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Because it can

When Philip Morris International (PMI) in January 2017 announced its commitment to a smoke-free future, it was met with widespread incredulity. That was hardly surprising. Many of the organizations questioning PMI’s motivations exist to criticize the tobacco industry; they would be betraying their foundational charters if they failed to do so.

Yet some skepticism was justified: How can a company that has grown wealthy selling combustible cigarettes—and continues to derive most of its profits from that segment—be serious about killing off its bread-and-butter business?

The answer is “because it can.” The rapid development of vapor, heat-not-burn and other nicotine-delivery technologies means that tobacco companies are now able to offer customers a product that not only is less unhealthy but also satisfies their cravings. Until recently, that wasn’t an option. Ceasing combustible cigarette production would have simply meant handing that business to the competition or the black market.

PMI is in a particularly strong position to make the smoke-free commitment because its heat-not-burn technology is widely recognized as the best in its class. IQOS has taken Japan by storm and continues to make steady inroads into other markets. This means the company has a credible product to maintain revenues even as the traditional cigarette business declines.

Demonstrating its confidence in the smoke-free future, PMI has been constructing dedicated iQOS factories and converting combustible cigarette manufacturing plants into facilities capable of making next-generation products. Most recently, the company’s Papastratos factory in Greece ceased combustible cigarette production to focus completely on Heets, the tobacco sticks used in iQOS. The Papastratos plant is the company’s second in Europe to concentrate exclusively on this product. Worldwide, PMI expects to have production capacity for about 100 billion heated-tobacco units by the end of 2018.

Of course, sales of heated tobacco products currently represent only a fraction of PMI’s combustible cigarette sales. The company still produces around 800 billion conventional cigarettes per year. But the new market is growing rapidly even as cigarette shipments shrink. Clearly, PMI is betting that the additional income generated by heat-not-burn products will offset the declining earnings from combustibles.

Critics may dislike the financial incentives driving PMI’s strategy. But by applying market forces, the company may help achieve the desired smoke-free future quicker than any government program could—and that’s a prospect even the most jaundiced anti-tobacco activist should cheer.

 

 

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