Just a 12 months after becoming CEO of Philip Morris International Inc., Jacek Olczak closed a $16 billion cope with rival nicotine pouch maker Swedish Match.
It's all a part of Olczak's plan, which sets out a path for the world's largest tobacco company to generate two-thirds of its sales from smokeless alternatives to cigarettes by 2030.
The problem? It is becoming increasingly clear that Zyn's great popularity also extends to children. There are already an estimated half 1,000,000 underage users within the United States who’re developing a taste for nicotine – a highly addictive, toxic chemical. Philip Morris was fined $1.2 million this month for selling bags of banned flavors considered more appealing to children in Washington, D.C.
Olczak recognizes that the tobacco company may never have the opportunity to stop children from trying its products. “The unfortunate thing is that there is an element of experimentation among young people,” he said in an interview with Bloomberg at the corporate’s headquarters in Switzerland. “It doesn’t matter which country. This age is all about experimentation and they will experiment with the things the adults do.”
His own 16-year-old son was interested by nicotine, he said. “You have to understand that there will be no such thing as 'zero'.”
For Philip Morris, which reported annual net sales of $35.2 billion last 12 months, the corporate is teetering on the brink: navigating the potential huge upside within the U.S. may depend upon it with the ability to prove it's not a brand new generation tying young people to nicotine.
The cautionary tale here is Juul, the high-potency e-cigarette brand that has been accused in multiple lawsuits of targeting underage consumers with stylishly designed vaporizers and promoting on youth-oriented web sites. The U.S. Food and Drug Administration banned Juul from marketing its products starting in 2022 and lifted the order earlier this 12 months.
Olczak, 59, insists that the marketing of Zyn in comparison with Juul is “night and day,” noting his company's deal with age verification. Still, a fast search on TikTok reveals quite a few videos promoting the baggage, including endorsements from Joe Rogan and Tucker Carlson.
The CEO claims Philip Morris never paid for influencer promoting. The company is “very careful about which audiences we speak to,” he said.
“We don’t mind our consumers sharing their happiness,” he added, “but we do want them to monitor who is following them.”
As sales climb, the FDA has already begun cracking down by penalizing retailers caught selling to minors and sending warning letters to online sellers offering unauthorized flavors of Zyn products. The regulator says nicotine, which is addictive, can harm brain development in young people and affect attention, learning and memory.
To Olczak's frustration, Zyn and other nicotine pouches haven’t yet been approved by the FDA – Swedish Match filed an application in March 2020 – but are allowed to stay in the marketplace while the applying is reviewed. That hasn't dampened demand: Zyn's third-quarter U.S. sales rose 41.4% 12 months over 12 months, reaching 149.1 million doses.
Following reports of supply shortages within the US, Philip Morris made a brand new investment in its plant in Owensboro, Kentucky, and announced plans to construct a brand new factory in Colorado.
Other Philip Morris products face similar regulatory challenges. Sales of a heated tobacco stick called IQOS are expected to say no barely this 12 months, resulting from what Stefan Volpetti, who oversees the corporate's inhaled smoke products, calls “short-term turbulence” related to regulation. The EU has banned flavored heated tobacco products, and Taiwan has banned heated tobacco entirely.
In the United Kingdom, Philip Morris has also come under fire for its ambitions to expand into the healthcare sector. In September, the corporate announced plans to amass British inhaler maker Vectura Group Ltd. to sell for a few third of the value it paid just three years ago.
The $1.2 billion deal was criticized by scientific organizations, health groups and anti-smoking activists who said Big Tobacco mustn’t profit from an organization whose products are utilized by Britain's National Health Service, amongst others. Some even really helpful that doctors now not ban the inhalers manufactured by Vectura.
Olczak believes this response has crossed a line. “Vectura scientists were completely cut off from any symposiums or gatherings,” he said. People were “obsessed with the fact that Philip Morris was the shareholder.”
The controversy highlights the challenges the corporate faces because it tries to maneuver beyond cigarettes and move into latest product areas.
While Philip Morris still has an extended approach to go before it sells its final package, Olczak sees the U.S. launch of IQOS and a surge in Zyn sales as a chance to maneuver in the best direction. “The goal is there,” he reflected. “It’s on the wall.”
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