When even the biggest tobacco giant says its products should be banned, why should any governments hesitate? The answer is, they probably won't -- and Philip Morris International (PM 0.68%) may regret calling on the U.K.'s government to ban cigarettes in 10 years.
It may be trying to prove it's serious about wanting to usher in a smoke-free future, in which it's actually a healthcare company and not a maker of products that kill people. But just because it's not ready to go cold turkey yet doesn't mean the U.K.'s Parliament needs to abide by PMI's timeline.
Image source: Getty Images.
Making a clean break
Philip Morris International chairman André Calantzopoulos and CEO Jacek Olczak told The Telegraph it's time for the government to treat cigarettes like gasoline-powered cars and ban them. The U.K. has said it will ban all vehicles with internal combustion engines by 2030.
Olczak said: "I want to allow this company to leave smoking behind. I think in the U.K., 10 years from now maximum, you can completely solve the problem of smoking."
The global cigarette company says it will "absolutely" stop selling cigarettes in the U.K. over the next decade, and the leading Marlboro brand will no longer be available for sale as PMI transitions to a wellness business model.
As part of that, the company recently announced it wanted to acquire Vectura Group, a U.K.-based manufacturer of respiratory therapy and inhaled-drug delivery devices, as well as Fertin, a maker of nicotine chewing gum, chewable tablets, lozenges, and "pouch powders."
A move to solidify its positioning
It's not likely that other tobacco companies are ready to join the call to end their operations, even as the incidence of smoking continues to fall globally. But that may be more key to PMI's push than anything else.
Philip Morris International generated $28.7 billion in revenue net of excise taxes last year, but over 76%, or some $21.9 billion, came from combustible cigarettes. Only $6.8 billion came from reduced-risk products like IQOS. By 2025, however, it wants more than half of its revenue to come from non-combustible products.
Global rival British American Tobacco (BTI 0.80%) generated $15.9 billion in total revenue of which $9.9 billion, or 62%, came from combustibles.
In comparison, Altria Group (MO 0.49%) -- which is responsible for the manufacturer, distribution, and sale of the IQOS in the U.S. -- had $26.1 billion in total revenue last year, $23.1 billion of which came from smokable products.
The IQOS heated tobacco device is the leading e-cigarette in many markets. Image source: Philip Morris International.
Although PMI still owns five of the world's top 15 cigarette brands, its global market share is shrinking fast, falling from 14% to 12% from 2018 to 2020. And in the U.K., it ranks behind Imperial Brands, Japan Tobacco, and British American.
Yet its IQOS is the dominant heated tobacco device in many of the markets in which it's sold, and it has a 3% global share of the combined cigarette and heated tobacco market. In Japan, where the IQOS has been on sale the longest, it has over a 20% market share. As of the end of last year, the e-cigarette was available in 64 countries including the U.S., though the rollout has been slow here, entering only four narrow markets by the end of April.
What's good for PMI isn't good for the industry
It's clear that Philip Morris International does want to transition away from combustible cigarettes into alternative forms of nicotine delivery, arguing that burning tobacco is the real problem. Yet the call for a ban on cigarettes is one that plays to its strengths and bolsters its position at the expense of its competitors; it looks a little self-serving.
Anti-smoking advocates, though, now have an argument for an even faster timeline for eliminating cigarettes: Since PMI is on board with a ban, preserving its market share and profits shouldn't enter the equation for making policy decisions.
And while the ban it seeks may be localized to the U.K. market at the moment, the company's stance has become one that can readily be copied elsewhere. But don't expect to see other tobacco stocks jumping on board.
