Fontem Ventures

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Fontem Ventures was set up in December 2012 as a wholly owned Dutch subsidiary to Imperial Tobacco to develop “non-tobacco consumer experiences”, also referred to as Next Generation Products (NGPs).[1][2]

The company has marketed its products in the United States (US), the United Kingdom (UK), France and Italy.[3]

Background

In August 2013, shortly after its establishment, Fontem Ventures paid US$75 million to acquire Hon Lik's e-cigarette company Dragonite, including its Research & Development facility in Beijing.[4][5] Lik, a Chinese pharmacist, is credited with inventing the first e-cigarette in 2003.[6]

Employees: Past and Present

In February 2017, Titus Wouda Kuipers became Chief Executive Officer (CEO) of Fontem Ventures. Wouda Kuipers succeeded Arthur van Benthem.

A full list of the company’s leadership team can be accessed at Fontem Ventures’ website.

Consultancies

Fontem Ventures has worked with several public relations (PR) firms and advertising agencies, including:

Next Generation Products (NGPs)

Image 1. A selection of fruity blu e-cigarette flavours (screengrab taken in April 2017, www.blu.com)

To improve the tobacco industry’s viability, tobacco companies have been investing in tobacco and nicotine products that, unlike cigarettes, show potential for volume growth in developed markets.[13] These products are referred to as NGPs and are often linked to tobacco companies’ harm reduction strategies. Imperial Tobacco, through Fontem Ventures, has focused its NGP investment on the e-cigarette category (with the exception of its "Re/On" caffeine sachets).[14]

Unlike Philip Morris International, British American Tobacco, and Japan Tobacco International, Fontem Ventures has not invested in Heat Not Burn (HNB) technology. Its parent company, Imperial Tobacco, has publicly criticised the HNB technology, saying “there’s no difference really between those products and traditional tobacco products” and “It’s probably better described generically as ‘heat and burn’ rather than ‘heat not burn’”.[15] Indeed, a 2017 study published in JAMA Internal Medicine, concluded that HNB products release the same cancer-causing chemicals as conventional cigarettes.[16]

A further explanation for Imperial Tobacco's reluctance to invest in HNB, is that the company thinks HNB products are difficult to market as “reduced risk” because they are tobacco products, and as such, the company believes the products will be taxed like cigarettes.[15] This would impact the profit margin of the product.

Flagship Brand: blu

Image 2. Puritane (screengrab from Imperial Tobacco presentation at the Deutsche Bank Global Consumer Conference 17 June 2014)
2014, Imperial Tobacco has owned e-cigarette brand blu (see image 1), which has been marketed as a lifestyle product. The company acquired the brand when US tobacco company RJ Reynolds purchased US tobacco company Lorillard in July 2014. Amidst antitrust concerns that the merger would give RJ Reynolds an unfair advantage over the US nicotine market, Reynolds sold the blu brand (along with cigarette brands Kool, Salem and Winston, and a manufacturing plant) to Imperial Tobacco for US$7.1 billion.[17]

2016, blu was reportedly the second largest e-cigarette brand on the US and UK markets.[1][3] According to Fontem Ventures, blu held a 16% UK market share in 2016. This is in line with reports from tobacco market analyst Euromonitor International, which reported that blu was only second to Philip Morris International’s Nicolites in 2015.[18]

In 2017, blu was marketed in three versions:

  • GO, a so-called 'entry-level' e-cigarette resembling a conventional cigarette;
  • PLUS+, a closed tank system;
  • PRO, a tank system based on refill liquids.

Discontinued Brands: Puritane and Jai

The first e-cigarette launched by Fontem Ventures was called Puritane (see image 2).[19] This brand, a result of Fontem Ventures’ collaboration with Hon Lik[20], was marketed as a healthcare product. Imperial closed a deal with Boots pharmacies to sell the Puritane brand throughout its pharmacies in the UK.[21] Puritane was also available to purchase online on a dedicated website.

In April 2017, all products on the Puritane website were listed as ‘out of stock’. Similarly, the brand disappeared from UK pharmacy shelves and Imperial Tobacco investor presentations from January 2015 onwards do not mention the brand.

Image 3. Jai (screengrab from Imperial Tobacco presentation at the Deutsche Bank Global Consumer Conference 17 June 2014)
Ventures applied to the UK Medicines and Healthcare products Regulatory Agency (MHRA) in 2014 to have Puritane licenced as a medical device.[22] If successful, this would have allowed the company to market the product with reduced risk claims. In April 2017, in response to a Freedom of Information request by the University of Bath's Tobacco Control Research Group, the MHRA confirmed that “according to our licencing records there are no currently granted licences for any product named ‘Puritane’, nor are there any licences held by Fontem Ventures”.[23] In other words, if Fontem Ventures had lodged an application for Puritane in 2014, the application was unsuccessful or has expired.

A second e-cigarette called JAI (image 3) was launched in France and Italy in March 2015.[24][25][26]

Unlike Puritane, Fontem Ventures positioned JAI as a lifestyle product, marketing the product through tobacconists.[27] PR company Aspect Consulting helped launch the e-cigarette in France through a mix of “online, traditional media and trade communication activities”.[28]

In February 2016, a French vaping blog announced that Fontem Ventures had discontinued JAI in France to focus on blu.[29] A June 2016 Imperial Tobacco presentation about ‘New consumer experiences’, in other words the company’s NGPs, did not mention JAI. An April 2017 check of the JAI Vaping website redirected to a page dedicated to blu. Like Puritane, it appears JAI was also discontinued.

Product Innovation: Flavours

Similar to cigarettes, flavour is an important product innovation tool to boost e-cigarettes sales.

In a 2015 submission to the Australian Senate inquiry into ‘Personal choice and community impacts’, Fontem Ventures declared that:

“flavours that clearly appeal primarily to minors (e.g. candy flavours, bubblegum, milkshake) should not be marketed”.[30]

In line with its policy, Fontem does not market aforementioned flavours.

However evidence also shows that fruit and menthol-flavoured e-cigarettes are more appealing to young people than tobacco flavoured e-cigarettes[31]. In 2017, Fontem Ventures marketed a variety of flavoured e-cigarettes, including: Magnificent Menthol, Cherry Crush, Vivid Vanilla, Glacier Mint, Pina Colada , Blueberry Strawberry Mint, Berry Cobbler, Mint Chocolate, and Caramel Café (see image 3).[32]

Legal Challenges

In March 2014, Fontem Ventures launched legal proceedings over patents in California against nine of its American e-cigarette rival companies, including the top three: Lorillard's Blu Ecigs (now owned by Fontem Ventures), NJOY (bankrupt since September 2016) and Logic (acquired by Japan Tobacco International in July 2015).[33] The lawsuits alleged patent infringement, citing four intellectual property patents that Fontem purchased as a part of its Dragonite acquisition.

The majority of the cases were settled out of court in 2015 and 2016.[34]

Advertising Strategies

In 2015, tobacco market analyst Euromonitor International labelled Fontem Ventures’ blu as “one of the most marketed vapour product brands in the UK”, referring to the brand’s strong presence on British television and strong point-of-sales displays at small retailers and supermarkets.[18] Although marketing strategies used by the industry to promote tobacco have been banned under Article 13 of the Framework Convention on Tobacco Control to promote tobacco products and tobacco use[35], these same techniques are now being used to promote e-cigarettes, including:

  • Direct targeting of individuals with promotional material;
  • Free samples, in conjunction with taste testing;
  • Incentive promotions, e.g. redeemable coupons provided with the purchase of the product, or discounted products; and
  • Display of products and branding at social venues like shopping centres.

“Amnesty For Cigarettes” (January 2017)

On 1 January 2017, Fontem Ventures held a so-called ‘amnesty for cigarettes’ in the UK cities of Birmingham, London and Manchester. The campaign, hoping to capitalise on smokers’ New Year resolutions to quit smoking, saw young sales representatives (referred to as ‘brand ambassadors’) encourage smokers to publicly shred their cigarettes, sample a blu product, and in return, receive a discount on blu products (see images 4-7; all screengrabs taken from eventmagazine.co.uk in January 2017). The activities were supported by billboards with slogans like “Dump the things you hate about smoking”.[9]

“Six Weeks To Fall In Love” (2016)

From 17 October to 13 November 2016, Fontem Ventures staged a “Six weeks to Fall in Love” campaign at a London shopping centre (images 8-12), developed by creative agency Momentum Worldwide and advertising firm Ocean.[10] The theme of this campaign, ‘dating’, arguably appealed to a younger audience. Young sales representatives invited shoppers into branded booths and try blu PLUS+ and its range of flavours. Shoppers were subsequently encouraged to sign up to a six-week blu trial, with a starter kit worth £56, heavily discounted to £8 (comparable to the price of a pack of cigarettes).[36][10]

“Just You and blu” (April 2016)

On 4 April 2016, the “Just You & blu” campaign was launched in the US, UK, Italy and France in the shape of television and cinema commercials, printed advertisements, billboards and online promotion.[37] The campaign used videos and black and white images to convey a youthful, adventurous lifestyle, and a strong statement of identify (see images 13-16). According to the people behind the campaign, it aimed to “celebrate the individualistic lifestyles of blu consumers”, and “each representing an independent spirit, carving their own paths in life and enjoying blu along the way”.[37]

Some imagery showed a strong visual similarity between vaping and smoking, with a review from the MailOnline describing the campaign simply as “Marlboro Man 2016”.[11]

For more background information on e-cigarette promotion and marketing, go to E-cigarettes: Marketing and E-cigarettes: Marketing Rules.

Funding E-Cigarette Research and Harm Reduction Claims

In April 2017, Fontem Ventures’ science webpage included links to six articles published in peer-reviewed journals, which examined the exposure of vapers to harmful chemicals, and assessed the indoor quality following e-cigarette use.[38]

Fontem Ventures further funded two external studies carried out by the UK Centre for Substance Use Research, a private research institute which, amongst others, also received funding from Philip Morris International and British American Tobacco (BAT).[39][40] One of the Centre’s staff, Neil McKeganey, supported BAT’s challenge to introduce plain packaging.[41] In December 2016, McKeganey and the Centre published a report funded by the tobacco industry front group, Foreston “The Pleasure of Smoking”.[42][43]

The findings of the e-cigarette studies shed a positive light on the health impact of vaping, with one study of the UK Centre for Substance Use Research concluding that e-cigarettes act as a deterrent to smoking, rather than a gateway, suggesting that e-cigarettes de-normalise smoking “through increased awareness, understanding, visibility and social acceptance”.[40] In 2016, Imperial Tobacco made similar harm reduction claims to its investors, claiming that with blu products “there’s greater than 98% reduction in harmful and potentially harmful constituents in the aerosol, relative to the cigarette. There’s no negative impact on indoor air quality when you vape our products”. [40]

Health charity Cancer Research UK, a strong supporter of a “balanced approach to e-cigarettes”[44], cautioned that the tobacco industry’s research into e-cigarettes cannot necessarily be trusted due to the industry track record of distorting scientific evidence.[45] Furthermore, research from the Tobacco Control Research Group has showed that harm reduction rhetoric offers the tobacco industry two main benefits: an opportunity to (re-) establish dialogue with and access to policy makers, scientists and public health groups, and to secure reputational benefits via an emerging corporate social responsibility agenda.[46] The authors caution that care should be taken that harm reduction debates do not undermine gains previously secured in efforts to reduce the ability of the tobacco industry to inappropriately influence policy.

  • For more information on how the tobacco industry has used science to distort the evidence on smoking tobacco and the health impacts, go to our page on Influencing Science

Lobbying Decision Makers To Secure Less Restrictions

Since the first NGP products hit the market, tobacco companies have lobbied for more favourable marketing and tax regulations than cigarettes.[47] Fontem Ventures has lobbied decision makers in the UK and internationally (including where it does not yet sell its products) to oppose tougher regulations on e-cigarettes.

Scottish Members of Parliament (2017)

In 2017, public relations company Aspect Consulting, contacted Scottish Members of Parliament to promote the alleged health benefits of e-cigarettes.[48] Although the company disclosed that it acted on behalf of Fontem Ventures, it failed to mention that Fontem was a subsidiary of tobacco company Imperial Tobacco. Despite lack of conclusive evidence, Aspect Consulting claimed that e-cigarettes acted as a barrier to tobacco use.

Norwegian Consultation on the Implementation of the Tobacco products Directive (2016)

Despite not selling its products in Norway, Fontem Ventures responded to a consultation by the Norwegian Department of Health on the implementation of the European Union Tobacco Products Directive (TPD). In its response, Fontem Ventures claimed that e-cigarettes offered a “huge public health benefit”, and that pharmaceutical-type restrictions will unintentionally make smokers continue to use tobacco, or see them turn to illegal e-cigarettes.[49]

Public Health (Wales) Bill (2015)

In 2015, Fontem Ventures lobbied the Welsh government against the inclusion of e-cigarettes in existing smoke-free regulations, arguing that it would force vapers to use their e-cigarette in designated smoking areas where they would be exposed to second-hand smoke. It argued that the proposed Bill was based entirely on “precautionary impulse and not scientific evidence”.[50]

Australian Senate Inquiry (2015)

In 2015, Fontem Venture told an Australian Senate inquiry that “E-cigarettes do not contain tobacco, do not emit smoke and do not involve any combustion. It is therefore unfair and inappropriate to conflate them with tobacco products. [30]

Pricing and Profitability

In 2016, Fontem Ventures reported that, although the company expected e-cigarettes to add value to its business in the long term, e-cigarettes had yet to become profitable.[1] The company has indicated that it will seek to get e-cigarette bottom-line profitability mainly via a pricing strategy. Arthur van Benthem, then Fontem Ventures’ CEO, was quoted as saying:[3]

“The average consumer in the UK spends about £2 on his habit on a daily basis, versus £5 on cigarettes. The opportunity for pricing, even with excise coming in, is quite significant.”

Van Benthem also indicated that the company would seek to reduce retailer margins on e-cigarettes and achieve cost reduction through economies of scale and focusing on online sales.

TobaccoTactics Resources

Relevant Links

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Notes

  1. 1.0 1.1 1.2 Imperial Brands, Annual Report and Accounts 2016, Delivering Against Our Strategy, Imperial Brands website, accessed April 2017
  2. A. Cooper, R. Dyrbus, Sustainable Growth; Growing Cash Returns presentation, Imperial Tobacco Investor Day 26 February 2013, available from: http://www.imperialbrandsplc.com, accessed April 2017
  3. 3.0 3.1 3.2 A. Van Benthem, Presentation Transcript: Quality Growth- New Consumer Experiences. Imperial Brands Investor Day, 8 June 2016, available from: http://www.imperialbrandsplc.com, accessed April 2017
  4. Convenience Store Decisions, Dragonite Sells E-Vapor Business To ITG, 21 August 2013, accessed April 2017
  5. K. Gustafsson, Imperial Tobacco Agrees to Acquire Dragonite’s E-Cigarette Unit, Bloomberg Business 2 September 2013, accessed April 2017
  6. S. Boseley, Hon Lik invented the e-cigarette to quit smoking – but now he’s a dual user, The Guardian, 9 June 2015, accessed April 2017
  7. PRCA, Agency and In-House Register September to November 2015, PRCA website, accessed April 2017
  8. PRCA, Agency and In-House Register September to November 2016, PRCA website, accessed April 2017
  9. 9.0 9.1 Blu Cigarette Amnesty, Why Not! Think People website, 2017, accessed April 2017
  10. 10.0 10.1 10.2 10.3 Convenience Store, Blu gives shoppers Six Weeks to Fall in Love, 21 October 2016, accessed April 2017
  11. 11.0 11.1 The Corner London. Clients. Available from: http://www.thecornerlondon.com/, undated, accessed April 2017
  12. O. Oakes, Blu unveils ‘independent spirits’ in global campaign, Campaign Live website, 4 April 2016, accessed April 2017
  13. Euromonitor International, Global Tobacco Key Findings Part 2: Vapour Products. August 2016
  14. Fontem Ventures, My Re On, undated, accessed April 2017
  15. 15.0 15.1 M. Geller, Imperial shuns “heating products” pushed by Big Tobacco rivals, Reuters 6 May 2015, accessed April 2017
  16. Heated cigarettes release same cancer-causing chemicals as traditional cigarettes, Healio, 23 May 2017, accessed May 2017
  17. M.J. De la Merced, C. Bray, To Compete With Altria, Reynolds American Is Buying Lorillard, The New York Times, 15 July 2014, accessed April 2017
  18. 18.0 18.1 Euromonitor International. Vapour Products in the United Kingdom. Category Briefing 8 August 2016
  19. A. Cooper, Presentation at the Deutsche Bank Global Consumer Conference 2014. Paris, 17 June 2014
  20. Fontem Ventures,The Story of the E-Cigarette, Puritane website, undated, accessed April 2017
  21. M. Chapman, Boots to sell Puritane e-cigarettes from Imperial Tobacco subsidiary, Marketing Magazine 19 February 2014, accessed April 2017
  22. A. Cooper, Preliminary Results 2014 Imperial Tobacco Group PLC, 4 November 2014
  23. Medicines and Healthcare products Regulatory Agency. Email to the Tobacco Control Research Group, Subject: RE:FOI 17/138 Query Re Application of Puritane e-cigarette to obtain medical licence, 19 April 2017 09:06
  24. D. Hedley, What’s Happening in Tobacco – February 2015, Euromonitor International, 4 March 2015.
  25. M. Geller, Imperial Tobacco widens e-cigarette strategy with new brand, Reuters 4 February 2015, accessed April 2017
  26. Imperial Tobacco, Half Year Results 6 May 2015.
  27. A. Cooper. Transcript Half Year Results presentation. 6 May 2015.
  28. Aspect Consulting, Successful launching JAI in France- Fontem Ventures, 26 January 2015, accessed April 2017
  29. N. Dunand, Fontem Ventures abandonnerait la Jai pour la Blu, VapingPost 1 February 2016 18:25, accessed April 2017
  30. 30.0 30.1 Fontem Ventures, Submission 264: Senate inquiry into measures introduced to restrict personal choice ‘for the individual’s own good’, Australian Parliament website, 2015, accessed April 2017
  31. J.K. Pepper, K.M. Ribisl, N.T. Brewer, Adolescents' interest in trying flavoured e-cigarettes, Tobacco Control, 2016;25:ii62-ii66
  32. Fontem Ventures, About Blu© E-cigarette Flavors. Available from: www.blu.com, accessed April 2017
  33. D. Robinson and S. Bond, Imperial fires up e-cigarette legal battle, 10 March 2014, accessed April 2017 (by subscription)
  34. S. Rosselat, Fontem Ventures gives a patent battle to the vape industry, Vaping Post blog, 5 April 2016, accessed April 2017
  35. World Health Organization, Guidelines for implementation of Article 13 of the WHO Framework Convention on Tobacco Control (Tobacco advertising, promotion and sponsorship), November 2008, accessed April 2017
  36. H. Ellison, Blu stages date-themed activitation at Westfield shopping centre, Event Magazine 20 October 2016, accessed April 2017
  37. 37.0 37.1 PRNewswire, blu Unveils New Global Brand Campaign – ‘’JUST YOU & blu’’- Celebrating Freedom And Individuality, 4 April 2016, accessed April 2017
  38. Fontem Ventures, Library, undated, accessed April 2017
  39. Centre for Substance Use Research, Funders, undated, accessed May 2017
  40. 40.0 40.1 40.2 J. Thompson, Presentation Transcript: Quality Growth- New Consumer Experiences. Imperial Brands Investor Day, 8 June 2016, available from: http://www.imperialbrandsplc.com, accessed April 2017
  41. Justice Green, Full Judgement in the case numbers CO/2322/2015, CO/2323/2015, CO/2601/2015 & CO/2706/2015, Judiciary website, 19 May 2016, accessed May 2017
  42. N. McKeganey, T. Dickson, The Pleasure of Smoking. The Views of Confirmed Smokers, Centre for Substance Use Research, December 2016, accessed May 2107
  43. S. Clark, Dr Neil McKeganey: The Pleasure of Smoking, Taking Liberties blog, 25 February 2017, accessed May 2017
  44. Cancer Research UK, Our policy on e-cigarettes, undated, accessed May 2017
  45. B. Spencer, Don’t trust e-cigarettes studies, says Cancer Research: Charity urges caution against findings that promote devices as a healthy option, The Daily Mail 13 October 2016, accessed April 217
  46. S. Peeters, A. Gilmore, Understanding the emergence of the tobacco industry's use of the term tobacco harm reduction in order to inform public health policy, Tobacco Control, 2015,24(2):182-189
  47. S. Peeters, A. Gilmore, Transnational tobacco company interests in smokeless tobacco in Europe: Analysis of internal industry documents and contemporary industry materials, PLoS Medicine, 2013,10(9):1001506
  48. S. Millicheap, Email to MSP [confidential] dated 10 January 2017 16:19, subject: E-Cigarettes, accessed January 2017
  49. Fontem Ventures, Response to the Norwegian Ministry of Health & Care Service. Consultative Paper on the Implementation of the Tobacco Products Directive (2014/40/EU), accessed April 2017
  50. Fontem Ventures, Public Health (Wales) Bill: Consultation Questions, accessed April 2017