The Italian Stefano Volpetti dedicated himself for more than two decades to the business of mass consumption. Almost his entire professional career was spent at the P&G offices, where he rose to lead the beauty care business. But for a year now, his challenge has been another: to take the reins of the business with which Philip Morris plans to replace its historical vertical of traditional cigarettes.
“The growth rate of the smoke-free segment is allowing the growth of the company as a whole. It is a key pillar,” said the executive. At the Technovation 2022 event, a summit organized by the company at El Cubo, its R&D center located in Neuchâtel, Switzerland, the company announced that it has invested more than 9,000 million dollars in your business smoke-free.
Today this vertical represents more than 30% of their income, according to its results report for the January-September period. By 2025 they expect this number to reach 50 percent. In November 2021, Philip Morris announced a change of structure to carry out this transformation of its business. core Y volpettiuntil then chief consumer officer, added to his CV the position of president of the smoke-free category.
Beyond your alternatives smoke free, the firm also acquired several health companies, such as Grupo Vectura, Fertin Pharma and OtiTopic, and created the “Wellness & Healthcare” unit last March. By 2025, he expects his paw off nicotine to generate revenue of $1 billion.
Volpetti provided details on PMI’s strategy to continue expanding its product portfolio with cheaper alternatives. In addition, he explained why the business of heated tobacco represents more than 90% of the revenue of your plan.
What does the launch of Bonds by IQOS mean for your business strategy?
So far we have made a lot of progress in the world with about 20 million smokers that have switched to IQOS and we have made a lot of progress also in emerging countries. But it is very clear that when we look at the cigarette portfolio, consumers are, at the moment, in the upper middle part of the market. In order to reach our smoke-free vision we have to provide alternatives that can speak to consumers who are in the middle and low segment.
The idea was not to compromise the scientific part or the damage reduction part, but to design a device and consumables that may be more accessible for this type of consumer. It is a very important step because when we look at the numbers there are 1.1 billion smokers in the world and we see that there are 400 million of them living in emerging countries. Our business is not to sell products, but to change habits. And, when you are changing habits, it is more difficult to do it the more barriers you put up for the consumer. With this product we eliminate the barrier of accessibility due to price.
In the Argentine market, the cheapest brands have gained market share in recent years. Do you see Argentina and Latin America as markets that you are going to target with this new product?
Surely yes. It is a category that, before making it cheap, we have to explain to the consumer what it is. Goal number 1 is help consumers to understand what this category of heated tobacco is. In most emerging countries it is something different that consumers have not understood until now.
We have to do a good job explaining this category and establishing IQOS as the leading brand of heated tobacco. And when we’ve done that, having a more affordable alternative is surely one way to speed up the transition to smoke-free alternatives. Latin America is clearly part of our program because when we look at the cigarette market, there is clearly an important part in the low and medium segment of the portfolio.
Is it a business with a better profit margin than that of traditional cigarettes?
It depends a lot on the local policies of which, having a global vision, it is difficult for me to have clarity in each of the countries. But overall we are building a business which, looking to the future, is profitable and can build on the top-line and bottom-line results of Philip Morris.
They recently launched a Wellness and Healthcare business unit and set goals to build verticals beyond tobacco. What plan do you have regarding the tobacco growers you work with?
We always take care of our relationship with tobacco producers. The most important work we have done when we first established the new business of smoke-free alternatives because that new business changes our supply chain a lot. We have a clear policy that we are partners, it is not a supplier and client relationship. Ultimately we are giving tobacco producers a chance to play a major role in the category going forward.
Today they are a tobacco company, but how do they expect to define themselves in 10 or 15 years?
If we look at the nearest term, in 2030 we will surely be a company that has, for the most part, a smoke-free products business and a health and wellness. They are the two businesses that today we are sure we will to have in 2030.
If we look at Japan, there 70% of the income comes from products smoke-free and we are in 2022. Going to 2030 we will already have the first countries in which no cigarette business and it is normal for this company to evolve towards one mainly smoke-free and of health and wellness.
By 2025 they announced that they plan for 50% of their income to come from the smoke-free business. Is this mix due to the growth of your own business or could it be accelerated with the acquisition of companies in the sector? They recently completed the purchase of Swedish Match.
Today over 98% of our smoke free business comes from heated tobacco. It’s going to be the biggest category in the next three years simply because it’s the one with the highest conversion rate. If you look at smokers, they have a rate of 75%, then it is very difficult for the other categories to reach those figures because, after all, heated tobacco is the closest thing to a cigarette in terms of taste, pleasure and ritual. .
It is clear that we have made a significant investment of 16,000 million dollars with Swedish Match and this is going to push up the numbers. The same our investment in e-vapor. But we are going to find a better balance than that 98/2; however, heated tobacco is going to be the largest category simply because it has the highest conversion rate among consumers.
They also recently announced a $2.7 billion deal with Altria for PMI to start marketing IQOS in the US on its own in 2024. How relevant is this plan to your 2025 goal?
The United States is a very important country because it is one of the largest nicotine markets in the world. The agreement is that we can commercialize IQOS from May 1, 2024, so we would have a few months left for 2025. It is not a big part of our path towards that 50% of our income. If I think until 2030, the United States will be a big part of our revenue.