Altria Increases Investment in Noncombustible Tobacco

RICHMOND, Va. — Altria Group Inc. continues to invest in innovative tobacco products. 

CEO Billy Gifford announced that the tobacco company acquired the remaining 20 percent of the on! oral nicotine pouches global business it did not own for approximately $250 million.

"When we made the initial 80-percent acquisition in 2019, the oral nicotine pouch category in the U.S. was rapidly growing off of a small base," Gifford said during Altria's first-quarter 2021 earnings call, held April 29. "Subsequently, on! nicotine pouch growth has exceeded our original estimates." 

Altria entered the oral nicotine category in June 2019 with a definitive agreement to acquire 80 percent of certain companies of Burger Söhne Holding AG that commercialize on! products worldwide. Upon closing the deal, a newly formed Altria subsidiary, Helix Innovations LLC, became the parent company of Burger Group subsidiaries currently manufacturing and selling on!, as Convenience Store News previously reported.

"In the first quarter of 2021, we estimate that retail share for on! nicotine pouches [was] approximately 13 percent of the total oral tobacco category, double its share in the year-ago period," Gifford reported. 

Altria expects the growth to continue and estimates that category volume in the United States will grow at a compounded annual growth rate of approximately 25 percent over the next five years.

At the end of the first quarter, on! pouches were sold in approximately 93,000 stores. The brand is expected to be in stores covering 90 percent of the industry's oral nicotine volume by midyear, according to Gifford.

"Our primary focus continues to be on increasing on!'s growth in the U.S. Internationally, we see potential to strengthen on! in the Swedish market. We also see longer-term prospects in Europe to expand on! and gain consumer feedback on potential non-combustible products for the U.S.," he said, noting that Altria has expanded its international on! team to explore opportunities.

Heated Tobacco

In the heated tobacco arena, Altria's Philip Morris USA (PM USA) expanded the IQOS and Marlboro HeatSticks products in the first quarter of 2021.

PM USA introduced a new IQOS 3 device — which has a longer battery life and faster recharging time compared to its 2.4 version — into all current markets. Meanwhile, Marlboro HeatSticks were available in retail stores statewide across Georgia, Virginia, North Carolina and South Carolina as of the end of April. 

Altria, through its PM USA subsidiary, is commercializing IQOS in the United States through a pact with Philip Morris International.

"We're encouraged to see that many consumers are upgrading their 2.4 devices, representing approximately 25 percent of all IQOS 3 device sales in the first quarter," Gifford said. "Along with geographic expansion, PM USA is increasing the use of its digital platforms like marvel.com and getiqos.com to engage with smokers and communicate the benefits of IQOS, including the MRTP [modified risk tobacco product] claim on the IQOS 2.4 system."

Adult smokers can sign up to receive communications and be notified when IQOS is available in their area, according to the CEO, and PM USA is also using its Marlboro Rewards program to drive IQOS awareness.

In June, PM USA plans to open an IQOS boutique in Tyson's Corner Mall in northern Virginia. In addition, it plans to bring IQOS to three new markets this year, and expand availability of Marlboro HeatSticks to geographies covering approximately 25 percent of the U.S. cigarette volume by the end of 2021.

"We're making progress and driving awareness and availability of on! and IQOS, while investing in future innovative noncombustible products, and we continue to acquire more tobacco consumer insights to inform our strategies to actively transition smokers to our non-combustible portfolio," Gifford said.

In addition to PM USA, Richmond-based Altria's wholly owned subsidiaries include U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Sherman Group Holdings LLC and its subsidiaries, Ste. Michelle Wine Estates Ltd. and Philip Morris Capital Corp. Altria holds equity investments in Helix Innovations, Anheuser-Busch InBev SA/NV, Juul Labs Inc. and Cronos Group Inc.