Big Tobacco sends out smoke signals

Competition among cigarette manufacturers in South Africa is set to heat up this year as Philip Morris International prepares to launch a new product to local smokers.

The plan is to bring the offer to market during the first half of this year, even as the government has affirmed its intentions to tighten anti-smoking regulation and frustrate access to consumers.

Authorities worldwide are turning up the heat on tobacco and its harmful effects.

And in the panic to maintain once bountiful profits, companies like Philip Morris (the producer of Marlboro cigarettes), British American Tobacco and Japan Tobacco International are shifting towards technology-based products as a new selling point.

In South Africa e-cigarettes are readily available and tobacco producers are developing further products to address the increasingly stringent regulations that govern smoking worldwide.

Philip Morris has developed a small range of products with its focus on iQOS, a tobacco-heating device that launched in Japan two years ago and has since been rolled out in Europe. The company believes the South African market is ready to receive the product.

Philip Morris International CEO Andre Calantzopoulos said iQOS would be available in South Africa in early 2017 .

"For us South Africa is a very important market because the concept of harm reduction is fairly well understood based on past experience with HIV/Aids," he said.

Speaking at the company's operations centre in Lausanne, Switzerland, Calantzopolous said South Africa was a significant market because of the influence it could have on regulation elsewhere in Africa.

Philip Morris is counting on South African authorities to adopt "appropriate regulation in line with what the US Food and Drug Administration has introduced", he said.

"If appropriate regulation is introduced, I'm sure the same model can be used for other countries [on the continent] ... and in many other countries in the world.

"South Africa has been at the forefront of tobacco regulation for many years. So it is a leading country from that perspective."

The FDA classifies the new category as modified-risk tobacco products, but pinning hopes on South Africa's adoption of similar regulation soon may prove to be a waiting game.

The South African Department of Health was still finalising regulations that applied to traditional cigarettes, advertising and public smoking, spokesman Joe Maila said.

Calantzopolous said: "I'm hopeful ... that we can differentiate the products from combustible products in particular, so that we can communicate with South African consumers about the benefits, but also explain to them how to use this product, the advantages and some of the impediments it has because it's different in terms of ritual from conventional products."

Regulations relating to current products prohibit advertising and Maila said amendments to the regulations were also considering the banning of cigarette vending machines because these provided easy access for children.

"We will deal with e-cigarettes at some point. As South Africa we are determined that we deal with the harmful effects of tobacco and we are not apologetic about it. We are going to do it," Maila said without confirming timelines.

Calantzopoulos said Philip Morris was committed to the commercialisation of its new product and would incrementally reduce its focus on traditional products. Already it has spent about $3-billion (about R40-billion) on development of iQOS.

"Investments will be made to convince all smokers in the world to switch to better alternatives," he said.

He said reduced-risk products were not zero risk and the target market was smokers who did not want to quit.

He said the focus of the product was to provide an experience that was close to smoking traditional products.

The taste of tobacco, the experience of drawing smoke and expelling an aerosol remained part of the experience, but because the tobacco was heat and not burnt, the harm to smokers was reduced.

Trailing close behind Philip Morris is Japan Tobacco International, which launched Ploom TECH in its home country via an online shop last March. The device heats a nicotine-free e-liquid, producing a vapour which is drawn through tobacco before being inhaled.

Nomalungelo Faku, JTI South Africa's spokeswoman, said the company could not divulge commercial roll-out details in other countries yet, but in Japan it was under way.

"What we can say is where we will launch, what type of emerging products - heated tobacco or e-cigarettes - will depend on a number of factors such as the regulatory framework, consumer demand and our distribution capabilities," she said.

British American Tobacco Southern Africa was also coy about the product it would launch in South Africa.

Spokeswoman Mandlakazi Sigcawu said: "Harm reduction is an important and exciting development.

"We look forward to playing an important role in the development of this product category in South Africa."

She said the company believed regulation of tobacco products and e-cigarettes should be evidence-based and follow sound scientific findings.

"Furthermore, any proposed regulatory framework for e-cigarettes should also take into account the reduced harm component of such offers."

Carnilinx Tobacco Company is in the early stages of developing reduced-risk products. Spokesman Adriano Mazzotti said the firm had commissioned research.

"We are hoping to conclude our research by the end of 2017," he said.

BAT is the leader in the local cigarette market with a market share of about 70% .

JTI and Philip Morris trail with just under 8% each, according to data from Euromonitor International.

Euromonitor said South Africa's about 7.6 million adult smokers (at the last count in 2016) continued to search for tobacco products that offered value for money or added value. Most smokers (5.5 million) are men.

"Due to their mid to high price range, capsule cigarettes are an expanding trend in South Africa among the country's middle- to upper-LSM groups," it said.

BAT and JTI launched products in line with this trend locally in 2015.

Sales of illicit cigarettes and legal units have been declining since 2015 largely because of an increase in unit prices because of higher tax.

Law enforcement agencies have clamped down on illegal cigarettes. Illegally traded cigarettes declined from 25million in 2015 to 23.9million in 2016.

Annual increases in taxes suggest that the price of cigarettes will continue to climb.

Cigarettes fell by 4% in volume in 2015 in South Africa, a Euromonitor report said.

Speckman travelled to Switzerland as a guest of Philip Morris