Wednesday, March 24, 2021

A World-Class Case of Corporate Self-Cannibalization May Save Millions of Lives


Heat-not-burn (HNB) tobacco products – mainly IQOS from Philip Morris (PMI) – are eroding cigarette sales in Japan, as I recently noted.  Prevalence estimates from the Japanese Health and Nutrition Survey confirm the consumption numbers. 

Because the Japanese survey only began tracking new products in 2018, no trend can yet be discerned, but HNB product use is impressive, as shown in the chart at left.  Depending on how dual users are counted, HNB accounted for 20 to 27 percent of all tobacco use in 2019.   

The highly credible Japanese Health and Nutrition Survey is the world’s oldest nutrition survey, implemented by Allied Forces after World War II.  Participants include adults age 20+ years; questions on smoking and HNB use are included in the lifestyle section. 

The HNB-driven Japanese harm reduction miracle has been ignored by most of the world, but Motley Fool just published an intriguing article, “Is It Time to Stop Thinking of Philip Morris International as a Cigarette Company?”

The answer is a resounding “Yes!”

There are two standout quotes in the article.

“Philip Morris' annual report shows that cigarette shipment volumes last year tumbled over 11%, with its most important brand Marlboro, which accounts for 37% of all cigarette shipments, down by a like amount.”

PMI risked its core cigarette business when the company launched the multi-year, multi-billion-dollar IQOS research and development effort.  Five years ago, it rolled the dice again when it marketed the products in Japan.  Leadership had no guarantee that IQOS would preferentially erode only other companies’ cigarette sales.  This may end up as a world-class example of self-cannibalization that ultimately saves millions of lives that would otherwise be cut short by smoking.  

“Philip Morris generated $6.8 billion in revenue last year from IQOS, or almost 25% of its total $28.7 billion in net revenue. [PMI CEO Andre] Calantzopoulos says if you just look at the three regions where IQOS is most prevalent -- Asia, Eastern Europe, and the European Union -- it represents 35% of the total.”

Naysayers have dismissed the Japanese miracle because there is no e-cigarette/vapor market there.  However, there is no doubt about the success of IQOS across 67 countries around the world.  IQOS might now find similar public health success in the U.S.  As Altria broadens distribution here, tobacco prohibitionists should give smoke-free tobacco products the opportunity to cancel smoking and advance public health.




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