Philip Morris International $PMI and the Smokeless Future
PMI launched a rebranding campaign in 2014 to open the company's product range and make it future proof to anti-smoking macro trends.
Philip Morris International PM 0.00%↑ has been a giant in the tobacco industry for decades. With 180 years of history under its belt, it has grown from a small store in London to the official tobacco supplier to the King of England and now the world's largest multinational tobacco company. PM is always found as a prominent figure in the portfolio of the largest food and beverage ETFs, such as XLP 0.00%↑, KXI 0.00%↑ and IYK 0.00%↑. However, as the world moves away from cigarette smoking, the company adapts to the changing landscape by focusing on smokeless products.
Falling out of love with cigarettes
In recent years, the Western world is increasingly turning its back on smoking. Public health campaigns, stricter regulations, and a growing awareness of the health risks associated with smoking have led to a shift in consumer behavior. Smoking is not cool anymore. According to the World Health Organization, the global smoking rate has decreased by 30% since 2000. In the US, adult smoking rates have dropped to an all-time low of 13.7% in 2018, down from 42% in 1965. Can you imagine? Six decades ago, almost half the US population used to smoke. It is crystal clear that the Western world is increasingly turning its back on smoking. The question arises: how is Philip Morris International adapting to this paradigm shift?
Smokeless alternatives and the race to control a new market
While smoking is slowly going out of fashion in the West, among teenagers vaping has become a growing epidemic. In the US and Europe, the rise of vaping has been nothing short of meteoric. In just a few years, it has transformed from a niche market to a mainstream phenomenon. For instance, in the UK, the number of vapers has surged to over 3.6 million in 2023, up from just 700,000 in 2012. Similarly, in the US, the number of adult vapers has grown to 10.8 million. And this trend is led by the younger generations. In 2023, 20% of children in the UK tried vaping at least once, while in the US, 8% of all students regularly vape, with the vast majority preferring flavored options.
Philip Morris is rethinking its future. But can the company thrive in a smoke-free world?
PMI is decidedly riding this wave of change. The company has invested heavily in developing smokeless alternatives. Its flagship product, IQOS, heats tobacco without burning it, reducing harmful emissions. Its early adopters named it “I Quit Of Smoking.” By 2023, PMI's smoke-free products accounted for nearly 30% of its total revenue, a clear sign of the company's commitment to a future without traditional cigarettes.
PMI launched a rebranding campaign in 2014 to open the company's product range and make it future proof to anti-smoking macro trends. After all, there are many ways to use tobacco. Products such as oral nicotine pouches, e-vapors, and heated tobacco products promise to replace the craving for a smoke in a painless way. And they seem to be producing results. Despite the decline in cigarette sales, Philip Morris's financial performance remains robust. In 2023, the company's revenue hit $80 billion, with its stock valuation reflecting investor confidence in its smokeless strategy. PMI's ability to pivot from traditional tobacco to innovative products has been key to its continued success.
The company's commitment to a smoke-free future is further evidenced by its significant investment in research and development. PMI has allocated over $9 billion to the development of smoke-free products since 2008, which is aligned with its ambitious goal to have at least 50% of its net revenue coming from smokeless products by 2025. This shift is not just a strategic move to align with changing consumer preferences but also a response to increasing regulatory pressures and public health initiatives aimed at reducing smoking rates globally.
Aside from PMI, the vaping and nicotine market is bustling with competition. E-cigarette and Vape Market size was worth around USD 27.92 billion in 2023 and is predicted to grow around USD 72.36 billion by 2032 with a compound annual growth rate of roughly 11.16% between 2024 and 2032. Companies like Juul Labs, British American Tobacco, and Japan Tobacco International are all vying for a slice of the smokeless future. Juul, in particular, has made headlines with its sleek design and high nicotine content, becoming a favorite among younger users.
Smokeless but not harmless
While vaping is often touted as a less harmful alternative to smoking, the long-term health effects are still uncertain. Traditional smoking delivers a cocktail of toxic particles into the lungs, causing immediate and severe damage. In contrast, vaping doesn't involve combustion, reducing exposure to many harmful substances.
Additionally, products such as vapes with their bright colors and fruity aromas are a target product for teenagers, and their consumption in this age range has grown disproportionately in recent years. E-vapes flood your brain with extremely high doses of nicotine, which makes them highly addictive. And for teenagers, and their still-developing brains, this can be very bad. How bad? We don't know yet.
The elephant in the room is that vaping is still relatively new. Most health studies have focused on smokers who switched to vaping, leaving a gap in our understanding of its long-term impact. While we know for certain that smoking is significantly more harmful, the jury is still out on the full effects of vaping.
It's worth remembering that not so long ago, doctors recommended smoking and cigarette ads were a common sight on TV. This serves as a cautionary tale: just because something is marketed as safer doesn't mean it's risk-free.
As the world moves away from traditional smoking, companies like Philip Morris are at a crossroads. With significant investments in smokeless products and a clear shift in strategy, PMI is betting on a future where cigarettes are a thing of the past, but not its juicy turnover and profit margin. And so far, it seems to be working out well. While the long-term effects of vaping remain unknown, one thing is clear: the tobacco industry is undergoing a profound transformation, and Philip Morris is determined not just not to be left behind, but to lead the way.
Philip Morris International Stock Chart
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