TOBACCO giant Philip Morris has had its worst day in a decade after rapidly declining cigarette volumes and sales of its “heat-not-burn” Iqos product have “plateaued”.
Shares in the company tumbled after cigarette shipments fell more than expected and sales for its cigarette and vaping alternative iQOS have started to stall in its key market, Japan.
The fall was its biggest one-day slide since becoming a public company in March 2018 with shares ending down 16 per cent.
Releasing the tobacco alternative was crucial to PMI’s strategy of moving beyond cigarettes with IQOS now available in 30 markets. Its success in Japan had been hailed as an example of how successful the heat-not-burn technology could be worldwide.
But excitement over the product has slowed down this year and now plateaued.
“Device sales were slower than our ambitious expectations,” the company’s chief financial officer, Martin King, said on an earnings call earlier this week.
The slow-down has been blamed on iQOS already reaching the easily adaptable youngsters of Japan but consumers aged 50 plus, who make up 40 per cent of the country’s adult smokers, are proving to be a much bigger challenge.
“We are now reaching different socioeconomic strata with more conservative adult smokers who may have slightly slower patterns of adoption,” admitted King.
Philip Morris has spent $4.5billion on four new smoke-free products – with the iQOS hailed as it’s most advanced with its heat not burn technology.
After launching in Japan in 2016 the product was initially a resounding success after it captured 16 per cent of the tobacco market and pushed smoking rates down.
But excitement over the product has since flagged and has plateaued “a bit earlier in the year than what we had foreseen, and this isn’t unusual,” King added.
While shipments of their heated tobacco products—devices that release flavors and nicotine without combustion—have dragged since December, shipments of cigarettes are also down from 5.3 per cent from a year ago.
The company says it remains, however, on track to double global sales of heated tobacco products in the near future.
“We’ve looked at trends of other new products and new successful launches in other situations, and there’s almost always periods where you get surging adoption, and then it plateaus a bit as you enter some new consumer dynamics and categories,” King explained.
“And then it tends to resume some growth rates. And we think we’re at one of those points.”
While PMI doesn’t know how long the plateau will last, the company is hoping to improve sales by speeding up some initiatives to earlier in the year and adjusting its messaging to consumers.
Amongst its future plans are proposals to promote iQOS as a less risky option to conventional cigarettes, which is currently being considered by the FDA.
If approved, Altria, Philip Morris’ parent group, would receive sole distribution rights to market and sell it in the U.S.