BAT aims to lead growing market for e-cigarettes market

British America Tobacco is aiming to become the UK’s lead supplier of e-cigarettes after it became the first major tobacco company to put them on sale this week.

It launched online sales of its Vype e-cigarette yesterday and plans to have them in shops in September. Retailing at £6.99, the disposable Vype costs around the price of mid-priced packet of cigarettes and provides roughly the same number of puffs.

“It is currently a small market but 30% of smokers have tried an e-cigarette,” said BAT’s director, Kingsley Wheaton. “It is our ambition to achieve a leading position in the UK. It is a natural extension of our ‘harm reduction’ strategy.”

Analysts at Panmure Gordon estimate that the UK market for e-cigarettes could grow from 700,000 users in 2012 to 1.3 million this year. They called BAT’s move a “positive development.”

BAT claims that Vype is an advance on current e-cigarettes on sale in the UK. It not only has a soft filter tip, like an ordinary cigarette, but is claimed to have a better taste. The nicotine fluid, called ECOpure, is made at Manchester University’s Incubator Centre by CN Creative which BAT bought for £40 million at the end of last year. The e-cigarette’s body is made in China. Profit margins on e-cigarettes, which attract no excise duty, could be potentially much higher than on conventional cigarettes.

But Wheaton said: “At the moment we have high start-up costs and marketing and distribution costs are heavy. But eventually the price of e-cigarettes could well come down.”

For the time being the UK’s  estimated £100 million a year cigarette market is dwarfed by BAT’s first half worldwide sales of £7.57 billion. That was a rise of 4% on a year ago as higher prices more than made up for a 3.4% decline in the volume of cigarettes sold. Headline pre-tax profits rose by 5% to £2.8 billion and the interim dividend goes up by 7% to 45p a share.

Nicando Durante, chief executive, said: “We continued to grow cigarette market share in our top 40 markets, led by the good performances of the global drive brands. We have the right plans in place and the resources at hand to continue to strengthen our competitive position and to deliver another year of good growth.”

Geographically Asian Pacific markets like the Philippines, India, Pakistan  and Bangladesh produced  the strongest growth.

In the UK mid-priced brands Pall Mall and Rothmans increased their market shares.