Imperial Brands Explores Caffeine to Diversify From Tobacco

  • Strict packaging rules raise prospects for non-tobacco items
  • Pomegranate and chili-flavored melting caffeine powder tested

U.K. cigarette maker Imperial Brands Plc is testing caffeine energy products as its home market starts prohibiting cigarette logos on packaging, posing one more obstacle to tobacco companies in how they market their products.

The company sees growth prospects in energy boosters as well as in e-cigarettes, Chief Executive Officer Alison Cooper said on a call with reporters Wednesday. Imperial has been testing caffeine products in the U.K. under the Reon brand, and is selling packs of powder laced with the stimulant and priced at 3 pounds ($3.87) for four doses.

About a year after jettisoning the word “tobacco” from its name, Imperial Brands is stepping up efforts to move beyond its main product as competition increases and government regulations weigh on the industry outlook. Later this month, the U.K. is prohibiting the sale of cigarettes with logos on the packages, requiring them to be sold in standardized, dull packs with large pictorial warnings on the effects of smoking. France also implemented such measures this year.

“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. Imperial Brands set up a venture called Fontem about five years ago for such businesses, which include e-cigarettes.

In the U.K., Fontem is selling pomegranate-flavored melting caffeine powder, according to its website. Each pack contains four sachets that deliver 80 milligrams of caffeine, about as much as a double espresso, plus vitamin B12. Fontem also sells a “roulette” pack that includes one spicy chili sachet, which is unlabeled to make it a surprise.

Imperial Brands faces increasing competition as larger rivals introduce heat-not-burn tobacco alternatives and after British American Tobacco Plc offered $47 billion to buy out Reynolds American Inc. Philip Morris International Inc. has said it aims to stop selling traditional cigarettes eventually as it expands its iQOS heat-not-burn offering to as many as 35 markets this year. Imperial Brands has stayed out of that market, favoring e-cigarettes such as its Blu brand.

The prospects for vapor are better as heat-not-burn products attract older smokers, Phillips said. The company says it’s monitoring whether heated tobacco picks up outside of Japan, which is the market that’s switched over to such products the most so far. If demand warrants and Imperial Brands needs to change its strategy, it could come up with a heat-not-burn product within months, Phillips said.

Highlights of Imperial’s first-half results include:

  • Adjusted operating profit fell 7.6 percent at constant exchange rates to 1.74 billion pounds ($2.3 billion) in the six months through March. Analysts expected 1.65 billion pounds.
  • Imperial forecast stronger second-half earnings and raised its goal for cost savings this year to 130 million pounds from November’s forecast of 90 million pounds.
  • Stock rose as much as 0.8% in London
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