Imperial turns to caffeine as cigarette laws tighten and smokers quit the habit

From 21 May small packets will be banned in the UK and all tobacco must be sold in plain brown-grey packaging with prominent, graphic health warnings

Imperial announced tobacco sales volumes were down 5.7% (Getty)

As governments increasingly clamp down on cigarettes, one of the world’s biggest tobacco firms is banking on another potentially addictive product - caffeine.

Imperial Brands, which makes Gauloises and Winston cigarettes and was known as Imperial Tobacco until a year ago, is faced with a raft of new rules aimed at reducing people’s smoking habit.

From 21 May small packets will be banned in the UK, meaning the cheapest available will be around £9. All packs must also be sold in plain brown-grey packaging with prominent and graphic health warnings. Menthol cigarettes are to be phased out by 2020. Similar moves have been implemented or discussed in other developed markets, including France.

As a result, sales are falling - Imperial announced on Wednesday it sold 5.7 per cent less tobacco in the six months to the end of March, than it did in the same period last year.

To combat this, Imperial is looking to grow the market for caffeine energy supplements, the company said on Wednesday.

“We’ve been increasingly looking in other areas,” with a focus on products that would appeal to millennials, said Matthew Phillips, the company’s chief development officer told Bloomberg.

Imperial has been testing caffeine products in the UK under the Reon brand, and is selling packs of pomegranate-flavoured stimulant powder priced at £3 for four doses. Each shot contains about as much caffeine as a double espresso. Imperial also sells a “roulette” pack that contains an unlabelled spicy chilli sachet.

As well as stricter regulation, Imperial is battling the threat of increased competition from larger rivals. In January, British American Tobacco agreed a $49bn deal to buy out Reynolds American.

Another rival, Philip Morris International, said it aims to stop selling cigarettes altogether and has begun a shift towards “heat-not-burn” tobacco, a market Imperial has yet to break into.

Imperial said the prospects for e-cigarettes are better than for heat-not-burn because they attract younger smokers.

If demand picks up and Imperial could develop a heat-not-burn product within months, Mr Phillips said.

The UK-headquartered company reported operating profit down 7.6 per cent at £1.74bn for the half-year to 31 March. Its shares edged up 0.3 per cent on Wednesday

Additional reporting by Bloomberg