British American Tobacco (BAT)is ramping up efforts to diversify into e-cigarette distribution amidst a downturn in both export and domestic sales volumes.
The strategic move aligns with the global health trend, positioning e-cigarettes as a less harmful alternative to traditional smoking.
E-cigarettes, known by various names such as e-cigs, vape pens, and electronic nicotine delivery systems, have gained popularity in recent years.
“The group and company also launched Vuse ‘New Category’ products into the Zimbabwean market in October 2023, which realized a total sale of 34,000 devices,” said BAT Chairperson Lovemore Manatsa in a performance update for the financial year 2023.
The Zimbabwe Stock Exchange-listed firm has been proactive in diversifying its income streams due to the overall decline in sales.
While scientists are still studying their pros and cons, the Centers for Disease Control and Prevention (CDC) acknowledges that e-cigarettes contain fewer toxic chemicals compared to the thousands of chemicals found in regular cigarette smoke.
The e-cigarette market holds significant potential, especially considering that a large number of smokers in the United States are looking for alternatives to quit smoking.
Additionally, smoking bans and the preference of younger generations for e-cigarettes have contributed to the rapid growth of this market.
According to Statista, the global e-cigarettes market is projected to generate a revenue of US$26 billion in 2024, with an annual growth rate of 3.06 percent.
One of the driving factors behind this growth is the perception that e-cigarettes are reduced-risk products. A Statista Global Consumer Survey conducted in early 2022 revealed that 27 percent of Millennials used e-cigarettes. Lower pricing and a wide variety of flavors also contribute to the appeal of e-cigarettes.
However, for countries like Zimbabwe, which heavily rely on tobacco as a major foreign currency earner, the shift towards e-cigarettes poses challenges.
Zimbabwe is the second-largest tobacco exporter after gold, with significant export volumes to countries like Mozambique, Botswana, and South Africa.
The adverse effects of inflationary pressures and exchange rate volatility have already depressed consumer spending, leading to concerns about a slowdown in sales volumes and earnings for businesses like BAT.
Analysts project that BAT will be affected by the erosion of disposable incomes. The company already experienced a 5 percent drop in volume performance during the previous financial year, with cigarette sales declining from 1,054 billion sticks to 1,003 billion sticks.
“In our view, volumes will likely remain weak for BAT Zimbabwe. Market share will also remain under pressure from the availability of cheaper brands, signaling decreasing pricing elasticity for the firm,” said research firm IH Securities.
IH Securities forecasts that BAT will generate approximately US$35.14 million in revenue in the financial year 2024 (FY24), with advertising costs as a percentage of revenue expected to rise as the company tries to stimulate demand.
The firm also projects that BAT will achieve earnings before interest, tax, depreciation, and amortization (EBITDA) of US$14.06 million in FY24, with a corresponding margin of 40 percent.
In the past year, BAT Zimbabwe experienced a decline in cut rag export volumes, which dropped by 32 percent year on year to 282,940 kilograms. The company also faced increased defaults from its customers.
However, despite these challenges, BAT Zimbabwe’s historical revenue grew by an impressive 937 percent to $180.96 billion compared to $17.445 billion in the previous year.
Selling and marketing costs as a percentage of sales decreased to 6.74 percent, while administrative costs increased nominally by 486 percent to $13.39 billion.
