British American Tobacco (BAT), the maker of Lucky Strike and Dunhill, announced it will cut 5,500 jobs worldwide as part of a cost-saving drive. The company aims to save £600 million (€695m) a year by 2028.
The overhaul will also see around 3,500 positions outsourced to third parties, affecting roughly 9,000 staff, close to a fifth of its 47,000 workers. They are targeting significant cost reductions.
BAT’s decision is a response to changing market conditions.
Like its rivals, BAT is grappling with the steady decline of traditional smoking in its established markets, as health concerns and tighter regulation reduce the number of cigarette buyers. They have pinned their future on what they call “smokeless” products.
The Vuse vaping brand, glo heated-tobacco devices, and Velo nicotine pouches are key to this strategy. BAT has set itself a target of drawing half its revenue from these newer lines by 2035. However, the transition has not been smooth. They face challenges in their traditional markets and are looking to technology and cost-saving measures to stay competitive, including a focus on deeper capital markets.
Challenges in the US Market
In the US, the rollout of new nicotine products has been held up by a lengthy regulatory approval process, constraining sales in the market that matters most to the group. This has hindered BAT’s ability to fully capitalize on its smokeless products.
Technology, costs, and confirmed cuts are central to BAT’s strategy. CEO Tadeu Marroco framed the cuts as part of building a more agile, cost-disciplined, and technology-enabled company. The company is committed to supporting affected staff through the change with care and respect.
The savings target announced comes on top of £500 million (€580m) in cuts the company had already pencilled in for 2027. Part of the outsourced work is set to go to consulting firm Accenture.
Investors gave the news a muted reception, with BAT shares slipping around 2.5% halfway through London’s Monday trading session. Analysts at Barclays noted that while the productivity drive had been signalled earlier in the year, the sheer scale of the reductions could still catch the market off guard.
Wider Implications
The move drew a wider warning from Russ Mould, investment director at AJ Bell, who said BAT was the latest company to lean harder on technology to run its operations and launch products faster. The scale of the cutbacks, Mould cautioned, was “a sign of the times” and a worrying signal for the wider jobs market, as the investment frontier continues to shift.
As companies continue to face challenges in their traditional markets, they are looking to technology and cost-saving measures to stay competitive. This trend is likely to continue, with significant implications for the workforce.
Companies like BAT must balance their need to reduce costs with the impact on their employees and the wider community. The company’s decision to outsource certain functions is part of a broader strategy to streamline its operations, which is expected to result in significant cost savings over the coming years, and may be influenced by signals such as the Fed’s rate hike signal.
The tobacco industry is undergoing significant changes, driven by shifting consumer preferences and regulatory pressures.