Cigarette sales can end within 10 to 15 years in many countries - interview with Stefano Volpetti

English2022. aug. 29.Harsányi Péter

We all have in mind a future without cigarettes. To realize that vision, we need a portfolio of smoke-free alternatives, and we also need a regulatory framework that allows smokers to have access to information and better alternatives – according to Stefano Volpetti. The President of Smoke-Free Products Category and Chief Consumer Officer at Philip Morris International told növekedés.hu that today, about 30 percent of PMI’s revenues come from smoke-free products. This number was close to 10 to 12 percent just three years ago. By 2025, the company aims to have more than 50 percent of its revenues coming from smoke-free alternatives.

What are currently the most popular smoke-free products of Philip Morris International?

By far, our number one brand and product is IQOS heated tobacco. The heated tobacco category accounts for the vast majority of our SFP revenues today.

It is also the category where we achieved the highest number of users around the world— more than 20 million at the end of 2021. Of those, we estimated that more than 70 percent, or nearly 17 million, have fully switched. That is, they have left cigarettes behind.

With IQOS products, we could create a smoke-free environment. Moving forward, we plan to expand our portfolio to offer even more smoke-free alternatives—e-vapor and oral smokeless products, for example.

IQOS heated tobacco is by far our number one smoke-free product because it gives the closest experience to smoking a traditional cigarette—by eliminating combustion, however, the levels of harmful toxicants are, on average, 90-95 percent lower compared to those in cigarette smoke.

PMI believes that with the right regulatory encouragement and support from civil society, cigarette sales can end within 10 to 15 years in many countries. What do you expect to be the key trends in the tobacco industry? What products could be in greatest demand in the next decade?

With the right regulatory framework, eliminating cigarettes is a realistic expectation within 10 to 15 years in some cities or countries.

Looking ahead, all smoke-free products will play a significant role, namely IQOS heated tobacco, e-vapor, and oral smokeless products. I think it is very important that we are giving consumers access to information about the benefits of the smoke-free category. We are also helping them on their journey of conversion from traditional cigarettes to smoke-free alternatives.

Nowadays, what proportion of society typically smokes in Europe? How can this ratio change in the future?

In general, around the world smoking incidences are slightly above 20 percent of the population.

The World Health Organization foresees a stable number of smokers worldwide. That is a combination of two factors. The incidence or the ratio of the smoking population is decreasing, although the population is increasing. If you multiply the incidence with the world population, you get 1.1 billion smokers, which is the WHO’s forecast for the years to come.

We expect lower incidences of cigarettes and a much more prominent presence of smoke-free alternatives.

How do sales of smoke-free products and traditional cigarettes currently relate to each other?

Today, about 30 percent of PMI’s revenues come from smoke-free products. This number was close to 10 to 12 percent just three years ago.

By 2025, we aim to have more than 50 percent of our revenues coming from smoke-free alternatives. This is an achievable goal, as already today there are countries where more than half our revenue comes from smoke-free products. This is a good sign that we are heading in the right direction.

PMI invested USD 9 billion in research and development, and have more than 930 dedicated scientists, engineers, and technicians developing and assessing potentially less harmful alternatives to cigarettes. What are the biggest challenges you face in developing smoke-free products?

Investment in developing smoke-free products is a very important step. Then we need to factor in three important aspects: the safety considerations of smoke-free products, the right level of conversion, and pleasure and satisfaction of smokers who switch (so there’s less chance they will return to smoking).

We have made major investments in smoke-free alternatives and will continue to invest. Changes in regulatory frameworks could accelerate the smoke-free future. In the case of Hungary, there has been a lot of progress; smoke-free alternatives represent 20 percent market share. In general, however, the regulatory environment continues to limit rapid progress.

If we look around the globe, the markets that are making the fastest progress are those where we have  the ability to help smokers in the conversion from cigarettes to smoke-free alternatives.

Through what marketing channels can PMI promote smoke-free products over traditional cigarettes?

This depends on the regulations in force in each country. This business is not about changing a product; this business is about changing a habit—and changing a habit is much more effective via a one-to-one conversation or relationship.

Our retail shops, premium partners, our CRM, and customer care are usually a place where we have more access to legal smokers. With those channels we are more successful in converting them to smoke-free products.

To what extent are the effects of rising international commodity prices and labor shortages affecting PMI? How does this environment affect product pricing?

Philip Morris International is a growth company. Despite these temporary challenges, which every industry is experiencing, we have seen positive effects of the increasing size of our smoke-free business and commitment to cost efficiencies combined with our strong net revenue growth.

PMI’s key differentiating factor is that through the transformation of smoke-free products we have the opportunity to increase our growth rates. This is an important element regarding our overall financial situation.

Will the smoke-free products be cheaper compared to traditional cigarettes? What is your pricing strategy?

In general, we try to ensure that affordability is not a barrier. It is very important for us to offer smoke-free products that are financially viable for the smoker community.

Off course, this is usually enabled by the fact that smoke-free products are less risky, hence they are taxed to a lesser extent.

We all have in mind a future without cigarettes. To realize that vision, we need a portfolio of smoke-free alternatives, and we also need a regulatory framework that allows smokers to have access to information and better alternatives. They should be able to choose from among available smoke-free products. Any of those alternatives are better than cigarettes.