The Strategist

British American Tobacco Goes Eastern Europe

09/23/2015 - 14:10

British American Tobacco company announced signing an agreement to purchase the Polish manufacturer of electronic cigarettes Chic Group. In addition, the British company has agreed to alliance with RJ Reynolds American. Precisely, the participants will exchange technologies used for electronic cigarettes production.

Kat Macaulay via vimeo
Kat Macaulay via vimeo
The second largest world producer of tobacco British American Tobacco (BAT) company buys Polish manufacturer of electronic cigarette Chic Group company. Manufacturers of traditional tobacco products consider expansion of electronic cigarettes market share especially important now, as tobacco consumption in the world has been steadily declining in recent years. According to Wells Fargo, sales of cigarettes fell by 3.2% in 2014, while the global market of electronic cigarettes is forecasted to exceed $ 7 billion by the end of 2015.
The acquisition will allow BAT Chic Group to significantly expand its portfolio of electronic smoking devices. The transaction amount was not disclosed. Chic Group controls 60% of the Polish market of electronic cigarettes, and manufactures products under brand names Volish, Pl, Provog, Cottien, LiQueen, Aromativ. The company has about 800 stores and points of sale of electronic cigarettes in Poland. According to Euromonitor, the Polish market of electronic cigarettes can grow by 31% to $ 572 million this year.

Simultaneously with the announcement of the purchase of Chic Group, BAT announced an alliance with American RJ Reynolds Tobacco, in which the companies will collaborate in the development and exchange of technologies needed for the production of electronic cigarette. The agreement, signed by the companies, will be in force until 31 December 2022. In the statement, BAT indicated that both agreements are important milestones on the way to strengthen the global business for manufacturing of next-generation products, and this will allow the company to meet the modern consumer’s needs.

In early summer, BAT announced the purchase of the Croatian tobacco company TDR, owned by Adris Grupa. The transaction value is € 550 million. Under the agreement, BAT is acquiring TDR subsidiaries (including the company Hrvatski duhani), as well as the assets of Adris, associated with the packaging, distribution and sale of tobacco products. In addition, the company assures that they will maintain TDR’s production capacity in the city of Kanfanar for at least five years.

Adris Grupa is profiled on two areas: the production of tobacco products (the company TDR) and tourism. The company's revenues last year amounted to € 724 million, profit declined slightly compared with 2013 year and amounted to € 51 million. TDR produces cigarettes under the brands Ronhill, York, Walter Wolf. Sales of tobacco products in the past year fell by 9%. September last year, Adris Grupa had announced plans to find a partner for its tobacco units. BAT manufactures cigarettes such as Dunhill, Kent, Pall Mall, Benson & Hedges and Rothmans.

The purchase allows BAT to get direct access by three markets: Croatia, Bosnia and Serbia, as well as gives the company the opportunity to gradually build up business in Central Europe. This is vital in the light of reducing tobacco consumption on many Western markets.