A Smokefree Future?

To give shape and structure to its smokefree vision, Richmond, Va.-based Altria Group Inc. recently introduced its 2028 enterprise goals, which include growing its U.S. smokefree volumes by at least 35% from its 2022 base of 800 million units and doubling its smokefree revenue to $5 billion, $2 billion of which will be from innovative smokefree products. 

British American Tobacco (BAT), parent company of Winston-Salem, N.C.-based Reynolds American Inc., currently has 24 million adult consumers of its “new-category products,” which include heated cigarettes and oral nicotine products. It aims to have 50 million by 2030. The company also wants 50% of its revenue to come from noncombustible products by 2035. 

Amidst these objectives, BAT announced in early December that it would take a hit of around $31.5 billion as it wrote down the value of some U.S. cigarette brands, acknowledging that its traditional cigarette market had no long-term future.

Philip Morris International Inc., headquartered in Stamford, Conn., expects that with its rapid smokefree transition, more than two-thirds of its net revenue will come from smokefree products by 2030, driven by volume and positive price/mix, with strong operating income growth and cost efficiencies driving margin expansion and strong bottom-line performance.

No doubt about it, Big Tobacco is in the midst of a big transformation.

Gaining Momentum

As compelling smokefree strategies abound, the near-future needle moves closer to alternative products and farther away from combustibles. 

“For decades, we have been committed to offering adult smokers better alternatives and ensuring a regulatory framework to determine if those products offer lower risk and how to appropriately communicate about them,” said Altria Group CEO Billy Gifford. “We are proud of the groundwork we’re laying in using science to develop a smokefree product pipeline that we believe can successfully transition adult smokers and achieve [U.S. Food and Drug Administration (FDA)] authorization.”

Bonnie Herzog, managing director and senior consumer analyst at Goldman Sachs, is optimistic about Altria’s “ability to pivot its portfolio to a smokefree business.” She said she’s encouraged by Altria’s recent transparency and visibility on its transformation plan, calling its smokefree efforts “clearly the next important phase of growth as it accelerates plans to move beyond smoking and eventually beyond nicotine.”

At Reynolds American, the company views tobacco harm reduction as not only core to its strategy, but also an important initiative to create better public health outcomes for Americans, a company spokesperson told Convenience Store News. “We know that sustained and lasting changes to adult consumer smoking behavior offer the greatest hope for making cigarettes obsolete, and we believe that providing viable nicotine alternatives to smoking is in the public interest,” the spokesperson said. 

Like Altria, Reynolds stresses that the science behind this movement is paramount. “Nicotine alternatives to cigarettes, and the policies that enable adult consumers to access them, must be rooted in objective science, not politics,” the spokesperson stated. 

Philip Morris International also recently highlighted its smokefree transformation story to investors. The company sees an opportunity for smokefree revenue to be two to three times higher than cigarettes and gross profit dollars to be two to 2.5 times higher.

Herzog called it “a compelling strategy to lead Philip Morris through its next phase of growth, with an unmatched range of high-margin smokefree products to meet the adult smoker at every stage and price point of their conversion journey.”

The way some see it, the COVID-19 pandemic accelerated the switch from combustible cigarettes, both from an economic perspective and a situational perspective. 

“Inflation, generally speaking, was going to happen given the Fed’s ballooned balance sheet but that, combined with consistently increased pricing on combustibles and moist smokeless, has driven consumers to seek alternatives,” reasoned Matthew Hanson, chief financial officer/chief growth officer at Chicago-based Black Buffalo, a modern oral nicotine product that mimics moist smokeless tobacco, but without the tobacco leaf. 

“Situationally, adult consumers found themselves unable or unwilling to use traditional tobacco products and conversely, [sought] novel nicotine products due to work-from-home, social pressures and a more general awareness of health and risk reduction alternatives,” he added. 

But is a world without cigarettes really on the horizon?

Reynolds believes a smokefree future is “possible” and makes note that tobacco harm reduction is gaining momentum worldwide, with some countries such as Sweden and Japan already ahead of the curve. The company explained that its intent is to encourage adult smokers who would otherwise continue to smoke to transition completely away from cigarettes to smokeless alternatives. 

Hanson, however, has a slightly different take. “Smoking will continue to exist in some form or fashion — it’s been used in North America for almost 7,500 years!” he said. “The likely outcome will be a continued annual decline in adult consumption, driven by risk reduction efforts, education, consumer preferences, flavor bans, excise taxes and manufacturer price increases.”

The Education Piece 

Educating smokers on why they should transition from cigarettes to smokeless alternatives is an important piece of the smokefree puzzle, but ahead of that must come policy, according to Reynolds. 

“Effective tobacco harm reduction policies have the possibility to make strides in public health and reduce the burden of combustible tobacco use. These science-based policies are urgently needed to best serve public health,” the company spokesperson relayed. “Without tobacco harm reduction policies that educate adult smokers and provide access to alternative, noncombustible products, smoking rates will likely remain higher than they could be.”

Education is needed around the health misperceptions of nicotine; informing adult consumers of their options when it comes to alternative, noncombustible tobacco products; and the risk continuum associated with each product. 

Reynolds believes appropriately regulated, adult-oriented flavored vaping products (including menthol) are critical to supporting adult smokers as they migrate from combustible cigarettes. The company is working to disseminate information about tobacco harm reduction through “easily digestible” whitepapers, blog posts, videos and more on its ReynoldsHarmReduction.com website.

In tandem with education, Hanson believes a more flexible merchandising mindset is necessary for a smokefree future. “It is even more important that category managers allow space for the next brands to flourish,” he said. 

“These novel products typically provide enhanced margins, accretive penny profits and differentiation from competitors,” Hanson noted. “Adult consumers will vote with their retail visits and hence their dollars, and the most successful retailers [will] stay ahead of the curve by constantly monitoring adult consumer demand.”

Course Correction Needed

There are, of course, challenges impeding the current and future states of a smokefree world. Looking specifically at the e-vapor category, some say the current state of the market is intolerable for both legitimate manufacturers and consumers. 

“The regulated market is being overrun by illegal flavored disposable e-vapor products made and distributed by companies violating virtually every rule and guidance the FDA has issued since 2016,” said Altria’s Gifford. “Regulation not enforced is indistinguishable from no regulation at all. Illegal e-vapor products circumvent the actions of regulators, responsible manufacturers and retailers by evading scientific review, quality and manufacturing controls, marketing oversight and legal age of purchase restrictions.”

Despite recent actions by the FDA, enforcement has been inadequate and ineffective, according to Gifford, who added that Altria is actively engaged with regulators, state and federal lawmakers, and its trade partners and other stakeholders to build awareness and drive marketplace enforcement. The tobacco giant even initiated litigation in the U.S. District Court in California against 34 organizations, including manufacturers, distributors and online retailers, related to the sale of unlawful products. 

“A strong course correction is needed to protect the tobacco harm reduction opportunity for the 30 million adult smokers in the U.S.,” Gifford concluded. 

Reynolds agrees that to push tobacco harm reduction forward, “it is vital that we have a coherent, science-based regulatory framework that is properly enforced by the authorities.” 

This past fall, in an effort to increase evidence-based transparent dialogue, the company released interim data from a 24-month longitudinal tobacco use and transitions survey it initiated — part of an ongoing evaluation of its products and the role they can play in tobacco harm reduction. Reynolds presented a summary of the results at a tobacco and nicotine regulatory product science symposium to an audience that included senior officials from the FDA’s Center for Tobacco Products, as well as several prominent public health researchers.

Hanson echoes the call for the FDA to be a stronger partner in this movement. “Using a science-based approach, the FDA needs to clearly and unambiguously articulate the benefits of risk reduction via switching or using products with lower potential risk, recognizing that adult consumers are clearly moving toward harm reduction on the risk continuum,” he said.