PMI Germany CEO Talks About HnB
In a recent interview by Capital.de, Markus Essing, CEO of Philipp Morris Germany, addressed the relevance of heat-not-burn tobacco products in the overall business, their health consequences, and the role of innovation in a tobacco corporation. The discussion began with a reference to a dating app's recent data, which showed that users who identified themselves as smokers received significantly fewer matches and interactions.
Interviewer: Is a cigarette, whether lit or simply heated, a relationship killer?
Markus Essing: I can only speak to a limited extent about the details of newly formed relationships and the preferences of potential partners. However, what I do know is that the percentage of smokers over the age of 30 remains relatively stable. With products like IQOS, we also offer a potentially helpful alternative to traditional cigarettes, which could potentially be advantageous in the dating scene. Unlike tobacco smoke, the vapor from IQOS does not leave sticky residue on fingers, clothing, or hair. However, charm and humor are still factors that individuals need to bring to the table themselves...
Interviewer: How relevant are heat-not-burn tobacco products, such as IQOS, for Philipp Morris' overall business results?
Markus Essing: Globally, the share of revenue from heat-not-burn products in the first quarter of 2023 was approximately 34.9 percent, and our market share continues to grow significantly each year. In Germany, our market share currently stands at around 5.3 percent of the total cigarette segment, which I estimate to be around 90 percent in the heat-not-burn tobacco segment. Our goal for 2025 is to generate 50 percent of our net revenue with reduced-risk products like IQOS. Terms such as "risk-reduced" and "healthier alternative" have faced criticism, particularly regarding their scientific validity.
Interviewer: What can you say, based on credible and verifiable evidence, about heat-not-burn tobacco products?
Markus Essing: First and foremost, we would like to clarify that these products are not "healthier" alternatives, but rather "less harmful" alternatives. The facts show that products like IQOS release approximately 95 percent fewer harmful substances than comparable cigarettes. These findings have been supported not only by our own studies but also by independent studies conducted by authorities such as the Federal Institute for Risk Assessment. It is undisputed that the combustion of tobacco releases health-hazardous substances and smoke, which is not the case with IQOS products, similar to the comparison of an electric vehicle to an internal combustion engine. There is no denying that the best choice would be to quit smoking entirely, as heat-not-burn products are not risk-free. This is something we do not claim.
Interviewer: Considering that heat-not-burn products are relatively new in the history of tobacco, do we already know the long-term effects on users' bodies?
Markus Essing: Our own clinical studies, with a duration of up to twelve months, have shown significant improvements in physiological parameters compared to continued smoking after switching to reduced-risk products. However, long-term studies, which are not yet available, are necessary. Nevertheless, the collective data obtained so far demonstrate significant differences between heat-not-burn products and traditional cigarettes. Initially, IQOS was introduced as a bridging technology, aimed at helping smokers quit or at least continue with a "healthier" alternative.
Interviewer: Does this strategy align with the reality of consumer behavior, or do some individuals start consuming nicotine with colorful heat-not-burn devices?
Markus Essing: Our position has always been clear: we aim to convince adult smokers who do not want or cannot completely quit to switch to our system. This aligns with our target audience in Germany, who are over 30 years old, live a conscious lifestyle, have a higher average income, and possess above-average levels of education. As for individuals aged 12 to 17, the Federal Center for Health Education reported in July 2021 that 7 percent of them use hookah pipes, followed by traditional cigarettes, while heat-not-burn products like ours are consumed by between 0.1 and 0.3 percent of this age group. These numbers are quite low, and fortunately, they align with our marketing strategy and pricing positioning. The new system, "IQOS Iluma," is described as a new era. It sounds ambitious... "Simplicity is the ultimate sophistication." With these words, the Apple II was promoted in 1977, marking a milestone and a whole new experience. This is not to say that IQOS has not been functioning well so far. After all, we have invested over 10 billion euros in its development, with nearly 1,000 scientists contributing their expertise. However, we have carefully listened to customer feedback over the years following the product's launch, and many have complained about the cleaning process.
Interviewer: Previously, the tobacco sticks were placed on a small heating element. Now they are heated through induction, correct?
Markus Essing: Exactly, the new Terea tobacco sticks are heated through induction. This eliminates the hassle of removing small fragments from the holder. Additionally, the battery has more capacity, charges faster, a start-stop automatic function has been added, and the embedded electronics are even more durable.
Interviewer: Wouldn't it be more coherent for the new brand message to also focus on reducing nicotine content?
Markus Essing: After all, a heated stick contains just as much nicotine as a traditional cigarette, right? Interestingly, only about 6 percent of smokers set quitting as their goal each year, which is a relatively small number. As such, it is more feasible to motivate the majority to quit smoking by offering an alternative like IQOS. We deliberately chose a nicotine level comparable to that of a cigarette to facilitate this transition. Furthermore, as nicotine is not the main cause of smoking-related diseases, we have maintained this approach. However, it is important to note that this is not risk-free.
Interviewer: Critics accuse companies like Philipp Morris of primarily offering "healthier" products in saturated Western markets, while allowing smokers in emerging and developing countries to continue with traditional cigarettes. How do you respond to this?
Markus Essing: Our vision is a smoke-free future, in which, if anything, reduced-risk products like IQOS are consumed. Everywhere. Of the 78 markets where we currently sell our heat-not-burn products, about 40 are non-OECD nations. We don't stop there, but sometimes regulatory authorities simply lack an orderly process for the introduction of alternatives with fewer harmful substances, and laws do not provide for this type of product at all. Or the power grid is not reliable enough to allow customers to charge easily. We are also still working on the quantities and the associated pricing to make Iqos more affordable.
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