In today's Finshots we talk about why Philip Morris wants to stop selling cigarettes
The Story
Jacek Olczak, the CEO of Philip Morris International — most notable for making Marlboro cigarettes — recently announced that they’d stop selling cigarettes in the UK within the next 10 years.
In fact, he went a step further and added that his company wants to “See the world without cigarettes…” even stressing the fact that — “the sooner it happens, the better it will be for everyone.”
Jacek wants cigarettes to be treated like gasoline (petrol) cars. Cars that will be banned come 2030. And if all of this seems counterintuitive — Then welcome to the club, because that’s precisely what it is.
Imagine wanting to stop selling cigarettes, or asking governments for a ban altogether. It’s preposterous. For decades, companies like Philip Morris have been at the forefront of promoting cigarette smoking across the world. At one point, they even launched an academic smear campaign against those who lobbied to limit the sale of cigarettes. Big Tobacco was ruthless at the time.
So why this sudden change in tune now? How come a cigarette company wants to stop selling cigarettes?
Well, the thing is…
Smoking is dying!
In many developed countries, the habit of cigarette smoking is on the decline. Older smokers are quitting altogether and fewer younger people see the allure of smoking. Then there is the sustained pressure from NGOs, public health advocacy groups, and even governments, who have all banded together for years in a bid to hurt Big Tobacco. Some states in the US have even sued cigarette companies for billions of dollars. Bankruptcies are commonplace in the industry and larger players have consolidated rapidly in a bid to stay alive.
The only other thing protecting their financials?
Price hikes. They’ve been hiking prices for a while now in a bid to keep their cashflows intact. But regulatory changes, increased taxes, and an overall aversion to smoking is making life really difficult for cigarette companies.
And Philip Morris has already figured this out. In fact, it’s the only reason why they want to move on to greener pastures. Greener pastures like the e-cigarette market.
The company has invested more than $8 billion since 2008, for the research and development of ‘smoke-free products’ — electronic alternatives that heat the tobacco instead of burning it. Here’s the former CEO of Philip Morris International, André Calantzopoulos, explaining it in his own words
“A lot of people think it’s the nicotine in cigarettes that causes morbidity and mortality. But it’s not. Nicotine is addictive, but it’s not the primary cause of disease. The FDA has clarified that. The problem is combustion. If you can eliminate combustion, then you significantly reduce the harmful chemicals the product emits compared to cigarette smoke. The best thing a smoker can do, of course, is to stop nicotine consumption altogether. But a billion people still smoke, so the next best thing you can do is to convince them to change their behavior by creating products that they can switch to. That is what we are doing.”
So, when they say they want people to quit smoking, what they’re really saying is that we want people to move away from traditional cigarettes to heated tobacco products, which they believe are better alternatives.
Anti-cigarette campaigners, however, aren’t buying this narrative. For starters, the evidence on adverse health effects associated with e-cigarettes is a bit scant. Sure it could be a better alternative when compared to traditional variants. But how much better? That is still a debatable topic. Also, it would be a bit unwise to trust the likes of Philip Morris to keep their promise. They are after all big tobacco. If they see smoking habits and regulatory action turn positive, they will no likely double down on selling cigarettes once again.
However, the current evidence seems to suggest that isn’t happening.
Around six years ago, Philip Morris International earned 100% of its revenues by selling traditional cigarettes. Now the company earns around 30% of its net revenue by selling smoke-free products. And the company hopes to increase this share of smoke-free products to 50% by 2025. And their new strategy seems to be working to an extent. In Japan, cigarette sales fell five times faster over a four-year time period ever since the country was introduced to smoke-free products. And now the company thinks traditional cigarettes could virtually disappear from some developed countries in the next decade or two.
That being said, even if the old cigarettes do disappear, that doesn’t mean the likes of Philip Morris will be going away.
Cigarettes will just become e-cigarettes.
And life will go on…
Until then…
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