During the last three years, reduced-risk products have increased as a proportion of total tobacco sales. However, their share in 2019 was 3% of value and 2% of volume sales, reflecting a clear need for stronger action by companies to support harm reduction. This need is even greater for low-medium income countries as companies have almost exclusively focused on transitioning high-risk sales to reduced-risk sales in high- medium income countries, where cigarette sales have been falling for many years already.
Swedish Match AB (Swedish Match) is the only company to derive close to half of its sales from reduced-risk products. However, it still maintains significant sales in high-risk products, particularly cigars, chewing tobacco, and moist snuff in the US. The top five international players – Philip Morris International Inc (PMI), British American Tobacco Plc (BAT), Japan Tobacco Inc (JTI), Imperial Brands Plc (Imperial), and KT&G Corp (KT&G) – are all actively selling reduced- risk products, but the majority of their revenues are from high-risk products. Nearly a fifth of PMI’s revenue and 5% of KT&G’s revenues are currently from reduced-risk products, driven by heated tobacco sales. BAT‘s reduced-risk alternatives also comprise around 5% of its revenues, due in part to snus, cartridges, and non- tobacco nicotine pouches, which occupy the lower end of the risk spectrum. Imperial and JTI are the remaining manufacturers with notable sales from reduced-risk products, at 3%. The share of reduced-risk product sales is even lower when analyzing volume data in per stick equivalents, particularly for PMI (8%) and KT&G (2%).
The index encourages companies to take part in the industry’s transformation not only in high-medium income countries as they currently do, but in low-medium income ones as well, where the majority of the world’s smokers live.
Sales of reduced-risk alternatives are currently focused almost exclusively in high-medium income countries, where steps toward industry transformation are manifested in a slow build in reduced-risk product sales – from 2.3% in 2017 to 3.5% in 2019 in net value sales and from 1.5% in 2017 to 2.2% in 2019 in per stick equivalent volume sales. In low-medium income countries, reduced-risk product sales account for less than 1% in both value and per stick equivalent volume terms at the end of 2019. Companies such as Imperial, KT&G and Swisher International Group Inc (Swisher International), which already offer reduced-risk products, have not extended these sales into low-medium income markets, where their sales of high-risk products dominate.
Companies will need to focus on reversing the sales ratio of reduced-risk versus high-risk products in order to support current smokers in a shift away from high-risk categories. The index encourages companies to take part in the industry’s transformation not only in high-medium income countries as they currently do, but in low-medium income ones as well, where the majority of the world’s smokers live. This transformation must accelerate the transition to the least harmful reduced-risk categories.
2019 Net Value Sales of Reduced vs High-Risk Products by Company (%)
Source: Tobacco Transformation Index based on estimations of company data derived from publicly available resources (including company financial and sustainability reports, quarterly and half-year updates, press releases, investor briefings, and company presentations); industry and financial databases (Passport, Orbis, and Capital IQ); interviews with industry experts.
Note: Net Value Sales refer to gross sales minus applicable sales returns, allowances, and discounts. Gross sales do not include cost of goods sold, operating expenses, excise tax expenses or other charges.
Please note that despite selling reduced-risk products, the percentage for Altria and ITC is lower than 0.5%