Tobacco company Philip Morris International (PMI) plans to exit the Russian market by the end of 2022. Jacek Olchak, PMI's Managing Director and International Executive, discussed the matter in an interview with Bloomberg TV, saying, "We're doing everything we can to stay in Russia, but I don't think that's going to happen in the next quarter.
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Jacek emphasized that reducing business with Russia is a "quite complex process," as the Russian market is important to the company. Olchak stated, "In terms of retail value, this is the world's seventh largest tobacco market and we have a 27% share in this market." He explicitly stated that after leaving Russia, the company intends to refocus on Europe, Asia, and the United States. The businessman added that the company is saddened by the loss of investment in the Russian market. Later, PMI's media department made it clear that the company will continue to consider restructuring options and may make a decision by the end of the year.
Phimol International's cigarette brands in Russia include Marlboro, Parliament, L&M, Chesterfield, Bond Street, and the IQOS tobacco heating system. Olchak previously stated that the company has over 32,000 employees in Russia. In the Leningrad region, the company has a factory that is the largest in the world in terms of production capacity. The factory is involved in the entire cigarette production process - from primary processing of tobacco raw materials to packaging.
PMI warned of production cuts as early as March, followed by a suspension of investments in the country and the cancellation of new product releases.
Pavel Shapkin, the chairman of the National Consumer Protection Alliance (NSZPP), believes that Philip Morris International and other major tobacco companies will continue to exist in Russia in some form or another. According to Pavel Shapkin, the chairman of the National Consumer Protection Alliance (NCPP), "they will never leave us because they cannot afford to lose the seventh largest market in the world for political ambition. There are also trillions of rubles in revenue at stake, which is a significant amount of money.
According to him, tobacco companies are facing the issue of how to maintain control over their assets in the Russian Federation, but they have stated in the West that they have left the Russian market. The expert stated that they may now be considering options to own factories through third parties.
I think they will purchase the factory and trademark. Afterwards, the fact will prove that these factories and trademarks belong to the brand of Phimo International," Shapkin told the interviewer.
Experts believe that changes in legal ownership will not have any significant impact on the cost of tobacco products. In fact, the price of cigarettes is determined by public authorities rather than stores. Prices are regulated, and the majority of the cost of a pack of cigarettes is made up of tobacco consumption taxes. "Tax laws" determine the minimum and maximum price of a pack of cigarettes, he concluded.
According to Andrei Loskutov, Chairman of the Russian Cigar Union, PMI will not be leaving the Russian market.
The President of the Russian Cigar Association, Andrei Loskutov, stated that Fimo International is still operational and continues to pay its employees and taxes to the Russian Federation budget. They have no plans to make any changes to these payments.
At the same time, experts acknowledge that this tobacco giant may change the organizational structure of the Russian market.
On the other hand, according to Peter Shelishch, Chairman of the Consumer Union of Russia, even if Philip Morris International ultimately leaves the market, the country's cigarette production will not truly decrease and there is no risk of shortages for Russians. "This will affect the price more than availability, as parallel imports from neighboring countries like Kazakhstan and Turkey will become more active," he said.
Experts believe that PMI's withdrawal from the Russian Federation could lead to a decrease in the number of smokers in the country. An increase in tobacco prices is the most effective factor for quitting smoking, as most smokers in Russia are low-income individuals, the experts have concluded.
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