The Big Tobacco Write-Down: British American Tobacco writes down $31.5 billion
Tobacco giant British American Tobacco rocked markets this week with a massive $31.5 billion write-down on the value of key cigarette brands like Camel, Newport, and Pall Mall.
A Sign of Shifting Sands
This huge accounting charge signals a watershed moment. It broadcasts that big tobacco sees the traditional smoking market fading away within the next 30 years.
BAT spelled out that stark view. It said that it can no longer justify assigning these tobacco brands an indefinite lifespan given economic and regulatory pressures. So it slashed their worth, anticipating a phase-out by mid-century.
Economic Squeezes and Illicit Competition
BAT pinned part of the blame on strains hitting many consumers. Surging inflation leaves less money for pricier smokes. Some are “trading down” to discount brands. This shrinks BAT’s market share.
At the same time, growth in illicit e-cigarettes eats into sales. These unauthorized disposable vapes offer a cheap high that pulls users away from old-school cigs.
So BAT sees the good times going up in smoke, despite price hikes on brands like Lucky Strike, Pall Mall, and Kool.
The Inexorable Regulatory Squeeze
Tighter rules also play a huge role. The FDA lays out a roadmap to eventually reduce nicotine levels so that cigarettes no longer hook users. Menthol smokes also face a looming ban.
Big tobacco sees the noose tightening. So the giants place big side bets on next-gen nicotine gizmos as their Plan B.
Preparing for a Smoke-Free Future
The quest for life after cigarettes explains BAT’s other announcement. It set a goal for new nicotine products to rake in 50% of total revenues by 2027.
Currently, this “non-combustible” niche brings in just 10% of sales. But BAT sees massive room for vapes, heated tobacco, and oral products to displace old-school smoking.
Juul and Puff Bar make a mockery of the claim that vaping mainly helps adult smokers quit. These high-nicotine devices hook teenagers who never touched a cigarette. Nonetheless, tobacco execs argue this diversification strategy builds a “smoke-free world.”
What Does This Write-Down Mean?
On one hand, the mammoth charge is an accounting adjustment reflecting less optimistic assumptions. It doesn’t touch BAT’s cash position or operations.
But on the other hand, it signals tobacco honchos finally admitting that the glory days of smoking may soon burn out. The profit party fueled by selling death sticks can’t rage on indefinitely after all.
Banning menthols and scaling back nicotine may not kill smoking altogether. However, insiders see the signs suggesting its best decades are behind it.
Is This the Beginning of the End?
Public health experts still excoriate big tobacco for aggressively marketing cigarettes over decades well aware of their lethal effects. Campaigns targeting teens and minorities draw particular ire.
However, the financial incentives steadily shift toward non-combustibles – even if their long-term effects remain unclear. This push coming from profit motives likely augments changes imposed by legislation.
So while major change rarely happens overnight, BAT’s decision symbolizes a potential turning point. The start of steadily phasing out the ultimate legacy product that built big tobacco into a goliath.
30 more years of cigarette sales still generate huge sums. But the clock ticks louder on the Marlboro Man’s reign coming to an end.
