Cigarettes are addicting, hazardous products that kill six million people a year. At the same time, one billion people worldwide smoke cigarettes, which means if you’re in the tobacco business, you’re likely making a fortune.
In recent years, electronic cigarettes (or e-cigarettes) and other alternative tobacco products appeared on the market, giving old and new smokers a supposedly healthier way to enjoy their nicotine buzz.
Cigarette companies like Philip Morris ($PM) quickly realized that these trendier, customizable alternatives to smoking cigarettes were in demand by a younger generation, and would ultimately cut into their sales. Thus, they offered their own e-cigarette brands and bought existing ones, capitalizing on the future of the product space (similar to how big breweries buy craft breweries or start their own).
As e-cigarettes become more popular and mainstream, tobacco companies are starting to imagine what the future of their brands will be like. One CEO, Andre Calantzopoulos of Philip Morris International, suggested today that his company could even move away from cigarettes in the future.
While that might be great for customers, considering how e-cigarettes are allegedly better than regular cigarettes, there’s one group of people who aren’t sold on the idea: Philip Morris investors.
Philip Morris International is a subsidiary of Altria Group, formerly known as Philip Morris Companies.
Philip Morris International makes cigarettes. Their parent company changed their name because they sell wine, too, and also they didn’t want to be known as “that cigarette company.”
In 2015, Altria made $25.43 billion in revenue and $8.36 billion in operating income.
They are one of the biggest tobacco companies in the world. Like all tobacco companies, they spend billions on advertising and legal fees every year to get more cigarettes and tobacco products into the hands of new smokers.
In recent years, however, some smokers have adopted e-cigarettes in favor of traditional cigarettes.
While scientists are still debating on whether e-cigarettes are just as harmful or less harmful than regular cigarettes, e-cigarette users overwhelmingly feel that vaporizers and smokeless devices are safer, better ways to enjoy nicotine.
As e-cigarette usage grew over the last several years, it quickly became a multi-billion-dollar business.
In the last few years, companies like Altria bought popular e-cigarette brands to avoid losing out on the future of tobacco.
In an interview today with the BBC, Andre Calantzopoulos (CEO of Philip Morris International) said the company could move away from traditional tobacco products in the future.
Such products would include the company’s IQOS system, which vaporizes tobacco (and avoids the e-cigarette liquid), along with common e-cigarette products the company also sells. This would be to move away from (allegedly) more harmful cigarettes and towards better, more customizable products.
This sounds like a good idea for the company’s future and the health of their customers, but their investors are not pleased.
Philip Morris’ stock sank a bit after this news broke. Investors feel that moving away from regular tobacco products — the company’s bread and butter — would put the ever-profitable company at risk. There are plenty of cigarette smokers still out there, and though the company does produce non-traditional tobacco products, they’re not as important to Philip Morris’ bottom line.
If e-cigarette adoption continues to rise, Philip Morris will have no choice but ramp up production, manufacturing, and marketing for alternative tobacco products. Until then, they’ll have to keep making regular tobacco products to keep investors happy.
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