Philip Morris International (PM +1.00%) announced today at the Morgan Stanley Global Consumer Conference that it would enter the e-cigarette market beginning in the second half of 2014.
Philip Morris highlighted that the e-cigarette market has grown from roughly $910 million in sales in 2010 to a forecasted $2.5 billion in 2013. Growth has been strongest in the United States, where sales have skyrocketed from $190 million to an estimated $1.2 billion in 2013. The growth in the six most important international markets to Philip Morris has been around 25% annually over the previous two years.
The company noted that there is strong consumer demand for a less-harmful cigarette alternative, and that through positive results in its own consumer tests as well as broader consumer interest, Philip Morris International would begin the development of its own e-cigarette. However, the company did note that current e-cigarettes often have slower delivery of nicotine when compared to conventional cigarettes, and often have weaker tastes, which result in "limited user satisfaction and reduced adoption rates."
In his prepared remarks, Philip Morris International CEO André Calantzopoulos noted, "Taking into consideration the high awareness levels, widespread distribution, often much lower prices, adult consumer understanding of potential reduced-risk benefits, the lack of regulation and significant marketing freedoms, e-cigarette repeat purchases remain surprisingly low." And as a result, Philip Morris would enter into the market using current technology, but would offer an improved taste over existing brands.
While the company noted other potentially more attractive avenues for growth, Calantzopoulos also highlighted that Philip Morris would attempt to absolve some of the current issues with the development of its own e-cigarette technology. He also said that the category could be an attractive one provided there is not excessive regulation or taxation imposed on them.
