ITC may Have to Fo­cus on Non-to­bacco Space Now

De­clin­ing con­sump­tion of to­bacco prod­ucts glob­ally has pushed cos to­wards in­no­va­tion; ITC has also in­tro­duced dif­fer­en­ti­ated prod­ucts

The Economic Times - - Smart -

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

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

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

To sup­port growth, in­dus­try lead­ers are in­tro­duc­ing non-com­bustible prod­ucts such as vapour de­vices. Ac­cord­ing to an in­dus­try re­port by Bloomberg, these prod­ucts only ac­count for 1% of global to­bacco sales, but go­ing for­ward may make up a steadily grow­ing pro­por­tion. While lead­ing global cig­a­rette com­pa­nies have for­ayed into the e-cig­a­rette mar­ket, only a few of them are de­vel­op­ing more spe­cialised de­vices such as ‘heat­not-burn’ prod­ucts, nico­tine in­halers and aerosol-nico­tine de­liv­ery sys­tems. Prod­uct in­no­va­tion is es­ti­mated to be a key theme for the to­bacco in­dus­try. In July last year, Al­tria and Philip Mor­ris In­ter­na­tional en­tered into an agree­ment to work jointly on re­search, devel­op­ment and tech­nol­o­gyshar­ing frame­work for de­vel­op­ing their un­con­ven­tional cig­a­rettes.

ITC has also in­tro­duced dif­fer­en­ti­at­ed­prod­ucts.It­for­ayed­in­tothe­elec­tronic va­p­ing de­vice cat­e­gory with the launch of ‘Eon’ in 2014. Af­ter its ini­tial launch in Hy­der­abad and Kolkata, the brand­has­beenex­tend­ed­toBen­galuru, Delhi and Goa, and is also sold on­line. ITCal­so­ex­pand­edthe­mar­ket­p­res­ence of KwikNic, its nico­tine chew­ing gum, addingth­ep­har­ma­chan­nel­tothe­p­rod­uct’s distri­bu­tion foot­print.

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

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