Philip Morris International is going cold turkey in the UK.
Recently, the tobacco giant Philip Morris International announced that it wanted to stop selling cigarettes in Britain starting in 2018, and instead focus on the sale of their various electronic nicotine delivery systems. This is obviously a massive shift for a company that has been selling tobacco products for 118 years. The natural questions are why are they doing this, what products does Philip Morris intend to use as a replacement, and what does it mean for customers and smaller businesses already in the vaping industry?
First of all, it is worth noting that this announcement, while surprising as they want to stop selling cigarettes entirely, didn't just appear out of thin air for those paying attention to the company in the past few years. Philip Morris International has spent over 3 billion dollars researching alternative electronic nicotine delivery systems, including purchasing the intellectual property for various technologies as early as 2011.
In order for a company to invest this sort of money they obviously see the potential behind the products. But beyond that they are feeling pressure from various regulatory bodies, inside the US and out, making it harder to sell traditional tobacco products. The natural response is to find an alternative, an alternative Philip Morris seems to strongly believe is e-cigarettes.
In their 2016 annual report to shareholders they headlined it by promoting their production of "Risk Reduced Products" (RRP) and prominently stating that they were producing as many as they could. In fact they want on to say they would have happily produced more had they not reached their manufacturing capacities. They noted a global decline in cigarette sales, a trend seen over the entire tobacco industry. And as a final important note they also told their shareholders about increases in regulations in the EU on the sale of cigarettes, including new regulations on "health warning size, minimum pack size and the ban of characterizing flavors".
Another notable regulation is the FDA introducing a ban on cigarettes with addicting levels of nicotine, which was announced this past August, after Philip Morris International's annual report to shareholders.
The short version over everything above: Demand for cigarettes is down, demand for cigarette alternative is growing faster than it can be supplied, and it is getting harder to sell cigarettes. The motivation to move away from cigarettes and towards alternative products couldn't be clearer.
What are the products?
Philip Morris has two main types of products.
The first is heated tobacco devices, also known as "heat-not-burn". These devices, which Philip Morris International has branded HeatSticks, heat the tobacco hot enough to deliver nicotine, but not hot enough to ignite or burn it. Recently members of the FDA voted against allowing Philip Morris International to advertise these products as "Reduced Risk Products". One reason for this was they the members of the panel were unsure if Philip Morris Internatioanl has the necessary evidence to support the claims of reduced risk.
The second type of product is the more familiar vaporizers of nicotine salts with any tobacco, which Philip Morris International has branded MESH and STEEM. Of particular note is the fact that the designs for their products are different than the traditional coil models, which Philip Morris International seems to be trying to avoid in the products, rather opting for devices that are extremely simple to use.
What does this mean for consumers and small businesses?
While this is certainly not the first time a big tobacco company to venture into alternative nicotine delivery systems, this just might be the first real commitment from one to voluntarily move entirely away from cigarettes.
For customers, this is probably a good thing. As the vaping and e-cigarette industry flourishes consumers will have more options. A move like this could significantly increase the growth the industry as already seen and expedite the trend of migration away from cigarettes. Philip Morris International also has the resources to innovate, if they have already spent $3 billion on these products that number will only increase as their focus shifts towards them.
For small businesses it could a mixed bag. A growing industry and growing acceptance is beneficial. More demand means more customers. The downside is that smaller businesses might not have the resources needed to compete with a company like Philip Morris International, especially in the face of increased regulations like those imposed by the FDA. It is certainly easy to draw potential parallels between this and an example such as Wal-Mart putting a local store out of business.
All in all, regardless of how it will affect small businesses this is a big move from a big player which could very well result in fundamental changes in the industry and will likely benefit consumers.