The UK's #1 cigarette maker, Imperial Tobacco Group eyes an even larger throne. The group has lavished billions on brand-building acquisitions -- including Spain's Altadis (2008), Commonwealth Brands in the US (2007), and Germany's Reemtsma (Davidoff and West cigarettes, 2002) -- to extend its reign across Europe, Africa, the Middle East and Asia/Pacific region, and North America. In addition to Davidoff, major brands include Gauloises, JPS, Rizla, KOOL, Salem, blu e-Cigs, Montecristo cigars, and Skruf snus. Imperial Tobacco operates some 50 cigarette and tobacco product and processing plants worldwide, as well as a logistics business. Products are sold in 160-plus countries; emerging markets account for 60% of cigarettes sold.
The company manages its tobacco business as two units. The Growth brands, which have broad appeal in all markets, include cigarettes and loose tobacco under the Davidoff, West, Gauloise, and Parker & Simpson brands, among others. The Specialist brands, which appeal to niche groups and provide steady returns, include cigarettes, loose tobacco, papers, cigars, and smokeless tobacco under the Gitanes, Montecristo, Route 66, and Skruf names, among others. The split approach began during the global recession when Imperial Tobacco noticed an improving trend in lower-priced brands as more smokers traded down in order to maintain their habit. It began expanding its Growth portfolio while managing Specialist to contain costs. The few products that don't fit this formula are being transitioned in.
While tobacco accounts for two-thirds of the company's business, its logistics unit covers the other third. The division provides its services to Imperial Tobacco companies and third parties.
Imperial Tobacco is rolling out regional and local luxury tobacco brands with some success in emerging markets, particularly the Asia/Pacific region, but also Eastern Europe, Africa, and the Middle East. In China, Imperial Tobacco has signed a 10-year pact to produce and sell cigarettes. Snus (smokeless tobacco) brands, Skruf and Knox, hold more than 5% of total snus sales volumes in Sweden and Norway.
The company has 46 manufacturing sites and operates in 160 countries worldwide. The company’s main Growth Markets include the US and selected markets in the EU, Eastern Europe, Asia, and the Middle East. Specialist markets include Australia as well as parts of the EU, Eastern Europe, and Africa.
In 2013 revenue decreased by 6% to £26.63 billion compared to £28.27 billion in fiscal 2012, due primarily to falling sales in both segments. Tobacco was impacted by foreign exchange movements and the company's stock optimization program. Behind the final results Growth brands outperformed market trends with a 7% in sales volume compared to the declining tobacco market in general. Imperial Tobacco has gotten used to controlling costs and did so to deliver a 56% increase in net income leading to an 8% increase in cash from operations.
Careful brand management is a key part of Imperial Tobacco's strategy but so are acquisitions. To that end, in 2015 the company paid $7 billion for three American cigarette brands from rival Reynolds American as well as cigarette and e-cigarette brands and certain physical assets from Lorillard. Reynolds purchased Lorillard in 2015, a move that required both to offload some properties to appease antitrust regulators. Imperial purchased Winston, Maverick, Kool, Salem, and e-cigarette brand blu, to become the #3 cigarette company in the US, the world's most profitable market.
Cost control is also key to Imperial Tobacco and in 2014 it closed underperforming plants in the UK and France after increased tobacco regulations and continued economic sluggishness cut output in half.
Mergers and Acquisitions
In 2013 Imperial Tobacco consolidated part of its business when it paid £41 million for its Cambodian distributor and created Imperial Tobacco Cambodia.