BR Cover Story | BAT: Strongly committed to a better tomorrow

With a clear target of achieving 50 million consumers for its non-combustible products by 2030 and making investments of more than GBP 300 million per year to develop new tobacco and nicotine products to ensure that they evolve as technology, science, and consumer preferences change, BAT is committed to “Building a Smokeless World.” The company’s factory in Romania, located in Ploiesti, was the first in the EU to produce tobacco consumables for glo, its tobacco and herbal heating device. EUR 500 million have been invested in the factory’s development, today one of the largest exporters in Romania, with 70% of the production going to over 45 markets, and an employer of over 1,000 skilled people contributing to the company’s business transformation. BR sat down with Jorge Araya, BAT SEE Area Director and GM of BAT Romania, and talked about the company’s achievements so far and its ambitious goals for creating a Better Tomorrow.

By Anda Sebesi

How would you describe the transformation of your industry in general and that of BAT in particular?

Innovation is renewing and modernising an industry, a product or a service with new features, fresh perspectives, or disruptive concepts that generate new value. This is the most important trait of innovation: the value it creates. In our industry and business, the added value of innovation is clear: we offer smokers who would otherwise continue to smoke reduced risk* alternatives that are able to convey a safer form of consuming nicotine. BAT invests close to GBP 2 billion annually in developing its new innovative category products like vaping products, tobacco and herbal heating products, and modern nicotine for oral use, and every smoker that switches from smoking to these reduced risks alternatives is a step forward to A Better Tomorrow™.

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10.8 billion lei paid by BAT Romania to the state budget in 2023

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You are a global leader in the tobacco and nicotine products segment. How is this position translated into the evolution of your product portfolio?

More than 10 years ago, BAT started a transformation process to reduce the risks associated with smoking, when we launched our first vaping product in the UK and the US. We have invested continuously in the research and development of our reduced risk* portfolio, that now includes vapor, tobacco and herbal heating products, and modern nicotine pouches for oral use. We are present in more than 60 countries with our new categories, with Romania being among the markets where BAT is the only company in the industry present with all 3 new categories: vapour, tobacco and herbal heating and modern oral nicotine products.

We aim high on all our markets: we are well on track to achieve 50 million consumers of our non-combustible products by 2030; after significant early-stage investment, we now expect our New Categories to be profitable from 2024 onwards; we have extended our global leadership position in Vapour, reaching 36.8% in key markets; we currently have 24 million consumers of non-combustible products, the revenue from which accounted for 16.5% of Group revenue in 2023; most importantly, we are committing to “Building a Smokeless World,” with 50% revenue from Non-combustibles by 2035.

How much do the new product categories weigh in your portfolio and what is the added value they bring for the overall business?

To accelerate our transformation journey, at the end of 2023 we redefined our strategy for “Building a Smokeless World,” meaning we will deploy our global multi-category portfolio to actively encourage smokers to “Switch to Better” nicotine products. This commitment is supported by our new ambition to become a predominantly smokeless business, with 50% of our revenue from non-combustibles by 2035. These New Category products have delivered more than GBP 3 billion in annual revenue since their introduction a decade ago. With only 10% of the world’s 1 billion smokers currently using New Category products, the long-term opportunity for growth as we deliver on our transformation is quite significant.

More important than revenues is what these new category products stand for: A Better Tomorrow, meaning concrete, science-based nicotine products that are able to offer adult consumers safer options to consume nicotine and have a significant impact on society overall. We may not yet have the perfect solutions or devices, but the robust science tells us they bring a huge difference from smoking. We make major investments in their development, research, and the way we communicate and market them, with accountability and responsibility, and we hope more independent experts, scientists, and regulators will understand and join our endeavour.

What can you tell us about the R&D activity at BAT, in terms of investments?

Science has always been key to understanding our products’ impact and to driving the innovation that fuels our portfolio development and enables consumer choice. For more than 60 years, R&D has been a critical part of our business and we invest more than GBP 300 million per year to develop new tobacco and nicotine products to ensure that they evolve as technology, science, and consumer preferences change. Globally, we have more than 1,700 R&D specialists in the three research and innovation centres around the world: Shenzhen (China), Trieste (Italy), Southampton (UK). The BAT innovation centre in Trieste opened last year for the global production and innovation of new categories and the investment goes up to EUR 500 million over the next 5 years. In March 2024, BAT opened a state-of-the-art facility in Southampton dedicated to accelerating the development of its smokeless products. The centre is bringing together 400 highly-specialised engineers and scientists, working across nine technical spaces and labs, to realise our ambition of becoming a predominantly smokeless business by 2035. It is a GBP 30 million investment facility that strengthens BAT’s capabilities for device prototyping and the development of consumables.

In Romania, our factory in Ploiesti was the first in the EU to produce tobacco consumables for glo, our tobacco and herbal heating device. EUR 500 million have been invested in the factory’s development, today one of the largest exporters in Romania, with 70% of the production going to over 45 markets, and an employer of over 1,000 skilled people contributing to our business transformation.

What can you tell us about the main challenges resulting from this transformation of the industry, including from a regulatory perspective?

Regulation is very important, as it provides predictability and a level playing field. When developed appropriately with consideration for the available robust scientific evidence on the level of risks, the regulation of nicotine products can become the opportunity for adult smokers to make informed decisions and switch from smoking to reduced risk* alternatives.

With a comprehensive portfolio of tobacco and nicotine products, our business is increasingly complex and we heavily rely on regulation in terms of taxation, which should differentiate the new categories from cigarettes and provide predictability on the long term, as well as in terms of preventing underage access to nicotine products. Recently, the Romanian Parliament banned the selling of vapor products to minors, and we highly welcomed the decision as a sign of normalcy and responsibility. We drive annual awareness campaigns about the importance of a responsible trade of nicotine products to adult consumers only, and we hope that all our commercial partners are aligned on this high standard of integrity.

Last but not least, regulation should allow legitimate businesses to use technology and innovation for further development that addresses consumers’ needs and expectations. More importantly, regulation should protect industry innovation from illegal alternatives that may be able to elude the law, jeopardising consumer safety, business reputation, and awareness of the category and its benefits for society in general.

What is BAT’s vision on sustainability? How does this integrate into the overall vision of transformation? 

Our Sustainability Agenda is integral to our Group strategy and purpose to build A Better Tomorrow™. It reflects our commitment to reducing the environmental impact of our business, creating shared value, and delivering results that benefit our stakeholders. BAT has a range of Sustainability targets, including a 50% reduction in Scope 1 and 2 GHG emissions and a 50% reduction in Scope 3 GHG emissions by 2030 (vs 2020 baseline), and for 100% of its packaging to be reusable, recyclable or compostable by 2025.

We have clear and very ambitious global targets and we commit to driving a positive local impact in our communities, with multi-annual projects in environmental protection, cultural investments, and awareness campaigns on the severe risks of illicit trade for economy and communities. In Romania, we bring our employees close in the sustainability journey with initiatives such as blood donation, selective waste collection, textile donations for reuse and recycling or planting and afforestation actions, with over 5,000 trees planted this year in Calarasi County.

And it’s not just our own actions that reflect the commitment for sustainability, as we are proud of bringing our consumers along in this journey: with a circular vision on sustainability, which covers the entire lifecycle of its products, BAT Romania launched in 2021 a national take-back scheme for the recycling of the previous versions of glo, its heating device for tobacco and herbal consumables. In 2022, the programme was extended to BAT’s vaping devices. Currently, more than 360 collection points are active across Romania, and so far more than 155,000 devices have been collected.

You’ve been in your current role for more than a year now. What have been your main achievements and how do you see the business’s evolution across the SEE Area at this moment? 

I am honoured to lead, from Bucharest, one of the most dynamic and exciting areas in BAT, comprising 13 markets with an impressive cultural heritage and local specificities. There are two things I focus on that unite our team, in my opinion: first, we are stronger together, and that is possible thanks to the motivated team of people we have in this Area, who are extremely talented, creative, and inspiring. I believe in heavily investing in people’s development to prepare them to lead, to build their vision and leadership potential.

Secondly, we have a passion to win, as at BAT we believe in our leadership mission as a key enabler to reach our company’s purpose—A Better Tomorrow™. And that is highly reflected by our transformation, which is the company’s key mission in its transition to a smokeless world. I am proud to say that we are present with all three reduced risk* categories in most of our markets across the Area, currently being the only company offering the entire range of new categories on these markets.

We remain committed to our investments in developing our people and transformation and to contribute to the local economic development and generate a positive impact in society.

*Based on the weight of evidence and assuming a complete switch from cigarette smoking. These products are not risk-free and are addictive.