The acquisition by British American Tobacco of Reynolds American for $49 billion will give rise to the biggest listed tobacco company in the world. Its portfolio includes some of the best-known brands globally: Dunhill, Camel and Newport.
If you think this is a desperate measure, think again. Big Tobacco is healthier than ever (pun intended).
Just visit the websites of the four names that make up Big Tobacco: British American Tobacco, Philip Morris International, Reynolds American and Altria. They seem exercises in Stalinist mea culpa and dissimulation. Reynolds American’s would send you back to the URL to check if you got it wrong. From the very dull looks of it, the site would seem that of a tiny public utility unwilling to invest more than a few pennies in marketing and advertising.
And indeed, the huge advertising restrictions placed on tobacco companies after the wave of lawsuits against them have proved a boon for the industry. All that money that was spent in (very expensive) ads in the past now has been adding up to the bottom line.
In other words, the law of unintended consequences has helped Big Tobacco. Not only they are saving advertising money. Smoking rates have fallen, but thanks to population growth there are still some 1.1 billion smokers around, the same as in 2005. And rising prices have pushed retail sales up by 29 percent, according to Euromonitor, a data firm quoted by The Economist.
More importantly, advertising restrictions have left out smaller tobacco companies that cannot take on the goliaths that rule the market. And make no mistake: e-cigarettes and tobacco heating devices—the “healthier alternatives” to smoking—will benefit Big Tobacco. Minor players lack the resources to take on the complex maze of regulations that behemoths backed by armies of lawyers can take on. When it comes to cigarettes, it seems, size does matter.