Smoking Levels Continue to Fall as Big Tobacco Scrambles for Share of Globalising E-Cig Market

There are now more ex-smokers in Britain than current smokers.

Figures from anti-smoking charity ASH show that about 22% of men and 19% of women in the UK are current smokers, compared to 27% of men and 22% of women who have quit.

The writing has been on the wall for a long time. In 1974, more than 50% of adult males in the UK smoked tobacco. The figure has more than halved in 40 years.

In the US, smoking rates dropped by half between 1965 and 2006. Rates are higher in continental Europe, but the pattern is still edging towards overall decline.

Of the aforementioned ex-smokers in Britain, 17.7% are using electronic cigarettes, a figure which has risen from 2.7% in 2010. Of that figure, 71% are using e-cigarettes to help quit smoking altogether, with 48% using them to "keep them off tobacco".

When you consider these statistics, today's news that Imperial Tobacco posted big declines in revenue and operating profits for the half year to 31 March isn't all that surprising. British American Tobacco last week also reported a fall in revenue (12%) – it's an industry-wide trend.

The most notable factor in Imperial's results, however, has been the impact of tighter regulation in Russia, which banned tobacco advertising and smoking in many public places last year. The company directly credited these pieces of legislation with helping trim 17% from its operating profit margins.

Russia is the second largest tobacco market in the world, after China. Anyone who has spent time in a smoky Moscow bar or café will attest to the city's status as a smokers' paradise. Is the decision to progress with anti-smoking policy indicative of a turning tide in markets which have been extremely kind to tobacco companies?

Demand has traditionally been much less elastic in emerging markets. The viral YouTube video of a two-year old Indonesian boy smoking a cigarette remains etched in the memory of millions, howls of laughter enveloping the adults around him.

The video was symbolic of the way in which big tobacco has taken advantage of a lack of cynicism towards their products in such markets. Even today, Imperial implied that its performance in emerging markets is propping up subdued demand in the west (Russia was the notable exception).

But is this soon to change?

On a trip to Moscow in January, I was completely impervious to any ban on smoking in public places: everyone seemed to be lighting up as and when they pleased. I was, however, struck by the number of users of e-cigarettes – a phenomena I'd not noticed on previous trips to the capital.

E-cigarettes have been impossible to escape in the UK for the past year or two: they're everywhere. Their presence amid the legislative environment in Russia demonstrates that on a global basis, they're becoming the last battleground for smokers' lungs.

A recent report by Research and Markets, a US market research company, shows that India's e-cigarette market is one of the fastest-growing in all of Asia, with the products being sourced mainly from China.

Simon Evans, a spokesperson for Imperial Tobacco, tells IBTimes UK that the company is taking a "measured" approach to the e-cigarette market, "given the regulatory uncertainty".

Uncertain it may be, and e-cigarettes remain a fractional part of the global smoking market. But all of the major players in the tobacco sector are now taking an interest in the electronic market, which has thus far been dominated by specialist providers such as Innokin and ESON.

In February, Imperial's subsidiary Fontem Ventures launched Puritane, its first e-vapour product, which is to be stocked in 2,400 Boots stores across the UK. Evans expects momentum to build as the company steps up its marketing campaign and for this to be reflected in next year's figures.

British American Tobacco started selling its Vype product last year. Reynolds American, manufacturer of the Camel brand of cigarette, hit the market with its Vuse e-cigarette last year.

"We feel we're well-placed with e-cigs – we'll have two products in place by the end of the year," said Evans.

As anti-smoking sentiment and legislation crept into the west, tobacco companies shifted their marketing focus to developing markets (much to the ire of health lobbyists).

Now, with legislation piling up and tastes changing in emerging markets, it can only be a matter of time before big tobacco looks to export its latest innovations as it scrambles for a slice of the pie.