Marlboro Kicks Some Ash

Philip Morris makes a device to heat—rather than burn—tobacco.

Source: Marlboro

On a tree-lined street of stately 19th century palazzi in central Milan, there’s a storefront with glossy parquet floors, subdued blue lighting, and walls displaying large-format color portraits of trendy young people. The space—which looks like it might be an art gallery or chic hair salon—is Marlboro's latest marketing campaign.

The shop is what cigarette maker Philip Morris International calls an embassy for iQOS, a €70 ($79) device that gives a nicotine hit by heating tobacco instead of burning it. Since November 2014 the company has set up about 10 such outlets in Italy and Japan where visitors can sample Marlboro HeatSticks, which users say are more like smoking than e-cigarettes and offer a stronger buzz. Andre Calantzopoulos, chief executive officer of Philip Morris, told investors in February that the technology puts the industry “on the cusp of a revolution” that may improve public health with a safer alternative to smoking, while adding as much as $1.2 billion in profit.

Philip Morris has spent more than $2 billion developing smoking alternatives, including a similar product called Heatbar that flopped a decade ago. It doesn’t claim iQOS is healthier than smoking—it’s sold with a warning that the safest option is to avoid tobacco altogether. But the company has 300 scientists searching for proof that iQOS may reduce the risk of smoking-related diseases, and iQOS brochures say it emits fewer harmful substances than cigarettes and that clinical tests are under way to compare the risks.

As rivals try to catch up and regulators ponder whether to support such efforts, antismoking groups are pushing back. “Time and again, Philip Morris International has been caught lying to the public about the health effects of its products,” says Cloe Franko, a senior organizer at Corporate Accountability International, a Boston nonprofit that opposes tobacco companies.

To use iQOS, a smoker inserts a tube of tobacco that looks like half a cigarette into a device about the size of a fat ballpoint pen. The tobacco is skewered on a metal blade that heats it to about 500F, a third the temperature of a burning cigarette, providing a dozen or so puffs. The taste is akin to a traditional cigarette, and the sticks smell like tobacco, though less odor remains after they’re consumed. The device must be recharged after each pack of 20 sticks, which cost €5 in Italy, vs. about €5.20 for a pack of traditional Marlboros.

Analysts say it could be more successful because it gives a better nicotine buzz than an e-cigarette and imitates the ritual of smoking. Sales of e-cigarettes are only about 1 percent of the $863 billion tobacco market, according to researcher Euromonitor International. Analysts at Wells Fargo predict that Philip Morris’s HeatSticks could displace as much as 30 percent of cigarette sales in developed markets by 2025. British American Tobacco aims to start selling a similar product in the second half of 2016; Reynolds American is developing a heating device, though it reported that one tested in Wisconsin last year didn’t meet performance expectations; and Japan Tobacco is introducing a vaporizer called Ploom Tech. But Philip Morris is far ahead of the competition, says James Bushnell, an analyst at Exane BNP Paribas. “This is the closest yet that the industry has got to the holy grail of a commercially successful ‘safe’ cigarette,” he wrote in a recent report.

In Japan more than 100,000 smokers have switched to iQOS, and Philip Morris says HeatSticks accounted for 2.4 percent of the Tokyo cigarette market in January. Philip Morris says it will sell iQOS in about 20 countries this year, and it plans to submit an application to the U.S. Food and Drug Administration to call the device a modified-risk tobacco product, though the FDA hasn’t yet given the go-ahead to similar requests.

Philip Morris created the “embassies” to promote iQOS, given bans on tobacco advertising in many countries. Reminiscent of Nestlé’s Nespresso shops, the embassies organize events for iQOS users to socialize and spread the word. “We’re expanding our marketing toolbox,” Miroslaw Zielinski, head of the tobacco company’s “reduced-risk” business, said in a webcast in February. “This has been undeniably a much more complex undertaking than cigarette marketing.”

The bottom line: Philip Morris says heating tobacco may be safer than burning it, but antismoking groups don’t buy it.

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