Tobacco Industry: Manufacturing

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Three key trends force tobacco companies to continuously re-assess and optimize their manufacturing footprint:

(1) Cost savings: Transferring labor intensive operations to lower-cost countries within a certain geography

(2) Geographical re-balancing: Fast-declining cigarette volume in the Western markets vs. Stable (even, increasing) cigarette volume in the emerging markets (especially, in East & Southeast Asia)

(3) Product mix re-balancing: Transformation from cigarettes to RRP/NGPs

Philip Morris International (PMI) is – by far – the most active tobacco company in terms of manufacturing footprint revisions. Over the past decade, PMI closed its prominent factories in Melbourne (Australia), Berlin (Germany) and Bergen-op-Zoom (Netherlands). On the other hand, PMI invested more than €1Bn for a plant at Crespellano, Bologna (“PMI Manufacturing & Technology Center“) to produce IQOS heat-sticks in large-scale. This investment resulted in the largest Italian factory to be built from scratch since 2000.

The more recent developments are:

May 2024

PMI officially opened its new Ukrainian factory in the Lviv region. Production in PMI’s Kharkiv plant was suspended in Feburary 2022 due to the lack of a bomb shelter.  

Costed $30Mn, the Lviv factory will have five production lines. The first line started operating this month and the other four lines will be operational by the end of the year – ramping the production capacity up to 10Bn sticks per year and supplying 80-90% of PMI’s Ukrainian sales. The new factory will create 250 jobs and there are currently no plans to expand the facility for export or other products.

Following the Russian invasion of Ukraine (started in February 2022), PMI’s total sales in Ukraine declined by 30% in 2022 to 11.1Bn sticks. Despite the sequential improvements in 2023, PMI’s market presence in Ukraine is still well below its heyday. Read more: Ukraine: Tobacco Market

April 2024

The groundbreaking ceremony for KT&G’s second and third Indonesian factories took place in Surabaya, East Java Province. These two new facilities will span 190,000m2 and are set to commence operations in 2026, adding a combined production capacity of 21Bn sticks per year. KT&G plans to make Indonesia its largest global production base by expanding the total annual production capacity in Indonesia to 35Bn sticks (three facilities combined). Leveraging its increased production capacity, KT&G aims strategically foster Indonesia as its biggest global production base for export products and driving the expansion of export business in Asia Pacific and the Middle East.

KT&G is taking on a multi-dimensional growth drive. In Oct 2023, KT&G held a groundbreaking ceremony for a new manufacturing plant in Almaty, Kazakhstan to supply the Eurasian region. In Nov 2023, KT&G expanded the domestic NGP production capacity at the Daejeon, Korea factory. Moreover, KT&G recently separated the Asia Pacific Region and the Eurasia Region from the HQ as standalone business entities to accelerate global market expansion.

April 2024

British American Tobacco (BAT) is expanding production in Pécs, Hungary, with a new Ft60Bn ($162Mn) investment, to manufacture smokeless products. The investment will create 450 jobs in addition to a thousand already employed by BAT in Hungary.

The new plant will enable BAT to allocate more production to Pécs, turning the carbon-neutral certified plant into a global manufacturing hub for Reduced-Risk Products. More “Born in Sweden, Made in Hungary” VELO pouches will hit the international markets in the coming years.

April 2024

PMI inaugurated a new PHP8.8Bn ($155Mn) manufacturing facility for smoke-free products (heated tobacco) in the Philippines. The facility is located at the compound of PMFTC in Tanauan, Batangas and has the capacity to produce 3.5Bn heated tobacco sticks per year. Moreover, PMI announced its intention to purchase $120Mn worth of local tobacco this year1. Inauguration of the new factory comes at a time when the pressure on the Government is mounting to act on the illicit, disposable vapes. Read more: Disposable E-cigarettes.

The new facility will produce heated tobacco sticks under the brand BLENDS, to be used exclusively with “BONDS by IQOS” device. BONDS, the most affordable heated tobacco device offered by PMI, was launched in the Philippines (the first test market) in November 2022. PMI’s smoke-free line-up in the Philippines also includes HEETS & IQOS 3 (2020), TEREA & IQOS ILUMA (2023) and ZYN nicotine pouches (late-2023).

March 2024

BAT opens a new Innovation Center in Southampton. 400 engineers & scientists will be employed at the facility, working across nine technical spaces / labs to develop smoke-free nicotine products and build capabilities beyond nicotine. The £30Mn facility strengthens BAT’s capabilities for device prototyping, consumable development and packaging improvement as well as the development of well-being and stimulation products.

The new Center replaces BAT’s legacy R&D operations in Southampton and complements the Innovation Centers in Shenzhen and Trieste. BAT invests £300Mn a year in the development of our smokeless products.

Feburary 2024

PMI will construct a new cigarette factory in Murogoro, Tanzania (through local partnership) and purchase at least 12Mn kg of Tanzanian tobacco annually over the next five years. The facility is expected to commence operations by the end of 2024.

Tanzania tobacco farmers produced 120Mn kg last season. They are expected to cultivate 200Mn kg this season. PMI reportedly stopped purchasing tobacco from Tanzania in 2017.

November 2023

With the ambition to become the 4th largest global tobacco tobacco (by volume), KT&G reveals an aggressive manufacturing footprint expansion plan. KT&G sold ~82Bn sticks in the first 9 months of 2023 and its FY23 sales volume is likely to be around 110Bn sticks. Meanwhile, the 4th placed, Imperial Brands sold 198Bn in FY23 – still a large gap for KT&G to close. However, Imperial reported -7% volume decline (excluding Russia exit) year-on-year basis in FY23 while KT’s volume is growing around +7% per annum. If the current trends broadly prevail, KT&G is set to become the 4th largest global tobacco company by 2028 (and, in any case, by the end of this decade).

KT&G’s manufacturing capacity expansion plans have two pillars: NGP/RRPs and Combustibles. In the 2023-27 period, KT&G projects its heated tobacco volume to grow by 30% per annum – mostly, thanks to its global partnership with PMI. In 2024, KT&G will expand its production base in Korea. In 2025, they will inaugurate a new factory in Kazakhstan (- see the “October 2023” notes below). KT&G is also planning to set up a manufacturing hub in Eastern Europe at a later stage. As a result of these investments, KT&G will increase its manufacturing capacity to 4.3x folds and be able to produce almost half of its heated tobacco volume outside Korea by 2027.

Currently, KT&G manufactures 84% of its combustible (cigarette) volume in Korea (versus a 45% weight in sales volume). In order to move the production closer to the consumption, KT&G will firstly expand its operations in Turkey – as a manufacturing base for Africa & Latin America. At a later stage, KT&G is planning to establish a cigarette manufacturing base in Indonesia for the ASEAN region and in Kazakhstan for the Eurasian region. As a result of these investments, KT&G will increase its manufacturing capacity by 30% and be able to produce 50% of its cigarette volume outside Korea by 2027. Moreover, manufacturing in Indonesia (the main international growth market for KT&G) will reduce the unit cost by 20% (compared to Korea).

November 2023

BAT is expanding the RRP production in its Kanfanar, Croatia factory2. Following a €80Mn ($85Mn) investment program, Kanfanar became the become the exclusive European production site for the tobacco-free, rooibos-based veo heatsticks. The factory has created more than 150 jobs in the last two years and will add another 50 jobs in 2024.

October 2023

KT&G breaks ground for a new ~200,000m2 factory in Almaty, Kazakhstan3. The site will function as a “hybrid production facility” manufacturing both RRP/NGP consumables and cigarettes for the Europe & CIS region. In January 2023, KT&G also established local sales and manufacturing subsidiaries in Kazakhstan.

October 2023

The last cigarette factory remaining in France, Manufacture Corse des Tabacs (Macotab) on the Mediterranean island of Corsica, is set to close by the end of 20234 after six decades of operations. Macotab is owned by SEITA, the former French state-owned tobacco monopoly (- now part of Imperial Brands); most recently, it was making cigarettes on behalf of PMI who recently terminated the contract manufacturing agreement. This is a historical moment for the home of Gitanes and Gauloises, beloved by French movie stars & philosophers, and entrenched in French cultural fabric as much as the cafés and wine.

SEITA closed the last cigarette factory remaining on mainland France (Riom in the Puy-de-Dôme region) in 2017. Moreover, SEITA closed France Tabac de Sarlat (a tobacco processing plant in the Dordogne region) in 2019. In its heyday, the factory was extending over 10 hectares and processing 20,000 tonnes of tobacco from France and Europe every year. Some former factories in Marseille and Lyon now serve as cultural and exhibition spaces, or even a university.

September 2023

Philip Morris will invest

– over PLN1Bn ($230Mn) in a new production plant for heated tobacco sticks – to be located in Krakow, Poland5

– $100Mn in its Serbian factory to launch an IQOS heat sticks production line6. With this investment, the total amount invested in the Serbian operations will exceed $1Bn

– another $130Mn in its Romanian smoke-free products (IQOS heat sticks) plant7 – in addition to the $600Mn already invested since 2017. 92% of the production of the PMI factory in Otopeni is exported to 54 markets on five continents

September 2023

KT&G plans to a build a second manufacturing plant in Indonesia8, aiming to start operations in 2026. The new Indonesian plant will serve as the Southeast Asian manufacturing base for exports. KT&G currently has three factories, outside South Korea, with a combined capacity of 13.6Bn sticks a year: Russia, Turkey and (Surabaya) Indonesia.

KT&G sold 5.9Bn sticks in Indonesia in H1 2023. KT&G’s Indonesian volume grew 180% over the past two years (H1 2023 vs. H1 2021) and now has 22% weight in total cigarette sales, outside South Korea.

June 2023

British American Tobacco (BAT) invests €500Mn in a new Innovation Hub in Trieste, Italy. The Hub incorporates laboratories, innovation labs and and twelve production lines for NGP/RRPs.

June 2023

PMI will launch a new $30Mn production facility in western Ukraine, creating 250 jobs9.

October 2022

BAT will shut down its factory in Boncourt, Switzerland and move the production to other sites in Europe10. The Boncourt factory was founded by the Burrus family in 1814 and was taken over by Rothmans in 1996 (- later merged with BAT). Parisienne (second best-selling cigarette brand in Switzerland, after Marlboro) was produced in the Boncourt factory since 1887.

November 2021

PMI invests $166Mn in Sampoerna (Indonesia) factory to establish a production line for IQOS tobacco sticks11.


  1. Philip Morris opens P8.8-B ‘smoke-free’ cigarette plant | The Manila Times ↩︎
  2. BAT to add 50 jobs in Croatia in 2024 ( ↩︎
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