The factory in Richmond, which produces half of all cigarettes consumed in the United States, suspended operations for two weeks after a second case of new coronavirus infection was found. According to the Richmond news
No one had expected novel coronavirus to bring such great changes to people’s lives at the beginning of 2020s, which would bring so much uncertainty to the future of human society.
As of May 10th, novel coronavirus pneumonia spread to 214 countries and regions, and more than 4 million people were diagnosed. The global spread of the epidemic has a profound impact on the global supply chain. Under the impact of novel coronavirus pneumonia, even the global tobacco industry, which is under heavy pressure all year long, is facing new situations, new problems and new challenges.
When tobacco giants encounter the new coronavirus, people inevitably ask: how does the supply chain of tobacco industry bear the pressure? Can the market diversification advantage of MNCs continue? What is the anti recession trend of tobacco industry?
The impact of the epidemic is relatively controllable
Italy is the first country in Europe to have a major outbreak. In view of the development of the epidemic situation, the Italian based production technology Bologna company was suspended for a week to support the government in controlling the spread of the virus, the International announced on March 23.
In response to the request of multinational governments to suspend factory production for one to two weeks, in 2019, the second largest multinational tobacco company in terms of operating revenue, Philip Morris International, believes that it will not run out of inventory in any major market, and consumers will have enough ways to get the products they want.
As part of the ongoing business continuity plan, Fillmore international has sufficient stock of finished products in all markets. According to the novel coronavirus pneumonia before the pandemic sales situation, its heating non burning tobacco product set inventory for more than two months, heating appliances inventory for more than 3 months, cigarette inventory for more than a month and a half.
Although in February 2020, the Italian factory’s production of heating tobacco product sets accounts for about 50% of the products of Fimo international, the production of such products of other Fimo international factories has not been suspended, and the assembly capacity is as high as 70 billion sets. The cigarette production capacity of Italian factories accounts for about 20% of the total cigarette production capacity of Fimo international.
According to statistics, 75% of British and American Tobacco income comes from developed countries. In 2019, British American Tobacco ranked 384 among the world’s top 500, ranking first among multinational tobacco companies. At present, the vast majority of its factories are in normal production, and make full use of production capacity, and have two months of inventory available to the market. According to the company, the impact of the epidemic on its operation is limited. At present, except for the relatively large decline in sales in the global travel retail sector, the change in consumer demand in other market sectors is relatively small. Global travel retail accounts for less than 1% of its sales. In the early stage of the outbreak, the supply of new tobacco products in the retail sector was disturbed, but it has basically returned to normal, and the inventory is increasing.
Like British American tobacco, JT has no product supply interruption, and its stock in the international market is enough to supply for two months. In addition, Japan Tobacco has taken a number of measures such as digital means to minimize the impact of the epidemic on the logistics system.
On March 31, imperial brand said the epidemic had no “substantial impact” on its production and operation and that the transaction was still in line with expectations. Its statement pointed out that its liquidity was sufficient, under the outbreak, it had expanded the “emergency inventory” of core products, and its logistics company logista, which is responsible for transporting tobacco products for cigarette retailers in Italy, Spain and France, also improved the inventory level of its regional logistics center.
Novel coronavirus pneumonia was discovered in March 19th by the largest tobacco companies in the United States, the company’s second largest case of new crown pneumonia was discovered in Richmond’s manufacturing plant. The company has announced that the production facilities are suspended for two weeks because of its “high caution”. On the same day, the group informed the US Securities and Exchange Commission that Howard Willard, chairman and CEO of its board of directors, had been temporarily removed from work for treatment due to infection with the new coronavirus.
On April 7, under the premise of following the extensive health measures and best practices revised by CDC and other health authorities, FeMo America restarted factory production. On April 17, Altria group suddenly announced that verard had retired on April 14. The board of directors decided to set up chairman and CEO, William Gifford as CEO and Thomas Farrell as chairman. Due to the active implementation of the business continuity plan, femore USA has a cigarette inventory that can be maintained for about two months according to the current shipment volume, which is not included in the wholesale and retail inventory.
The brief interruption of production also involves other subsidiaries of Altria group. Some of its other U.S. plants, such as John Middleton, have been shut down for two weeks because of supply chain obstacles caused by the outbreak. According to the current shipment, the company has about three months’ stock.
Actively undertake social responsibility
Among the multinational tobacco companies, in the face of various crises, Fillmore international is one of the longest skilful. After the outbreak, Fimo international has contributed more than 24 million US dollars to fight the epidemic so far, which is the largest contribution among transnational tobacco companies. In addition, the Greek subsidiary of Fimo international donated 50 ventilators to hospitals in Greece.
“Fimo international will continue to contribute to the global response to the epidemic in various ways. We will continue to support our employees and their families and protect their safety and health. Nothing is more important than that. ” Tam Chongbo, CEO of Fillmore international, said.
Fimo international has 73000 employees around the world. On April 9, Philip Morris International announced that it has established a series of guiding principles including stable employment relationship, stable income and special recognition reward: unless there is a reason, Philip Morris International will not terminate the employment contract of any employee and stop all restructuring plans involving layoffs; regardless of whether the employee has fully performed their duties during the epidemic prevention and control period, Philip Morris International will They are provided with prescribed subsidies; FeMo international rewards employees who have to work during the epidemic prevention and control period.
Like Fimo international, Nippon Tobacco International, a subsidiary of Nippon tobacco, has given top priority to the well-being of its employees, their families and communities, as well as its customers in the crisis caused by the new coronavirus. The staff of Japan Tobacco International are distributed in about 70 countries. Japan Tobacco International requires the staff to work at home as much as possible and suspend all international business trips. In addition to the restrictive measures required by the government, they have taken stricter preventive measures and implemented additional health and safety operation procedures in the supply chain, R & D center and distribution network to ensure that employees are protected and reduce the risk of virus transmission in each business area.
“We take the threat of the new coronavirus seriously and are actively implementing plans to minimize the impact of business disruption,” said Mr. Gould, CEO of Altria group Altria group has donated US $1 million to the community. They will continue to follow the information released by public health institutions and take preventive measures recommended by CDC, including travel restrictions, remote work, social distance, etc. During the two-week temporary shutdown of the factory, Fillmore America paid the basic wage for its employees.
In an open letter on April 30, Richard burrows, chairman of bat’s board of directors, said that bat had not fired any of its employees during the outbreak. As a multinational company, bat’s logistics system provides support for the transportation of cleaning and hygiene products, masks, food and other important materials. In addition, bat has changed the use of its production facilities to produce and manufacture disinfectants and personal protective equipment. They also lent their analytical equipment to government agencies to support the new coronavirus detection program.
Abnormal changes in the market
Since the outbreak, tobacco sales in major European countries have grown rapidly. Industry insiders point out that this does not necessarily mean that more people smoke, but more likely that consumers are hoarding for weeks in the city. “Tobacco consumers are worried that they can’t get it, so they will hoard it.” Said Adam Spielman, an analyst at Citibank. In the first quarter of 2020, the sales of tobacco giants’ products grew rapidly.
In Spain, where the epidemic is severe, tobacco shops are still open and tobacco is classified as a “necessity”. In the third week of March, sales of tobacco products in the UK rose 9% year-on-year, according to Nielsen, a global data analysis company, in the context of a 1% drop in sales in the 12 months prior to March. Sales of nicotine substitutes grew 5% a year, but surged 54% in the third week of March, Nielsen said.
With strict control measures adopted in France, the sales of tobacco products showed “explosive growth”, with an overall growth of 30%. In some cities near the border, such as Menton, near Italy, sales have increased by more than 400%. One factor that may lead to more consumption of tobacco products is “the pressure of travel control,” according to the Federation of tobacco manufacturers.
The same is true in Chicago and Los Angeles. Lincoln tobacco store, an employee, said that after local travel restrictions, “the business is too busy to stop. The parking lot is full of cars. It’s crazy.”. Usually, the store can earn 3000 dollars a day. On March 13, after the local government issued travel restrictions, the business income of the store soared to 9500 dollars, most of which came from cigarettes and steam cigarettes.
Empire brand’s shares soared March 31. Nico von stackelburg, a freelance analyst, put empire’s shares on the buying list, saying they were “grossly undervalued.”. “In a recession, the tobacco industry is a safe haven because it is already familiar with the mechanisms for dealing with stress.” “If the world economy recovers slowly, then imperial brands will benefit from the decline in deals because it has more value brands than its peers with more premium brands,” he said
Analysts at Jeffrey, a famous Wall Street investment bank, called the performance of tobacco giants “evidence of recession”. Reuters reported on March 26 that the investment bank recommended buying British American Tobacco shares. After the outbreak, sales of British and American tobacco products on the Internet doubled.
In the first quarter of the international market, the core revenue increased by 8.8% and the adjusted operating profit increased by 16.7%; in the domestic market, the core revenue decreased by 5.7% and the adjusted operating profit decreased by 15.3%.
Altria group announced its operation in the first quarter of 2020 on April 30: its net income increased by 13% year-on-year, which unexpectedly achieved double-digit growth; its cigarette product shipment increased by 6.1%, of which Marlboro’s shipment increased by 6.7% and cigar’s shipment increased by 13.1%.
Although the data of the first quarter is good, the epidemic situation in European and American countries is still not optimistic. Can tobacco giants continue to be independent when the macro environment continues to deteriorate? This is not a question that can be answered at this stage. People are still waiting for the second quarter data.