Since 2016, Philip Morris International (PMI) has outlined its vision for a “smoke-free future”, one where the products it sells are alternative nicotine products, not tobacco. The company has stated its intention to kill off the cigarette industry altogether and its CEO, Jacek Olczak, has told the press that the UK government should ban cigarettes from 2030.
Emmanuel Babeau, chief financial officer at PMI, tells fDi why the American tobacco giant is going smoke-free and why this move is a genuine step-change for the company — with the numbers to prove it.
The smoke-free product represents already around 30% of our revenue.
Q: What are Philip Morris’s smoke-free future ambitions and when did this start?
A: Everything started in 2016 when PMI came to the conclusion that the future of the tobacco and nicotine industry would not be defined by a combustible cigarette.
Since many people enjoy consuming nicotine, PMI decided to work on a product that would be better for the consumer and would make a difference on public health.
We've been working on several ideas and IQOS, which uses “heat-not-burn” technology, has emerged as one with the potential to convince many millions of smokers to quit traditional cigarettes.
Q: A smoke-free future is far from being a nicotine-free future. Are you not concerned that you are swapping one addictive product with another?
A: The problem is not the smoke, but the nicotine. When you burn tobacco to extract the nicotine, you release carbon monoxide and a number of other cancerous substances. If you heat the nicotine instead, you reduce production of these substances by 90–95%.
But the real question is that of the impact of this addiction. You can be addicted to many things. I’m addicted to caffeine — if I don’t have my four or five espressos in the morning, I don’t feel good. Is it good for me? Well, if I don’t have any cardiovascular issues, then it’s perfectly fine.
Q: What are the challenges you face as you scale up IQOS and other smoke-free alternatives?
A: Regulation is still a problem. There are several countries that forbid alternative nicotine products. The bigger challenge is awareness — both of the regulation, and how these products are different, but that they can keep the pleasure of the ritual — everything around, you know, consuming tobacco in a kind of similar way to cigarette — but with a significantly better product.
Q: But overall 70% of your revenue still comes from tobacco-based products. Do you really anticipate that this can become a global phenomenon?
A: We absolutely do. Let’s be very clear: for the owner of Marlboro to say that we are now committing to become a smoke-free company was a pretty bold statement to make.
A lot of people at that stage were sceptical, as always. Many thought this is just another trick to keep selling cigarettes. The reality is that six years down the line, the smoke-free product represents already around 30% of our revenue — roughly $9bn. I don’t think you're gonna find any other product starting from zero and getting to $9bn in such a small period of time. This is not just lip service or another way to keep on selling cigarettes; our numbers speak for themselves.
This article has been edited for clarity and brevity. It first appeared in the October/November 2022 print edition of fDi Intelligence. View a digital edition of the magazine here.