Tobacco is a dirty word, for a lot of people at least. It’s not hard to see why, given the whole cancer connection, compounded by years of high taxes and negative marketing from health (and wallet) conscious governments. But for a tobacco company itself to turn its nose up at the word is perhaps more surprising.
Pending shareholder approval, 114 year-old FTSE 100 firm Imperial Tobacco will become Imperial Brands next year. Like Philip Morris in the US (now the far cleaner-sounding ‘Altria’), the firm apparently wants to distance itself from its products’ negative associations. Of course, ‘Imperial’ isn’t exactly PC either. Perhaps it could lose that too, and just start calling itself ‘Brands’?
Imperial’s decision – which it stresses will only really affect its Bristol HQ, as it’s ‘not a global rebranding’ – could have more to do with future diversification than PR. It already sells e-cigarettes and owns a logistics company (the imaginatively named Logista), which extends beyond its tobacco delivery core and contributed about 5% of the firm’s £3bn adjusted operating profit this year.
But there’s little else to suggest diversification is on the cards. Imperial spent $7bn (£4.7bn) entering the US tobacco market with a serious of brand purchases earlier this year. It’s got a clear strategy to focus on its ‘growth’ and specialist tobacco brands, particularly in emerging markets, and it appears to be working.
Operating profits were up 6.8% on a constant currency basis in the year to September 30, before the American purchases are taken into account, as volumes of Imperial’s growth brands grow. The other brands (‘portfolio’, which sounds better than ‘non-growth’) may be shrinking fairly rapidly, but the future of global tobacco actually looks quite good from where Imperial’s sitting.
In the future, as bans on advertising and the imposition of plain packaging spread to the developing world (presuming the big tobacco firms don’t beat it in the courts, as they are trying to do here), it may be that these firms need to diversify out of tobacco and into less controversial products – guns or hoverboards perhaps.
For the time being though, firms like Imperial are likely to continue to sell what they’ve always sold – regardless of what they choose to call themselves.