British American Tobacco Plc said Thursday it plans to eliminate 2,300 jobs, or 4% of its global workforce, by January as part of its aggressive shift toward non-traditional cigarette products.
The company did not say how the job cuts would be made, including locally, except that 20%, or 460 jobs, could come from management. It has about 56,000 employees worldwide.
Reynolds American Inc.’s workforce of about 5,500, as of Dec. 31, 2016, represented about 10% of the BAT global total. Reynolds has not provided a local workforce count in several years.
“Reynolds has already worked through most of these types of decisions through the merger and integration so any reductions here would be minimal,” Reynolds spokeswoman Kaelan Hollon said.
“In fact, we will be hosting some BAT Centers of Expertise here in Winston-Salem because of the group’s focus on the U.S. market. This won’t necessarily add to our employee base, but certainly emphasizes the importance of our people here to BAT’s global business.”
BAT said “a consultation process is now underway with all staff who will be impacted.”
“This is a global announcement, so the changes will be spread globally,” BAT spokeswoman Anna Vickerstaff said.
The restructuring, according to BAT, “create fewer, larger, more accountable business units; better leverage its Global Business Services activities; and simplify all key business processes and ‘ways of working.’”
“Since taking on the role of chief executive five months ago, I have been clear that I wanted to make BAT a stronger, simpler and faster organization and ensure a future fit culture,” Jack Bowles said in a statement.
“My goal is to oversee a step change in new category growth and significantly simplify our current ways of working and business processes, whilst delivering long-term sustainable returns for our shareholders. This is a vital first move to help achieve these goals.
“A program of this significance involves decisions that will be difficult for our people, but ultimately it is the right thing for our business,” Bowles said.
BAT spent $54.5 billion in July 2017 to buy the 57.8% of Reynolds American Inc. that it did not already own. The purchase shifted Reynolds and its more than 5,000 U.S. employees to becoming the wholly owned U.S. subsidiary of BAT after 142 years of corporate independence.
Legacy Reynolds shareholders own 19% of BAT.
Reynolds has not provided a local workforce count in several years. It was estimated to have between 2,000 and 2,200 employees locally, the majority of whom work at its plant in Tobaccoville
However, Forsyth County listed Reynolds with 3,000 workers in its top-10 county employer list in its fiscal 2018-19 budget presentation.
The restructuring is defined by BAT as “an important step in a program to simplify its business and create a more efficient, agile and focused BAT.”
“This will ensure the company is better placed to meet ever-evolving consumer needs and deliver savings that can be reinvested in the growth of its portfolio of new categories, such as vapor, tobacco heating products and oral tobacco,” the company said.
BAT said the restructuring should help it reach its goal of generating $6.2 billion in revenue from next-generation products by 2024.
The BAT announcement comes a day after the Trump administration instructed the Food and Drug Administration to begin the process of eliminating from retail most flavored electronic cigarette products, including mint and menthol — the two most popular flavors among U.S. adults.
Much of the 450 U.S. adults who appear to have become sick from vaping, including two announced Thursday in the Triad, have vaped products through open-pod e-cigarettes that appear to contain contaminants related to cannabis products including THC.
The announcement also comes shortly after Philip Morris International and Altria Group Inc. acknowledged they are discussing reuniting globally, in large part to enhance the linkage of their next-generation products.
“This news reveals a company that is caught between a rock and a hard place,” said Stephen Pope, managing principal with London-based research firm Spotlight Ideas.
“BAT is typical of what we have always called “Big Tobacco” in that the lion’s share of the top-line revenue has come from traditional tobacco products, mainly cigarettes,” Pope said.
“All the major players have had to find a way to migrate their product offering away from the old product pool and strike out to build market presence, if not dominance, in the “alternative” space that is led by vaping.”
Pope said the potential U.S. ban on flavored e-cigarettes “is a genuine hammer blow” given BAT’s next-generation revenue goals.
“It seems that BAT, et al, need to develop a strategy within the strategy,” Pope said.
“This is more than a Plan B, as they cannot just walk away from non-traditional products, and yet it is the wide range of flavors that has appealed to many younger customers.”
“The future is littered with potential litigation, and the tobacco tribe have been burnt, big time for big bucks, on that road before.”
Globally, growth appears to be stalling among consumers of heat-not-burn traditional cigarettes, particularly in Japan where the product has been embraced enough to sharply drive down the sales of combustible traditional cigarettes.
“One of the main challenges the tobacco industry now faces is rapidly developing disruptive technology and the entrance of new players, best epitomized now by Juul,” said David Sweanor, an adjunct law professor at the University of Ottawa and author of several e-cig and other tobacco and health studies.
“Big Tobacco likely has to shed its very risk averse culture if it is to effectively compete in a market that is rapidly transforming,” Sweanor said. “Particularly when the pace of change will accelerate dramatically if the FDA moves forward on its plans to focus on nicotine’s continuum of risk,” including potentially limiting flavorings and the levels of nicotine in products.