If it ain’t broke, why fix it? This well-known adage resonates deeply in the tobacco industry, especially when considering the flood of new sub-flavor tastes that have emerged in recent years. The fact remains that hundreds of millions of smokers worldwide are loyal to the signature flavors they have known and loved for decades. Transitioning these consumers to harm-reduced products has proven challenging, primarily because the taste and overall experience of these alternatives often fall short of what smokers are accustomed to.
While various forms of TLEs (tobacco liquid extracts, regardless of the specific type) and other innovations are increasingly mimicking the smoking experience, such as with IQOS, none have yet succeeded in fully replicating the original signature taste. The solution to this challenge lies in advanced technology. Companies like SameTaste, which specialize in precise flavor replication, are on the cutting edge. The ability to replicate signature flavors through alternative smoking devices is not just an advantage—it’s a game-changer. For tobacco companies, replicating the signature flavor in harm-reduced products is essential for defending their current revenues and maintaining their market position amid increasing regulatory pressures and evolving consumer preferences.
From Signature Flavor to Sub-Flavors
Historically, the smoking market was dominated by signature flavors tied to well-established brands like Marlboro, Camel, and Newport. Tobacco companies built their identities around these unique tastes and strong branding, creating a powerful association between their products, specific flavors, and way of living. Advertising was aggressive and effective, embedding these brands deeply into consumer culture. However, as the health risks of smoking became more apparent, governments worldwide imposed stricter regulations. Advertising bans, graphic health warnings on packaging, and substantial taxation on tobacco products aimed to curb smoking rates. These measures forced major tobacco companies to seek alternative solutions that complied with regulatory standards while still appealing to consumers.
In response to these regulatory pressures, the focus shifted from traditional cigarettes to alternative smoking devices. Companies developed e-cigarettes and heat-not-burn devices like Juul and IQOS, marketed as less harmful alternatives. For example, British American Tobacco (BAT) has been actively transforming its portfolio, aiming to become a predominantly smokeless business by 2035. This includes a broad range of smokeless products such as vapor products, heated products, and modern oral nicotine pouches. By 2030, BAT aims to have 50 million consumers of its non-combustible products and achieve at least £5 billion in new category revenues by 2025.
This shift led marketing strategies to move from brand-centric to device-centric approaches, highlighting diverse flavors such as Juul’s mango and mint to cater to different consumer preferences. However, this proliferation of sub-flavors has diluted the uniqueness of individual brands, and the traditional concept of brand loyalty has weakened as consumers explore a variety of flavors. There has been a noticeable shift from traditional cigarettes to alternative products in countries like the U.S., Germany, France, Italy, and across Europe. This trend poses a significant challenge for tobacco companies that have long relied on traditional smoking as the cornerstone of their business. Instead of solely focusing on attracting new consumers, replicating signature flavors could allow tobacco companies to stop the loss of their existing customer base. By offering these familiar tastes in alternative products, companies could more effectively transition their traditional, loyal consumers—potentially those same “50 million”—into new product categories, thus preserving their market share while adapting to evolving consumer preferences.
Different Marketing, Different Markets
Despite the rise of vaping devices, the traditional cigarette market remains significantly larger, valued at approximately $800 billion, compared to the $29 billion flavored vaping market in 2023. This disparity highlights the enduring appeal and economic significance of branded cigarette flavors. However, as companies focused on sub-flavors, competition intensified, diluting the uniqueness of individual brands. The traditional concept of brand loyalty weakened as consumers explored a variety of flavors, reducing the relevance of signature flavors that had previously defined brand identity.
Regulatory pressures further exacerbate these challenges. In recent years, Newport, known for its distinctive menthol flavor, faced significant headwinds that affected BAT’s share price due to the FDA’s proposed ban on menthol cigarettes. This flavor has had a notable impact on young adults and Black smokers. Although the Biden administration has yet to approve this ban, the business environment for tobacco companies showcases high risks. In December 2023, BAT wrote down $31.5 billion from the value of its U.S. cigarette brands, which includes Newport, due to slumping demand and a challenging economic environment.
Tobacco companies are losing billions of dollars in these turbulent waters and must defend their current revenues. The most effective way to do this is by recognizing the unparalleled value of signature flavors. Replicating these traditional tastes in new, harm-reduced products provides a seamless transition for loyal consumers, offering them the same experience they have enjoyed for years but with less risk.
Facing the Risk of Non-Signature Flavors
The marketing shift from signature flavor-focused to sub-flavor and smoking alternative products poses a high risk for tobacco companies. When the original flavor becomes a commodity, brand power diminishes, and consumer loyalty wanes. Thus, a new marketing approach is needed. Until recently, producing signature flavors through heated devices was not an option, but as always, technology has provided a solution.
SameTaste, an Israeli startup, has developed an innovative technology that enables the precise replication of traditional tobacco flavors in smoke-free products through a proprietary monitored lab-based process. This breakthrough can shift the paradigm, allowing tobacco companies to return to brand-focused marketing and emphasize the unique tastes that have historically attracted loyal customers.
Companies that leverage this kind of technology can defend and expand their presence in a market worth hundreds of billions. Combining traditional taste and smoke-free mediums can revive the lost art of brand-focused marketing, effectively safeguarding tobacco companies’ current revenue streams amidst increasing competition, brand commoditization, regulatory scrutiny, and changing consumer preferences. Companies with the foresight to adopt this strategy will likely secure a stable foothold in this evolving industry landscape.
This article is for informational purposes only and not intended to be investing advice. Any mention of specific securities, products, or investments should not be construed as an endorsement or recommendation. Readers are encouraged to conduct their own research and due diligence prior to making any investment decisions. For comprehensive disclaimers and disclosures, please refer to the full documentation.
