British American Tobacco is reducing its 47,000-strong global workforce by about one-fifth as part of its sweeping plan to bring down costs and simplify operations.
By the end of this year, the maker of Dunhill cigarettes will have slashed 5,500 jobs and outsourced a further 3,500, according to an internal notice that lays bare the scale of change taking place at the tobacco giant. The numbers do not include BAT’s US business, which is operated through its subsidiary Reynolds American.
Most other countries BAT operates in are affected by its ongoing restructuring program and the company detailed the extent of job cuts on Monday. It has pledged to make £600 million ($793 million) of annual cost savings by the end of 2028.
Shares of BAT fell as much as 1.9% in London, trimming year-to-date gains. The stock was up nearly 13% since the start of the year through Friday’s close.
“Whilst the market has been aware of this savings programme, we think the scale of this workforce reduction is unexpected and could some as a surprise to investors,” Barclays analyst Pallav Mittal wrote in a note.
BAT is contending with falling demand for traditional cigarettes in many markets and a need to invest in and develop more sustainable nicotine alternatives, which have soared in popularity as people look for ways to quit smoking.
Like its rival Philip Morris International, BAT wants to generate more than half of its revenue from “smoke-free” nicotine products such as Vuse vapes and Velo nicotine pouches. Part of BAT’s restructuring has involved closing traditional cigarette factories.
The company has previously said it’s in the process of shutting its eighth largest cigarette factory, located in South Africa, due to competition from illicit trade.
Interim Chief Financial Officer Javed Iqbal also said in February that the use of artificial intelligence and data analytic tools would also affect staffing levels. Most of BAT’s planned cost savings, about £500 million, will be delivered by 2027, he said.
BAT has partnered with Accenture to outsource a number of functions, including service centers, which typically employ large proportions of companies’ overall workforces. Certain roles in the UK, Singapore, Costa Rica, Mexico, Poland, Romania and Malaysia have since moved to Accenture, said BAT in its latest notice.
Meanwhile, some roles in Pakistan have been outsourced to System, a Pakistani technology and business firm, it added.
“These changes affect many of our colleagues, and we are focused on supporting them through this transition with care and respect, as we position the business for the future,” Chief Executive Officer Tadeu Marroco said in a statement.
Earlier this year, BAT said it was on track to meet its full-year targets even as global cigarette industry volumes decline, helped by a strong performance in the US where it is making gains on rival PMI with its Velo Plus pouches.
Other tobacco companies are trying to cut costs to improve productivity and free up funds to invest in growth areas, like nicotine alternatives. Imperial Brands, another UK-headquartered company, said in May it was on track to deliver £320 million of annual cost savings by 2030.
PMI, which cut its outlook in June after writing down the value of its investment in its Canadian affiliate, is more than half way through a plan to generate $2 billion of cost savings by 2026.
BAT once fought to keep ITC in tobacco
There is a certain irony in BAT’s scramble to move away from cigarettes. In the mid-1990s, BAT fought bitterly to keep its Indian subsidiary, ITC, focused on tobacco alone. When ITC’s management pushed to diversify into hotels, financial services and consumer goods, BAT — then holding a 31% stake — resisted fiercely.
The clash came to a head in 1995 when BAT summoned ITC’s Chairman K.L. Chugh to London and demanded his resignation, wanting the Indian company to stick to its knitting. Indian financial institutions backed Chugh, BAT was rebuffed, and ITC went on to diversify anyway.
The results speak for themselves. ITC today is one of India’s largest conglomerates — its tobacco revenue share has fallen to around 37% — while BAT is now cutting one in five jobs globally as it tries to wean itself off the very business it once insisted was the only one worth having.
BAT’s reinvention, of course, is taking place within the nicotine ecosystem rather than beyond it, with the company betting that consumers will shift from combustible cigarettes to alternatives such as vapes, nicotine pouches and heated tobacco products.