on offer.
But he wasn’t getting over-excited about this development. Reconstituted tobacco’s growth in this category, he said, would be directly proportional to the success of the category, and since most market studies at this stage pointed to a market share for NNPs of 3-5 percent of global consumption by 2030 at the earliest, it was not currently seen as a game changer for reconstituted-tobacco utilization growth.
Asked about the current and future utilization of reconstituted tobacco in all tobacco products, Lambat estimated that demand was currently at the level of about 350,000 tons a year, a figure that he believed would continue to rise given that increasing legislation would favor the development of more low-tar and nicotine products.
Other uses
Some people are slightly less optimistic in this regard. They point to the fact that the worldwide cigarette market is slowly declining and that while it might be the case that reconstituted tobacco will take a larger share of the filler component of cigarettes in the future, that increase will offset rather than compensate for the decline in cigarette sales.
Most reconstituted tobacco is used as a filler in cigarettes, but this is by no means the only use. It is used also as a cigar filler, binder, wrapper and tipping paper. And generally speaking, the demand for reconstituted cigar tobacco is more stable than that for cigarette filler, though that demand has taken a severe hit in recent times and is about to suffer another. The first hit came with the advent of the EU’s revised Tobacco Products Directive, which brought in a minimum weight for cigars that basically wiped out overnight the reconstituted tobacco wrapper business in Europe. From that point, all of the small, reconstituted-tobacco cigars became liable to be taxed as cigarettes, something that took away their main selling point—price.
The second hit to the cigar business is being delivered through the U.S. Food and Drug Administration’s so-called deeming regulations that require cigar manufacturers to undertake a burdensome and expensive approval process in respect of new products, and that are likely to put a brake on product development.
But none of this means that the reconstituted tobacco cigar business is slowing down. Far from it. In recent years the speed of manufacture of cigars has reached the low end of cigarette manufacturing speeds, and the reconstituted tobacco used in these processes has had to be developed to meet the challenges of these new manufacturing capacities. With the increased speeds, the mechanical strength of the reconstituted tobacco used for manufacturing cigars has had to be increased so that it can be used on machines capable of making up to 4,000 pieces a minute.
Something for everybody
But perhaps the real opportunities will arise because of the move to more-customized tobacco products and the ability of reconstituted tobacco to deliver such customization. The demand for increasingly customized products is one that cuts across most types of products, from cars to computers and from bicycles to sandwiches, and so whereas previously a reconstituted-tobacco company might have had one product that fitted all demands, now it has to have many different products to meet the specific needs of individual customers. Customers now want reconstituted products in different sizes with different mechanical properties. Some want these sheets to glue more quickly than run-of-the-mill products, and some want them to be water resistant. And customers now look for different flavors and different colors. In all, there are something like 100 different characteristics that can be specified.
Interestingly, this offer of customization arises at a time when the exact opposite seems to be happening, when brands are being merged; so perhaps the smoker of the future will have more choice than smokers do now. Regulations allowing, manufacturers will have the opportunity of offering cigarettes with specific characteristics to do with deliveries, tastes and smoke profiles.
And even more interesting, perhaps, is the fact that it is possible to incorporate all of the tobaccos needed for a blend into one reconstituted sheet; so, in theory, eventually all tobacco companies could get rid of their blending departments. In fact, the thing that is holding up such a development is perhaps not to do with reconstituted-tobacco technology, but with the fact that tobacco companies are currently focused on meeting other challenges, such as those concerning legislative changes.
Manufacturing technologies
There are a number of different methods for producing reconstituted tobacco from, for instance, stems, scraps, dust and fines, individually or in combination. But as Lambat said, the most common reconstituted tobacco is made using the paper process, which originated in the 1970s with Kimberly Clark USA technology. At that time, reconstituted tobacco was purely a cost-saving technology for using up fines and tobacco waste, he said. But over time, reconstituted tobacco had become a core ingredient in blends and been manufactured as a distinctive type or grade.
Various technologies had been developed during the past 10 to 15 years, notably “slurry technology,” which used a vegetable binder, and “nano fiber technology,” which was a much-improved form of the paper process, delivering reconstituted tobacco with high filling power, high aroma, good burning qualities and taste enhancement. Star offered from Brazil reconstituted tobacco produced using the nano fiber technique, and reconstituted tobacco from China made using the paper-making technique.
Whatever the technique, reconstituted tobacco can offer much. It is a stable product that suffers less from crop variation than does leaf, which is an advantage when the aim is to produce a product with the same taste year after year. It offers manufacturers financial advantages, and control advantages, such as in respect of nicotine and tar levels. It offers advantages when it comes to designing new products or modifying existing ones.
But the main application for reconstituted tobacco, Lambat said, was to develop tobacco blends with reduced tar and nicotine deliveries, and to help smooth and round-up the smoke taste in combustion products such as cigarettes and cigars. And because reconstituted tobacco had a higher filling power than did leaf tobacco, cigarettes made from blends with reconstituted tobacco required up to 10 percent lower tobacco usage. This, he said, went center stage towards cost reduction.
The cost/price argument is compelling. Lambat said that some customers were willing to pay $8-10 for top Zimbabwe flue-cured tobacco grades; so the question arose as to what they would be willing to pay for Zimbabwe reconstituted tobacco that had a similar color line but slightly reduced chemistry. The same question arose in the case of, say, Malawi Burley and Turkey’s Izmir oriental. Izmir leaf, he said, sold for in excess of $10 per kg, but the cost of Izmir scraps and stems would allow reconstituted Izmir to be offered for $4 per kg, which would represent a substantial discount for the buyer while still generating a healthy margin for the reconstituted tobacco manufacturer.
Star, in fact, offers reconstituted oriental tobacco. And it has developed a reconstituted kretek tobacco, which, Lambat said, was being tested by some of the leading Indonesian cigarette manufacturers, “with initial reviews pointing to a successful breakthrough.”
Still with customized products, IOTO International offers reconstituted tobacco out of its Brazil and U.S. (IOTO USA) plants using its patented TREX process to produce a range of reconstituted products, including US blends and single varieties, such as Burley and oriental.
Marcel Astolphe, the general manager of IOTO International, said the TREX process could use all kinds of tobacco by-products, supplied by its customers or sourced by IOTO, to generate reconstituted tobacco as bobbins, square pieces, shredded sheet or cut-filler.
The company has sold machinery and licensed the TREX process to clients in the U.S. and Russia. It is involved also in a joint venture with Alliance one in Purilum, which is specialized in the development of e-liquids and e-liquid flavors.
Independent leaf merchants hold their own in an increasingly concentrated market.
By Stefanie Rossel
In the unmanufactured-tobacco trade, periods of abundance and scarcity can follow each other in short succession. Following two years of global oversupply, the number of tobacco farmers in leading leaf-sourcing countries declined steeply during the 2015–2016 growing season.
In April, Star Tobacco International predicted that global leaf supply would shrink by up to 500 million kg in 2015–2016, a decline of 12 percent compared with the previous season. The shrinkage, the company believed, would help gradually restore balance in supply and demand.
The market has also been affected by other factors, however, including a strong U.S. dollar and El Nino-related weather conditions, causing some higher-quality tobaccos to be in short supply.
“Leaf production has been pretty much in line with expectations in the major origins with one surprise: The Zimbabwe flue-cured Virginia [FCV] crop closed slightly higher than 190,000 tons—some 30,000 tons higher than predicted in April,” says Star Tobacco CEO Iqbal Lambat.
Brazil, meanwhile, anticipated some 550,000 tons of FCV this season, 100,000 tons less than last year, according to Lambat. Due to the El Nino weather pattern, however, the crop came in around 450,000 tons of FCV. Brazil’s burley crop, meanwhile, was slashed in half, to 40,000 tons.
“These shortfalls have created a scramble for flavor FCV mostly on the Zimbabwe crop,” says Lambat. “The U.S. crop is currently in harvest and processing and is also expected to be short by 10 to 15 percent due to adverse weather conditions. Regarding quality, the Zimbabwe FCV is of higher nicotine, whereas the Brazil crop suffered from low nicotine content.”
Lambat notes that flavor styles have been in short supply despite Zimbabwe’s larger 2016 crop. “We expect this situation to become critical in 2017 due to the economic crisis in Zimbabwe and the sharp drop in tobacco seed sales for the current season.”
A resurgence in Brazilian FCV production toward 600,000 tons in 2017 would help stabilize the situation, according to Lambat, but he says it is too early to make predictions about that country’s 2017 crop.
“The global leaf volume has been considerably reduced, but this reduction has had little to no effect on the demand,” observes Rainer Busch, general director of NewCo.
“I think that the tobacco farmers and trade would rather remain with smaller crops and have the supply-demand situation balanced,” he says. “The situation of oversupply bears risks for the future of tobacco growth. Farmers will receive lower tobacco prices and will be unsatisfied. The trade will bear higher costs of holding bigger unsold inventories, and the needed competitiveness will lower their margin.”
In steady demand
Oriental, the highly aromatic, sun-cured leaf that gives American-blended cigarettes their characteristic taste, has also been hit by adverse weather. “The oriental crop in the classical regions of the Balkans and Turkey is expected to be reduced to almost 100,000 tons in 2016, due to dry weather conditions and, in some cases, farmers’ unwillingness to continue with tobacco crops,” says Nikos Tzoumas, managing director of Missirian in Greece.
The expected 2016 crop compares with 125,000 tons in 2014 and 109,000 tons in 2015. Production of oriental tobacco has been declining following the “decoupling” of EU subsidies in 2006. It is also suffering from urbanization, with young people in particular preferring city jobs over farm work.
But while oriental volumes are down, quality is up. “The dry conditions that prevailed throughout the season have given to the tobacco more body, flavor and aroma,” says Tzoumas.
The current volumes, notes Tzoumas, are below cigarette manufacturers’ known usage of oriental leaf, a situation that could put pressure on prices.
Dora Gleoudis, managing director of Nicos Gleoudis Kavex, points out that demand for classical oriental tobacco is still steady, with both dealers and growers holding minimal inventories, which is in direct contrast to FCV and burley tobaccos.
Manufacturers, she adds, have in recent years migrated more toward the use of flavors as a partial alternative to expensive classical oriental. With regulators pushing for the removal of tobacco additives, cigarette manufacturers may have to start using oriental again.
She is also encouraged by the trend toward “natural” cigarettes. Full-flavor FCV and classical oriental tobaccos could help cigarette manufacturers set their brands apart in the marketplace.
Important role
For all their individual differences, the leaf firms quoted in this article share one trait—they are independent entities operating in a market dominated by a handful of multinational companies.
Independence has advantages for both farmers and clients, according to Busch, particularly in crop situations like the current one. “Independent players are generally not contracting with farmers and trade only tobaccos which they know they have a purchaser for,” he says.
“In the case of NewCo, most of our [partner companies] bear a risk by supporting their society and traditional farmers. They buy historical volumes and do not fluctuate much with their quantities. Their historical clientele buffers their risk. Nonindependent leaf merchants have to commit to buy all of the crop from their farmers, which bears economic risk, since one part of the crop is not desirable and needs to be sold under cost to get it off the books.”
Because the decision-making process at independent leaf merchants tends to be short, they are also well-equipped to seize opportunities.
Star Tobacco was founded in 2008, at the height of the last major tobacco shortage. According to Lambat, the firm works only with small and medium-sized companies to ensure that the tobaccos it sells provide value for money. It offers tobaccos from a broad range of origins.
Star serves customers who lack the resources to travel the planet and examine alternative origins and grades. “Of paramount importance is to ensure security of supply, which requires a strong partnership with farmers and leaf processing companies,” he says. Today, Star serves 45 accounts in more than 30 countries.
Being among the smaller fish in the pond, however, also involves challenges, he points out, especially now that, in many societies, all things related to tobacco have been “denormalized.”
“Life as a tobacco company is getting harder,” says Lambat. “Banks are increasingly reluctant to service tobacco companies. In many cases, banks refuse to open letters of credit that cover tobacco shipments. The ‘tobacco’ word will need to be removed from corporate names going forward in an effort to rebrand. These challenges weigh heavier on smaller independent leaf companies than [on] the larger multinational dealers.”
Tzoumas fears that crop levels could be further impacted by shrinking cigarette volumes and increasing illicit trade.
“Cigarette sales going down is a tendency that needs further study, as it is hard to determine the real drop in consumption in an increased illicit-sales environment around the world,” he says. “Should this tendency prove to be real, all markets, including oriental, will have to adopt crop levels to the new demand. Such a change may result in a slimmer list of oriental varieties and districts in the future. As demand and production go hand to hand, such a trend may lead to lean and more sustainable crop designs. A lot of factors will influence the decisions to be taken.”
In the oriental tobacco supply chain, working closely with the famers creates obligations and opportunities for both sides, says Tzoumas. His company cooperates with major cigarette manufacturers to improve the sustainability of leaf production, implementing good agricultural practices and good agricultural labor practices, among other programs.
Challenges are manifold, he adds, ranging from responsible sourcing to socioeconomic balances within farmers’ communities and flexible crop sizes to market and crop competitiveness. “As this is a great target to meet, we focus on planning crops ahead, mechanization in all stages—enhancing harvesting and curing—and commitment from our stakeholders.”
Mechanization and increased efficiency in oriental leaf production have been topics of discussion for many years. Significant progress has been made, according to Tzoumas. The industry has focused particularly on harvesting and curing, as these activities account for a major share of the tobacco production cost. “The oriental harvesting machine has been completed after many years with a lot of resources placed in R&D and testing,” says Tzoumas. “As of next year, a commercial model will be available, which can change the picture of the oriental production in the future.”
Gleoudis is less upbeat about the impact of mechanization: “Even if these mechanized trials prove successful, the resultant cost savings might still be marginal,” she says.
Crop and inventory financing, social-responsibility programs, traceability requirements and ever-stricter controls on crop protection agents place an increasingly prohibitive strain on leaf companies’ already decreasing margins, according to Gleoudis.
“The volumes required to spread these costs are significant, but being independent, we are well-placed to adapt to changing market conditions. For instance, committing to the production of organic tobacco, as we have done in Greece, is testimony that specialization in niche tobaccos and diversification in traditional tobaccos is what keeps independent dealers going.
“Established in 1927, Nicos Gleoudis Kavex will celebrate its 80th anniversary next year and is now managed by the third generation. Together with older and more recent establishments, independent companies play an important role in supplying the global leaf market.”
A straight deal
Like the companies quoted in the main article, Leaf Only is an independent tobacco dealer. Uniquely, however, the company caters to both the retail and wholesale leaf market. Established in 2009 and based in Connecticut, USA, the company sells a large variety of tobacco leaves, including cigar wrappers, binders and fillers, as well as unprocessed cigarette tobacco and pipe and hookah tobacco.
“Since we deal with mainly small to medium-sized clients, one of our personal challenges is managing customer expectations,” says John Wallace, Leaf Only’s principal. “Customers are so used to processed products that they expect the same type of quality from an agricultural commodity. A big part of our job is educating our customers and keeping expectations realistic. But there is a silver lining to every dark cloud, and the fact is that tobacco is still a top commodity with a huge demand. Consumers from around the world still love their tobacco despite increased regulation and health concerns. There is still plenty of money to be made for leaf suppliers that are willing to bob and weave amongst the ever-changing strikes of the industry.”
Wallace expects continued growth. “The reason for this is two-fold: One aspect is the fact that consumers don’t want to be controlled by their governments and forced to pay taxes on products that they can manufacture with their own two hands. It’s not much different from buying grapes to make your own wine or buying hops and barley to craft your own beer. Why pay upwards of eight times the price for something that with a little hard work you can make yourself!”
The other aspect, he adds, is the fact that now, more than ever, consumers are gravitating toward natural, additive-free products. “Buying leaves grown on a farm is about as ‘all natural’ as you can get. For retail customers, there is no wondering what’s in the products they make. … They start with the raw ingredients and decide themselves what to add. We even have organic options available for consumers who want to take it to the next level and even avoid food-grade pesticides. We have seen an increase in organic sales year after year, which confirms this reason for overall growth.”
As Hauni celebrates its 70th anniversary with an in-house trade fair, CEO Juergen Spykman reflects on the challenges and opportunities facing the business.
TR Staff Report
Hauni CEO Juergen Spykman
Juergen Spykman became CEO of Hauni Maschinenbau in April. He takes the helm of the world’s leading tobacco technology firm at a turbulent time for the global tobacco industry, characterized by stagnating cigarette sales, mounting regulation and the rise of a new generation of products. Despite the difficult business environment, Spykman sees plenty of opportunities for Hauni, as technology can help customers meet the rapidly changing market demands and regulatory requirements. Tobacco Reporter caught up with Spykman at Hauni’s Hamburg, Germany, headquarters.
Hauni is celebrating its 70th anniversary this year. What do you consider to be the company’s greatest accomplishments?
All companies in the Hauni network consider themselves to be global partners of the tobacco industry. This has been our basic understanding for the last 70 years, since the founding of Hamburger Universelle, today known as Hauni.
We are proud to be leaders in cutting-edge technologies for tobacco processing, cigarette and filter manufacturing, as well as in service offerings for our industry. The Business Area Tobacco within the internationally leading technology group Koerber grew out of Hauni through a continuous development and broadening of our offerings for customers in the international tobacco industry.
Sixty years ago Hauni broke through on the international market with its filter-application machine Max. Today, Max is still the synonym for high-tech industrial filter application, while our Protos line of machines is the established market leader.
With the Protos M generation, we again set new standards. Everything we do is oriented toward the needs of our customers and changes in the market. That’s why we use market intelligence to always stay a step ahead—and on the side of our customers—when it comes to developing solutions for the requirements of tomorrow. With more than 4,000 employees worldwide and more than 20 locations, we combine the skills of our experts in the individual companies with the benefits of a global network of competences.
How has the stagnation of cigarettes sales worldwide affected your business?
The international tobacco industry is reacting to changing consumer behavior and stricter regulatory conditions. Everyone in the industry is faced with the challenges that this long-term structural change brings with it, including us. But we see opportunities: Changes always bring about new technological possibilities or other potential for improving our products and processes in the interest of our customers.
Adapting our range of services in anticipation of changing customer requirements is a matter of course for us, because we are always looking for ways to improve—and often simplify—and find new approaches to solutions for the needs of our customers. I am thinking in particular of [overall equipment effectiveness] strategies and increasing digitization, but also of relocation and rebuild overhaul. There are several new trends to be observed in the industry. And we are the right partners for developing suitable solutions for our customers.
What is your strategy for competing in a smaller market? Please comment on the strategic realignment that has been underway at Hauni. What have you accomplished to date, and what remains to be done?
We have tackled the new market conditions with the clear goal of not only adapting all of the companies in Business Area Tobacco; we used the occasion to increase our Business Area’s overall effectiveness by becoming better, faster and more flexible when it comes to operating in a changing market environment.
In doing so, we have already achieved significant milestones: We have continued to sharpen our focus for development projects—particularly for customer-specific developments—and accelerated important production processes using Lean methods. This also means a lot of new challenges for our teams, but thanks to consistent involvement, our employees worldwide are actively contributing to our strategic realignment. We are even more pleased that this is already showing results; we have made a positive start to the new fiscal year. The aim now is to build on this and further accelerate our accomplishments.
In recent years, Hauni has embarked on a bit of a buying spree, purchasing companies such as Sodim, Borgwaldt and Garbuio Dickinson. How does each of these acquisitions fit into your growth strategy?
Our acquisitions over the previous years have allowed us to round out our portfolio for our customers. With Borgwaldt we have supplemented our product range with physical measuring devices and smoke machines and expanded our analysis business, which we had already extended with Sodim. With the area of flavor, a new business field was added that represents additional expertise for us as an international supplier of the tobacco industry.
Roughly two years ago, with the purchase of the Garbuio Dickinson Group [GDG], the Hauni network expanded into the primary area. GDG offers a full range of tobacco preparing technologies such as high expansion, green-leaf treshing and recon, which makes it an ideal complement to our existing portfolio.
All of our new companies set the same high technological standards for themselves and for solutions for our customers as the more established ones do. In the age of globalization and global customer presence, this cultural mix is enriching because everyone across our network learns from one another and with one another, and we benefit from the different approaches applied in the different companies.
Based on all this, we are creating synergies. And we want to utilize the expertise that all of these companies bring to the table throughout the Hauni network for our customers, because from their comprehensive product and service portfolios arise more innovative and more comprehensive solutions. As a result, we can offer our customers one-stop shopping for the best solution.
Critics may argue that consolidation reduces competition among suppliers, which may not be in the best interest of customers. What is your response to such concerns?
Consolidation is part of normal market development cycles, regardless of which industry we’re talking about. But that is not a disadvantage for our customers because their end customers have very high requirements, which keeps major momentum in the market. The entire environment in our market has been, and will continue to be, permanently changing; no one can rest on the laurels of their past successes. And we would certainly never want to do that—simply because change, ongoing development, technological progress and upheaval are part of our network’s self-understanding, stemming from the mindset of our founder. They are also an invaluable motivation for our teams all over the world.
Illicit trade is a major concern in the cigarette industry. What can machinery suppliers do to prevent their machinery from falling into the wrong hands?
We have integrated a sophisticated internal audit system called “Know your customer” into our organization worldwide. New customers go through a very discerning verification process before we enter into business with them. This system is, in our opinion, one of the most effective means of preventing illicit trade.
Is Hauni developing equipment for the manufacture of e-cigarettes?
The issue of e-cigarettes is complex. With around 160 different types of e-cigarettes currently on the market, the market share numbers are still relatively low, though the market has also reached a very significant size. We have been observing the development of the e-cigarette market for years and look into all of the various products. We are particularly driven by the following question: What will the e-cigarette of tomorrow look like? We have always been leaders and innovators when it comes to new developments in the area of alternative tobacco products. Our motivation is and will always remain to excite with innovations.
What about other “next-generation” products and alternative tobacco products?
“Heat not burn” is the most similar to the classic cigarette. That’s why we can effectively apply our know-how from cigarette machines here—and we’re already doing it. We have been involved in heat-not-burn developments for more than 30 years—and we were already expanding our basic know-how and developing solutions for new products in the late 1980s.
Alternative tobacco products are just as important though. We already offer machines for the production of shisha capsules and integrated solutions for the increasingly internationally popular snus. Overall, the following applies: Whenever any of our customers have a special product or a special request, we will stand by their side as an effective partner as we offer them customized solutions.
What have been your priorities since becoming CEO?
After more than 20 years with the Business Area and through my several different positions, I have gotten to know the most diverse aspects of our companies, regions and our market. Every new position came with added responsibility and a new perspective on the industry. My five years as CFO of Hauni further increased the scope of my management and market experiences.
As CEO of the Business Area, it is my role to continue to write the success story of our network of companies as a whole. And I am convinced that, together with Dr. Juergen Heller and Dr. Martin Hermann, two colleagues with strong experience in market and technology, we will succeed in this.
The ongoing further structural and strategic development of the Business Area tops our list of priorities. Currently, market trends undoubtedly add a few demands. The most important thing for us, however—and by “us” I mean our more than 4,000 colleagues worldwide—is customer satisfaction. This is what we all get up for in the morning, and it is thus also our highest priority on the executive board.
In the interest of our customers, we also consider encouraging transparency, networking and joint developments in the Hauni network as some of our most important tasks. Because this is the only way we can make sure that we continue to offer our customers the best and most innovative solutions for their challenges. This, in turn, will form the base for making sure that, in 70 years, we are still the leading partner of the tobacco industry.
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
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
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.”
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.
Keeping up with a rapidly evolving industry, Borgwaldt establishes its Vapor Competence Center.
By Stephanie Banfield
Founded in 1867, the Borgwaldt Group has spent nearly 150 years becoming a primary player in the research, development and production of flavorings for the tobacco industry. In addition to flavorings, the company is also well-known as a leading vendor for quality-control devices and machines used by the tobacco industry and its subsuppliers. Following its acquisition by Hauni Maschinenbau in August 2013, Borgwaldt Group, which consists of Borgwaldt Flavor and Borgwaldt KC, recognized the opportunities presented by the ever-evolving vapor industry, and before year’s end the Borgwaldt Vapor Competence Center was born.
“We decided to establish the Vapor Competence Center at the end of 2013, when we realized that all units are involved in the vapor business, even when in different segments,” says Thomas Schmidt, director of scientific and technical affairs. “The positive experience was in the beginning—and still is—that it was very beneficial to have competent discussion partners within our own company to reflect specific technical aspects. We wanted to give this advantage to our customers to support them in all fields of their activities.”
Located at Borgwaldt’s headquarters in Hamburg, Germany, the Vapor Competence Center brings together the entire Hauni network’s knowledge and experience with instrument technology, flavor development and analysis. Experts from the Borgwaldt Group’s subsidiaries, Borgwaldt Flavor and Borgwaldt KC, have teamed up to develop innovative technologies and processes and to provide specific solutions to customers within the vapor industry.
“We are working in a team of in-house experts from our three units Borgwaldt KC GmbH, the manufacturer of QA/QC [quality-assurance and quality-control] instruments; Borgwaldt Flavor GmbH as provider of flavor solutions for the vapor industry; and finally ASL, our analytical service laboratory with the expertise in analytical testing of e-liquids and aerosols,” says Schmidt. “All the units are active in their field of expertise, which means developing instruments, creating flavors and aromas, and developing analytical test methods. The information exchange within the Vapor Competence Center during the process is our driver to enhance our service, products and solutions. In addition, we are working actively in international standardization work groups to ensure that our service and products are always state-of-the-art.”
In addition to having access to the expertise of both Borgwaldt subsidiaries, customers who come to the Vapor Competence Center for customized solutions will also benefit from having access to the know-how of the industry professionals employed by Hauni.
“Like the Vapor Competence Center as melting pot for all Borgwaldt expertise, the professionals of the Vapor Competence Center can connect to Hauni’s big source of know-how, which can be pulled together on project basis,” says Schmidt. “If a customer needs advice for manufacturing or design, Borgwaldt can rely on the experts from Hauni machine development or primary equipment.”
With more than a century of success in the tobacco industry, diving into the vapor industry was a logical next step for Borgwaldt.
“Coming from the cigarette flavor, analytics and instruments business, we applied our knowledge on the vapor industry,” says Schmidt. “Concerning flavors and liquids, we think that this gives us the needed edge to transfer smokers’ expectations in terms of taste and impact also to the new field of e-cigarettes. Adapted instruments for the vapor industry help our customer to apply and check new regulations and quality data.”
Although some in the vapor industry are under the impression that Borgwaldt’s Vapor Competence Center manufactures specific products, Schmidt stresses that this is merely a misconception.
“The Vapor Competence Center does not produce an instrument or a flavor concentrate,” he says. “Production or service is still provided by the related Borgwaldt units. The Vapor Competence Center coordinates activities and gives the strategic direction to the operating units. The main task is to support and consult our customers to work out the perfect solution for them. Some customers [might believe] the VCC is an independent member of the Borgwaldt Group, but that is not the case. The Vapor Competence Center is simply a business unit within the group.”
And while many of Borgwaldt’s employees are tasked with performing duties for the vapor side of the business, the work is not performed in a separate facility with a focus specifically on vapor solutions.
“Don’t understand our VCC as an independent unit in its own walls,” he says. “In fact, it is a dedicated joint-working unit which uses the whole facility in Hamburg. Depending on the face task, more or fewer colleagues are involved and active. Our whole service laboratory team is currently heavily involved in e-product testing, and due to the wide variability of e-products, our engineers and flavor experts are constantly delivering ideas and potential solutions to support our customers, especially regarding the required product registration within the European Union.”
Like many companies operating in the vapor industry today, recent changes in rules and regulations have posed challenges and concerns for Borgwaldt and its operations at the Vapor Competence Center.
“Vapor products are more and more in focus of regulatory authorities,” says Schmidt. “Different regulations and product requirements—e.g., the European Union’s latest tobacco directive, which covers also vapor products—are interpreted different in diverse member states, necessitating individual solutions. However, there is often a lack of understanding and a huge portion of uncertainty on our customer’s side.”
Despite the challenges that potentially lie ahead for the company with regard to regulations, Schmidt is determined not to let such hurdles overshadow the achievements that have been made so far—particularly the introduction of a brand-new product of which the company is particularly proud.
“We have successfully developed and launched test equipment to the market—e.g., the introduction of our LM4E, a four-channel aerosol collection unit,” says Schmidt. “The feedback of our customers is quite positive. In the same way we can evaluate the service laboratory activities positive. We have satisfied customers getting the needed results reported right on time. Also development and sale figures show us that the flavor business in that area is working well.”
With decades of experience in flavor development, analysis and quality control, Borgwaldt is well-positioned to develop unique and innovative solutions for the vapor industry—and according to Schmidt, the Vapor Competence Center’s ultimate goal is simple: “We want to become the market leader related to vapor quality testing, analysis and taste.”
Obtaining trademark protection for tobacco products in Germany
By David E.F. Slopek, Morten Petersenn and Wiebke Reuter
Branded tobacco products are as old as the German trademark law itself. In fact, the first trademarks for cigarettes were registered as early as 1894. While the protection sought by brand owners has evolved since then, it is safe to say that strong trademarks have never been as important as today. This article sets out the legal framework and basic conditions for obtaining trademark protection in Germany—a leading tobacco market—by providing an analysis of the relevant case law on the registrability of tobacco products.
Introduction
David Slopek specializes in “soft” intellectual property matters at the law firm Hogan Lovells International. He focuses on trademark prosecution and litigation and has significant knowledge of unfair competition and design law.
Marketing plays a major role for the success of consumer products. In that regard, the tobacco industry is no exception. However, what makes the tobacco industry an exception is that it faces extensive restrictions in promoting its products. Over the years, in Germany and other European markets advertisements for cigarettes have been widely excluded from TV, radio, print media and the internet. Further forms of advertisement, such as commercials in cinemas or the public transport, as well as sport-related marketing activities, have been regulated.
Against this background, a strong trademark is more vital than ever, as it allows the tobacco industry to maintain the most important form of marketing. Obviously, quality—in particular, taste—is of particular importance for tobacco products. If a consumer is satisfied with the quality and taste of a cigarette and wishes to purchase this specific product from the same manufacturer again, it is the trademark that enables him to do so. However, before the trademark can have a marketing effect by fulfilling its function as an indicator of commercial origin, it has to be registered.
Unfortunately, the registration process often turns out to be more challenging than one would expect. The legal obstacles to overcome are reflected by the German case law on the registrability of tobacco products on absolute and relative grounds (the latter ones will be dealt with in a subsequent article), which, over the years, has become quite extensive. This article aims to make the outcome of trademark registrations for cigarettes more predictable by providing a systematic overview of the relevant judicature and thus help to successfully navigate the route to registration.
Overview on absolute grounds for refusal
Morten Petersenn is a specialist for Hogan Lovells in complex intellectual property litigation matters with a focus on trademark infringement and false advertising disputes. He works in various regulated industries, such as the tobacco industry and the alcoholic beverage industry.
The first hurdle that a brand owner seeking protection has to overcome is the so-called absolute grounds for refusal as laid down in Section 8 of the German Trademark Act. If a trademark is applied for, the German trademark office examines the absolute grounds on its own motion. The two most important reasons for a registration to be refused on absolute grounds are descriptiveness and lack of distinctive character.
As far as the question of descriptiveness is concerned, Section 8 (2) No. 2 of the trademark act provides that a trademark is excluded from registration if it consists exclusively of signs or indications that may serve, in the course of trade, to designate characteristics of the goods. For a sign to fall under this provision, it is sufficient that it is capable to be used to describe the respective products—i.e., it is not necessary that it is already used in a descriptive way on the market.
Concerning the question of nondistinctiveness, pursuant to Section 8 (2) No. 1 of the trademark act, trademarks are excluded from registration if they are devoid of any distinctive character. To overcome this bar, it suffices that a sign has a minimum of distinctiveness. While descriptive signs are by definition lacking distinctiveness, a sign is eligible for registration if it is capable to be perceived as an indication of commercial origin by the public for the goods for which protection is sought.
Practice regarding tobacco products
Signs related to tobacco products
In many cases, descriptive signs that indicate the nature or one of the key benefits of a specific product appear to be attractive from a marketing perspective. The reason is simple: You do not need any particular efforts to explain to consumers a specific benefit or the purpose of a product if this message is already conveyed in the product’s name. While this is a good reason to choose a descriptive name, the bad news is that such signs face an apparent risk to be objected to on absolute grounds.
By way of example, the sign 10’S PACK for tobacco products, including cigarettes and cigars, was rejected based on descriptiveness. The Federal German Patent Court took the view that the mark sets out a feature of the goods at issue by indicating the quantity of cigarettes in a box. Likewise, the trademark TOASTED was excluded from registration because the sign is a technical term that describes a certain roasting process for tobacco.
The trademark TABAKWELT (“tobacco world”) covering cigars was rejected based on nondistinctiveness. The patent court held that the sign is limited to a pure factual statement and stressed that it is in fact often used to describe different goods and services related to tobacco.
Geographical indications
Geographical indications are often not eligible to trademark protection, since there is a heightened risk that consumers could perceive them as expressions of regional origin of the goods in question.
By way of example, the patent court denied registrability of the sign CALIFORNIA for cigarettes and tobacco products, thereby referring to the tremendous economic importance of the state of California, which justifies a public interest to keep the sign free to be used by everyone. In its reasoning, the court stressed that there is a general assumption that economically important areas will be needed as geographical indications because it is very likely that consumers will link the name of a well-known place to certain goods. For similar reasons, NEW YORK has been refused.
Names of colors
Under German practice, registering abstract color marks is difficult and regularly requires evidence that a certain color is in fact perceived as an indicator of commercial origin. However, the strict practice for color marks does not apply for word marks that comprise the name of a color. Those signs are only considered to be descriptive if they refer to the product itself—e.g., brown as the color of tobacco. Therefore, the following word marks were registered as trademarks for cigarettes and tobacco products: ROT (which translates to “red”), GREEN, SILVER, GOLDEN, GOLD & SILVER, BLACK, GREY, YELLOW, BLUE, ORANGE and WHITE. As to the last mark, the patent court observed that cigarettes are white due to their paper. Nevertheless, there is no need to keep the name of the color free to be used by others because an indication that a certain cigarette is white would be superfluous.
Numbers and letters
Numbers are generally held to be registrable on absolute grounds. By way of example, the German Supreme Court decided that the numbers “1” and “6” are eligible for registration for cigarettes. The court held that they were not descriptive as there was no indication for the consumer what these numbers could refer to. In particular, the numbers were not perceived as a reference to the filling amount of a box, as cigarettes are typically sold in larger units.
The same applies for letters, such as “Z.” In that regard, the Supreme Court decided that the mere fact that consumers might not be used to single letters as trademarks is not sufficient to deny any distinctiveness of the letter “Z” in relation to tobacco products.
Shape
Figure 1
Many companies seek protection for innovative shapes of their products or packaging as a three-dimensional trademark. Case law has repeatedly stressed that the requirements for the registration of 3-D marks are, as a general rule, the same as for other types of marks. However, one must consider that consumers generally do not perceive shapes as an indication of origin. In many cases, even an unusual design will not be perceived as an indicator of commercial origin but rather as the result of a particular effort to create an aesthetic product. As a rule of thumb, 3-D marks are only registrable if they depart significantly from the typical shapes used on the relevant product sector.
Obviously, this standard is not easy to meet. For example, an application showing a picture of an octagonal packaging (See Figure 1) was refused by the patent court based on nondistinctiveness.
The court ruled that the consumers would not understand the shape as an indication of commercial origin but rather as a reference to the contained goods, namely cigarettes. In particular, the mere fact that the shape is octagonal instead of rectangular is not enough to sufficiently deviate from existing packaging of competitors.
While the standard applied by German courts is quite strict, the good news is that applying for a 3-D mark for the packaging is not necessarily a quixotic undertaking, as can be seen from a look into the German trademark register. Many companies have successfully registered marks like the ones depicted in Figure 2.
Names
Figure 2
Registering the name of a famous person for tobacco products can be difficult. By way of example, the patent court refused registration of the name Leonardo DaVinci written in a slightly stylized typeface, for, inter alia, cigarettes and smokers articles. The court argued that everyone recognized the name as belonging to the famous scientist and artist. The name is a part of the cultural heritage of the public and thus not capable of distinguishing products from one company to those of another.
Promotional or laudatory signs
Laudatory signs or promotional messages are normally held to be nonregistrable due to a lack of distinctiveness. Consequently, the patent court refused protection for the mark JEDERZEIT (“anytime”) for, inter alia, cigarettes and related products. In fact, the sign simply suggests that the products can be consumed anytime and thus conveys a promotional message. For similar reasons, marks such as FIRSTPRICE or TEST IT for tobacco products have been rejected. However, case law is not fully consistent. Notwithstanding its promotional meaning, LEADING was held to be registrable for tobacco products. Likewise, but less surprisingly, LOOK, YES and FOR YOU for cigarettes and tobacco products have been registered. The Supreme Court held the signs to be distinctive, thereby stressing that they are not commonly used in everyday language.
Summary
In Germany, trademarks normally enjoy protection only if they have been registered. While there are some hurdles to overcome during the registration process, there is extensive case law that makes the likelihood of a successful registration relatively predictable. As a rule of thumb, names of colors, numbers and letters are most likely to be granted protection, whereas tobacco-related terms, geographical indications and products’ shapes run a higher risk to be rejected.
As cigarette sales fall throughout Scandinavia, snus is becoming even more popular—where it is allowed.
By Stefanie Rossel
The Scandinavian countries are united not only by their cultural and linguistic heritage, but also by their aspiration to a healthy lifestyle. Already, Norway, Sweden and Denmark boast some of the world’s lowest rates of cigarette consumption—and cigarette sales volumes continue to decline year on year.
Of the three nations, Sweden is the furthest along in achieving the World Health Organization’s (WHO) dream of a smoke-free society. Smoking prevalence among its adult population was a mere 11.6 percent in 2015, down from 13.4 percent in 2010, according to Euromonitor International. In Norway, smoking incidence dropped to 13.2 percent from 19 percent during that period. Lagging somewhat behind, Denmark had a smoking rate of 20.4 percent in 2015—but the level was still down from 21.5 percent five years earlier.
Vapor prevalence, meanwhile, has moved in the opposite direction, rising from only 1 percent in 2010 in Norway to 10.7 percent in 2015. In Sweden, 9 percent of adults used electronic nicotine-delivery devices (ENDS) in 2015, compared with 5.5 percent five years earlier. Denmark leads the pack: According to Euromonitor, 20.8 percent of Danes vaped in 2015, up from 5.2 percent in 2010.
Sweden’s low smoking incidence is partially a result of the Swedes’ love of snus, a pasteurized oral tobacco that is available loose or in small pouches and has been used in Sweden for about 200 years. Snus is also popular in Norway.
In its 2015 annual report, category leader Swedish Match estimates the region’s snus market at slightly more than 360 million cans, an increase of approximately 5 percent from the previous year. Consumer preference has shifted from traditional loose products to snus pre-portioned in pouches, which accounted for almost 80 percent of volumes in Scandinavia at the end of 2015.
Value-priced products accounted for 46 percent of snus sales in 2015, according to Swedish Match, which held about 41 percent of this competitive segment at the end of last year. In 2015, Swedish Match accounted for 69.3 percent of Sweden’s overall snus market, 1.2 percentage points less than in the previous year.
Sweden’s entire tobacco market was worth $3.34 billion in 2015, with snus and moist snuff accounting for $1.14 billion, according to Euromonitor. The snus segment has been growing, as has Sweden’s vapor category, which more than tripled in value over five years, reaching $3.7 million in 2015.
During the same period, the value of cigarette sales grew at a slower rate, to $2.04 billion from $1.82 billion. The development reflects a trend among consumers to switch from combustible cigarettes to tobacco products that are perceived as less harmful. It is also aided by extensive smoking bans.
In 2015, Swedish Match reported an operating profit of sek3.69 billion ($431.1 million). Snus accounted for 54 percent of that figure. The company’s snus brands in Scandinavia include General, Goteborgs Rapé and Ettan. In addition to manufacturing snus for the Nordic countries and the United States, Swedish Match is a major player in the U.S. mass-market cigar and chewing tobacco segments. As its name implies, the company also supplies lighters, matches and associated products.
Norway
With a population of 5.21 million, Norway is the smallest Scandinavian market. In the period 2010–2015, the retail value of all tobacco sales declined to $2.07 billion from $2.1 billion, according to Euromonitor. However, the smokeless tobacco category, which includes snus and moist snuff, grew to $595.7 million from $340.7 million during the same period.
Norway’s snus volume market alone has grown by more than 20 percent over the past three years and by approximately 7 percent in 2015 versus the prior year, according to Swedish Match. The other categories either stagnated or showed considerable decline. Cigar and cigarillo sales were flat at $21.1 million from 2010–2015, while sales of smoking tobacco decreased to $341.7 million from $473.2 million during that time.
Like their neighbors in the east, Norwegians have turned to snus at the expense of combustible cigarettes. According to Euromonitor, the retail value of the Norwegian cigarette market declined to $1.08 billion in 2015 from $1.26 billion in 2010. Retail volumes of cigarettes including roll-your-own tobacco shrank to 2.3 billion stick equivalents from 3.14 billion stick equivalents over the same period.
British American Tobacco (BAT) holds 51.7 percent of the cigarette market, followed by Philip Morris International (PMI) at 33.6 percent, Imperial Tobacco Group (ITG) at 11 percent, Japan Tobacco International (JTI) at 2.4 percent and Scandinavian Tobacco Group at 0.3 percent.
Euromonitor expects Norway’s smoking prevalence and tobacco market value to drop further.
On the occasion of World No Tobacco Day in May, Norway announced that it would introduce plain packaging for cigarettes. The Norwegian bill is reportedly based on Australian and U.K. legislation and will in principle cover all tobacco products, with the exception of certain product categories that are not used by young people—although the sale of such products might be restricted to specialist sales outlets.
Similar to Australian packs, tobacco packages in Norway will be required to be the same dark green color, using the same font without logos or other design elements. The proposed regulation extends to the tobacco products, which, for example, may feature only a certain color of cigarette or tipping paper.
Denmark
Denmark is a bit of an outlier in Scandinavia. While its smoking rates stagnated around 20 percent between 2010 and 2015, the retail volume of its cigarette market shrank dramatically over that period, to 5.64 billion sticks from 7.7 billion sticks, according to Euromonitor. Including RYO stick equivalents, the cigarette market declined to 6 billion from 8.1 billion in the five years reviewed. Cigars and cigarillos, by contrast, saw a bit of boom before the revised EU Tobacco Products Directive (TPD2) took effect in May. Between 2010 and 2015, according to Euromonitor, the retail volume of the cigar/cigarillo category in Denmark almost doubled to 114.4 million units.
Value-wise, the Danish tobacco market contracted to $2.12 billion in 2015 from $2.4 billion in 2010. Euromonitor anticipates the decline to continue “relentlessly” between now and 2019. Cigarette value sales including RYO accounted for the vast majority of the market, representing $1.78 billion in 2015, down from $2.09 billion five years earlier.
Aided by its 2008 acquisition of House of Prince, BAT boasted a Danish market share of 73.6 percent in 2015. The remaining market was shared by PMI (17 percent), JTI (7.5 percent), ITG (0.2 percent) and Von Eicken (0.1 percent).
In contrast to shrinking cigarette volumes and value, the vapor category showed impressive growth in Denmark, increasing to $41.8 million in 2015 from $22.1 million in 2010. By comparison, the 2015 retail value of vapor products in Norway and Sweden was $24.1 million and $3.7 million, respectively. This contrast is especially remarkable given Denmark’s population—only slight larger than Norway’s—and regulatory history: Until recently, the country classified e-cigarettes with nicotine as medicinal products, requiring manufacturers to obtain market authorization.
According to ECigIntelligence, this all changed on June 7, when Denmark introduced the draft proposal to transpose TPD2 into national law: Since then, selling nicotine-containing e-cigarettes and e-liquids has become legal.
Contrary to their Nordic neighbors, the Danish traditionally have displayed a strong liking for smoking combustible tobacco and pipe smoking. While the Danish smoking tobacco market shrank to $126.6 million from $144.5 million in 2010–2015, the decline was less dramatic than that in Sweden and Norway.
Perhaps unsurprisingly, Denmark is home to the world’s largest manufacturer of cigars and pipe tobacco, Scandinavian Tobacco Group (STG), which sells about 3 billion cigars and 5,000 tons of pipe tobacco annually. In 2015, it generated net sales worth dkk6.732 billion ($1 billion). According to Euromonitor, it led the Danish smoking tobacco category with a market share of 73 percent in 2014, followed by Mac Baren Tobacco Co. (22 percent).
Sidebar
Swedish Match eyes EU sales—again
In 2014, Swedish Match presented its vision of “a world without cigarettes.” To help accomplish that goal, the company said it would focus on less risky tobacco products. It named the development of the snus category in Sweden and the U.S., as well as continued efforts to establish snus and other innovative smoke-free products in select markets, as the core of its strategy.
As far as the EU is concerned, these efforts have not gone far; snus has been banned there since 1992. The EU based its measure on a WHO study suggesting some risk to snus users but ignored a number of Swedish long-term studies more favorable to snus. When Sweden entered the EU in 1995, it negotiated an exemption from the snus ban based on cultural heritage considerations. Swedish Match and the German tobacco manufacturer Arnold Andre have challenged the snus ban, but the European Court of Justice (EJC) rejected their arguments.
In July 2016, Swedish Match tried again, this time in Britain’s High Court of Justice, according to Reuters. The company has reportedly asked the U.K. court to make a reference to the ECJ on the validity of an article in TPD2. As TPD2 allows novel tobacco products, the company claims, the legal circumstances have changed. The supposed novelty of the product had been a main argument in the EU’s decision to ban snus.
This time, the company’s chances may indeed be better. Clive Bates, director of The Counterfactual, lists 10 reasons why Swedish Match has a strong case to overturn the EU snus ban (see www.clivebates.com/?p=2461).
For starters, according to Bates, there is now a better scientific basis supporting the harm reduction properties of snus. Swedish Match’s interaction with the U.S. Food and Drug Administration (FDA) will likely play a role, too: In November 2015, the FDA authorized the marketing of a new Swedish Match snus range in the U.S. Although the agency does not allow the manufacturer to make a reduced-risk claim, it nevertheless means that the product has been evaluated by the FDA as being “appropriate for the protection of public health.”
Also, unlike its predecessor, TPD2 includes a notification process for “novel tobacco products,” which makes it difficult for lawmakers to treat snus differently from other “new” products.
Although the European Commission in its 2010 TPD2 consultations decided to uphold the snus ban, both the public consultation statistics and the governmental representative response statistics showed that a majority was in favor of lifting the prohibition, according to Bates.
Swedish Match says it chose Britain because the procedure to make a reference to the ECJ was unavailable in Sweden. Britain is also known for its open-minded attitude toward innovative tobacco products, but it remains to be seen whether the country was the right choice for such a move in the light of the country’s decision to leave the EU. Should the British High Court refer the case to the ECJ, Swedish Match expects a ruling by mid-2018 at the earliest.—S.R.
The company also prides itself on diversifying its product offerings as well as formulating and distributing “green” and healthy chemical specialties with a focus on reducing energy consumption and increasing environmental efficiency during the production and manufacturing phases.
