By Hauke Goos and Ann-Kathrin Nezik
Tobacco companies claim they want to move away from cigarettes and focus on expanding the market for healthier electronic devices. But outside of Europe and the United States, they are still working to hook as many people on cigarettes as possible, even if it breaks the law.
Along the Avenue de Rhodanie in Lausanne, Switzerland, the world’s largest cigarette manufacturer, Philip Morris, is taking an unconventional step that might be described, by some, as an attempt by a reformed tobacco company to save the world’s smokers. The cigarette maker, the story goes, doesn’t want to make cigarettes anymore. Its hero is André Calantzopoulos, the Greek who, since 2013, has been the CEO of Philip Morris International. Calantzopoulos says he quit smoking because he discovered something better and healthier, namely “heating.”
Heating products don’t burn tobacco but release nicotine by raising the temperature to around 300 degrees Celsius (572 degrees Fahrenheit). According to the cigarette companies, this prevents the combustion of carcinogens, which are found in normal cigarette smoke. Calantzopoulos conveniently made the jump from conventional cigarettes to the product, which he himself is helping bring to market and that Philip Morris has marketed under the brand Iqos. It is a minimalistic-looking, battery-powered device, similar in form to an e-cigarette, but containing a lithium-ionic battery, a temperature regulator and a hot plate made of gold, platinum and ceramic.
Iqos devices are available in Germany, Great Britain, Japan, Italy and 38 other countries. According to Philip Morris, they fulfill an age-old dream of smokers and non-smokers alike: a way to consume tobacco without the smoke, smell and cancer. A guilt-free ticket to enjoyment.
The tobacco industry is in crisis, and has to redefine itself if it intends to survive. On the one hand, 1.1 billion people around the world still smoke about 5.7 trillion cigarettes a year. In 2017, the five largest tobacco companies earned close to $27 billion (23 billion euros) in profits alone.
On the other hand, they’re losing customers in industrialized countries, where fewer people are picking up the habit. Unlike their parents’ generation, young people today care very much about living (and looking) healthy. According to one survey, only one in 13 people between the ages of 12 and 17 in Germany smoke cigarettes. And among 18-to-25-year-olds, 40 percent have never smoked — a historic low.
Meanwhile, nearly every major tobacco company is throwing money at so-called “next generation products,” which rely on heating (Philip Morris), steaming (Imperial Brands) or both (British American Tobacco).
Tobacco companies are not only trying to get out in front of the shift away from cigarettes – they’re leading the charge. A technological and strategic battle for market share is taking place, but does it make sense to bet everything on a radical disruption and industry realignment?
A Promise for a New Beginning
André Calantzopoulos sure hopes so. Two years ago, he told the BBC that he hoped cigarettes would soon be history. “The goal is to convince as many smokers as possible to give up cigarettes,” Calantzopoulos says today. He hopes they’ll turn to Iqos and other smoke-free alternatives instead. In early January, Philip Morris took out full-page ads in British newspapers. “Our new year’s resolution,” the ad read in large, capital letters. “We’re trying to give up cigarettes.”
It was a promise, nothing more. Now Calantzopoulos is sitting at a conference table in Lausanne with an Iqos device in hand, blowing smoke out his nose. (The smoke doesn’t smell like smoke, which is why Calantzopoulos prefers to avoid the word “smoke” altogether.) He cites a few figures: Iqos emits 95 percent fewer harmful substances than conventional cigarettes. Between 70 and 90 percent of smokers who switch from cigarettes to Iqos stick with the new product. “Our goal is to have 30 percent of our smokers switch to smoke-free alternatives by 2025 — that’s more than 40 million consumers,” he says.
The company is also putting its money where its mouth is. Philip Morris has such high hopes for Iqos that it has decided to not spend any more money, for now at least, on advertising for Marlboro, the most successful cigarette brand in the world.
Calantzopoulos was born in Greece. He studied in Lausanne and later in Paris. His first job was in the automobile industry. He exhales a puff of smoky non-smoke and lets it rise into the air, as if he were on stage. When he was younger, Calantzopoulos smoked cigars. He switched to cigarettes when he was 27. He has the pleasantly raspy voice of a smoker and speaks softly, unlike the tobacco-company managers most people know from ’90s court cases, when people took on Big Tobacco. Calantzopoulos manages to appear both self-confident and scrupulous.
In the past, the tobacco industry simply denied that smoking was dangerous for your health. The correlation between smoking and death could not be proven, it insisted, as the risks had not yet been sufficiently studied. In 1994, during testimony before a congressional hearing in the United States, seven tobacco company managers claimed under oath that nicotine was not addictive, despite widespread knowledge that the opposite was, in fact, true.
These days, everyone knows that smoking can dramatically reduce one’s life expectancy. The warnings are on every pack, every placard. Now the industry is trying to make tobacco cool and desirable again.
The New Approach: Openness
As a part of its offensive, Big Tobacco needs public health officials in its corner. It needs politicians to confirm that the new products are less dangerous than cigarettes. It needs them as allies, not enemies. Hey, tobacco companies say, we can help smokers who want to quit but can’t — and in return, please help us with Iqos.
For this to work, the tobacco companies have started a campaign of radical sincerity. They no longer deny smoking is bad for your health. Instead, they warn against the dangers of cigarettes — most of all because they finally have products to offer as an alternative.
Executives like Calantzopoulos and companies like Imperial Brands, BAT or Philip Morris are suddenly pledging honesty and transparency, dialogue not threats. They’ve learned from their past mistakes, they say, and promise to publish all research findings from now on. They argue that they see it as their responsibility to win back the credibility they’ve lost.
This change of style and strategy — a profound one for companies like Philip Morris, BAT and Imperial Brands — makes it seem like Big Tobacco is hitting the reset button.
Concretely, Philip Morris is hoping governmental requirements for its new products will be loosened. For instance, they’d like to be rid of the compulsory “smoking kills” banners that adorn their every advertisement. And once they’ve completed all the necessary studies and long-term investigations, they would like the regulatory watchdogs to allow the tobacco companies to advertise their new products as “safer.”
Iqos supposedly cost 3 billion euros and took 10 years to develop. Calantzopoulos hired scientists, marketing experts and designers to make Iqos appealing and trendy — like an Apple product, if Apple were in the tobacco business. While e-cigarettes merely heat an aromatic liquid that is inhaled, one insertable Iqos stick is enough to last six minutes or 14 puffs. The heating experience is meant to mimic the effect of smoking a cigarette as closely as possible.
And because so much depends on the success of this new project, nearly everyone at Philip Morris is involved in the performance of rolling it out.
That performance begins at the Geneva airport, with two people from the company’s press relations department. During the drive to Philip Morris’ offices in Lausanne, the employees explain what a difficult decision it was to accept a job from such a large tobacco company, why it’s so important for people not to smoke cigarettes and how much they regret the mistakes the tobacco industry made in the past. They’d like to put that all behind them, they say.
As Calantzopoulos’ assistant escorts us to the CEO’s office, he asks whether we are smokers. No? “Good,” he says. “Don’t start.”
In an interview, Calantzopoulos explains how the company’s new thoughtfulness will manifest itself concretely. How quickly will Iqos be adopted? No idea, Calantzopoulos says. It could take no time at all, like in Japan, or it could be sluggish, like in Germany, where it has a market share of only 0.4 percent a year after being introduced. European smokers have proven less receptive than expected, and Calantzopoulos has indefinitely frozen the construction of an Iqos factory in Dresden in which Philip Morris intended to invest 275 million euros.
A Controversial Strategy
How long does Philip Morris plan to sell cigarettes when Iqos is the better alternative?
That’s an impossible question to answer, Calantzopoulos says. It depends on the regulatory bodies, on public health officials and on smokers themselves, the latter of which have minds of their own and don’t appreciate being told what to do. “If the regulators help, it’ll go faster,” Calantzopoulos says.
Philip Morris’ new strategy isn’t uncontroversial in the tobacco industry. The company is making “promises it can’t keep” that will hurt the entire sector, says Jan Mücke, the head of the German Cigarette Association (DZV). Calantzopoulos’ approach imperils the credibility of the entire cigarette industry, Mücke says. It’s worth noting that Philip Morris left the association years ago, while its German competitor, BAT Deutschland, which sells brands like Lucky Strike, Dunhill and Pall Mall, is still an active member.
If Philip Morris’ announcement about getting out of the cigarette business is to be taken seriously, Mücke says, then the company would stop selling cigarettes immediately. “If we’re going to ultimately be held responsible for Philip Morris’ marketing slogans, that would be problematic. The last thing this industry needs is another problem with its credibility,” Mücke says.
But that’s exactly what makes Philip Morris’ new strategy so surprising — and so dangerous. It’s based on a moral pretense and the high-minded notion of responsibility. Not to mention the company’s promise to liberate the world from cigarettes.
The problem with moral advertising campaigns is that it’s really important that they’re true. As one tobacco industry insider put it: “I’ll be curious to see how they clean up the mess once things go south.”
In practice, Philip Morris isn’t actually trying to liberate the entire world from cigarettes, just a part of it — namely, the part with educated consumers who have purchasing power.
In Africa, for instance, the tobacco company has a very different mission. There, Philip Morris doesn’t have to worry as much about its public image as it does in, say, Europe.
On the one hand, Africa is regarded by the cigarette industry as one of their most important future markets. The number of smokers on the continent is still relatively low and is expected to double, if not triple, in the coming years.
On the other hand, many African countries have imposed stringent anti-smoking regulations in recent years. Minus a few exceptions, the guidelines of the World Health Organization (WHO) have been implemented virtually everywhere.
In Africa, there is the African Tobacco Control Alliance (ATCA), a consortium of more than 120 organizations with the shared goal of making the continent tobacco-free. In late February, ATCA published the results of a study conducted in 10 large African cities that aimed to find out whether cigarettes could still be purchased individually. Doing so makes smoking affordable for poor and young people, which is why the study was so important.
Widely Available Individual Cigarettes
In the Kenyan capital, Nairobi, Rodgers Kidiya walks through a public park late one morning. Nairobi was one of the 10 cities studied by ATCA. Kidiya coordinated the research in Kenya. He was one of the people who visited corner stores and took photos as evidence.
A woman selling cigarettes has set up shop in one corner of the park. Her wares are kept in a metal orange box. Inside are cigarettes from BAT, including the brands Sportsman, Safari and Embassy. A filtered cigarette goes for 8 shillings, while an unfiltered one goes for only five.
Kidiya wants to know whether she’s aware that selling cigarettes individually is illegal.
The woman says she got the metal box from BAT, which does spot checks. If they ever catch her selling other companies’ brands too, she’ll be forced to return the box. They never mentioned anything about not being allowed to sell cigarettes individually.
What about her? Does she smoke?
The woman shakes her head. The warning images on the packages leave little to the imagination about what kinds of health problems await people who smoke. “It’s just a job,” she says.
In each of the 10 African cities, the findings of the ATCA investigation were the same: It’s possible to buy individual cigarettes everywhere. This is just as true in Ouagadougou, Burkina Faso, as it is in Yaoundé, Cameroon, or in N’Djamena, Chad, in Abidjan, Côte d’Ivoire, in Accra, Ghana, and in Nairobi. Not to mention Lagos, Nigeria, Lomé, Togo and Kampala, Uganda.
The cigarettes come from manufacturers like BAT, Philip Morris and Imperial Brands, and from domestic companies. In other words, they are mostly from the very companies promising to help customers in industrialized countries give up cigarette smoking. According to the ATCA study, the most common brands of cigarettes available for individual purchase were Benson & Hedges (BAT), Davidoff (Imperial Brands) and Marlboro (Philip Morris).
The photos taken by Rodgers Kidiya and his colleagues make clear that major cigarette companies continue to push the sale of individual cigarettes through advertising despite being legally prohibited from doing so. BAT, for instance, began a “Buy one, get one free” ad campaign for its cigarettes, according to ATCA. BAT denies this.
The companies are pursuing a two-track strategy, says Lars Lusebrink, an analyst at Independent Research. In developed countries, tobacco companies are investing in less harmful alternatives to conventional cigarettes, while in many developing nations, they’re advertising classic cigarettes as always. The companies are expanding in Africa and Southeast Asia to compensate for declines in domestic markets.
Growth Market in Africa
Close to a billion people live in Africa today, but by 2025 that number is expected to increase by an additional 500 million. The World Health Organization estimates that around 10 percent of people over the age of 15 smoke, so the expected population increase represents — at least for tobacco companies — a potential profit windfall. In the Republic of the Congo, around 47 percent of the population will be smokers by 2025; in Cameroon, it will be 43 percent; in Sierra Leone, 41 percent. Asia, Africa and other emerging markets in general are a “very high priority” at BAT, the company says. These markets are “an integral part of the strategy.”
Until a few years ago, Vincent Kimosop was the head of an organization that advised politicians about the implementation of laws. Kimosop has a small office in Nairobi. He recently began working as a freelance political adviser. We asked him to explain why tobacco companies were selling cigarettes in Africa while in Europe, Australia and the U.S. they were pivoting to a strategy of preaching risk mitigation and transparency.
There are three reasons why regulations in Africa are ineffective, Kimosop says. Many African nations rely on tobacco taxes to finance their budgets. The public interest, i.e. making sure people don’t make themselves sick by smoking, is often weighed against the political interest of keeping tax revenues as high as possible. In other words, the government must regulate an industry on which it relies for survival — an irreconcilable dilemma.
The second reason is that many politicians have an overwhelmingly positive opinion of the tobacco industry. This may be because they were once employed by a cigarette company or because they own stock in one.
And the third reason? African countries, Kimosop says, are incredibly good at passing strong laws, “and very bad at implementing them.”
In the Nairobi district of Buru Buru, Rodgers Kidiya wants to show what this means in real life. In the shade of some nearby trees, directly in front of the Bidii Primary School, merchants sell sodas, lollipops, candy or SIM cards, and cigarettes out of wooden boxes. Each of these mobile shops is adorned with an orange cartoon hand with its thumb pointed up. “Bei Poa,” the sign reads, or “best price.” Wherever this sign is visible, customers can purchase cigarettes for 7 shillings apiece.
One of the merchants reveals he got his sign directly from BAT. Once a week, a deliveryman visits him and instructs him what to charge for cigarettes. This is followed by an unannounced visit by a BAT team that checks whether the merchants are following instructions.
And what if he sells a cigarette for 8 shillings instead of seven?
“They come and threaten to stop the deliveries,” he says. BAT denies it engages in such practices.
Nearly every customer buys one or two cigarettes at a time, at most three, the merchant says. When was the last time he sold an entire pack? “I can’t remember,” he says.
‘A Win-Win Situation’
ATCA published a similar study in late 2016. The association demonstrated, with the help of photographic evidence, that tobacco companies were selling cigarettes and other tobacco products near schools in Cameroon, Burkina Faso, Benin, Nigeria and Uganda, in violation of official bans. The culprits? British American Tobacco and Philip Morris International.
Organizations like the Uganda National Health Consumers’ Organisation (UNHCO) — an NGO that advocates for public health in Uganda — have long suspected that tobacco companies are doing everything in their power to prevent anti-smoking laws from being enforced. One method is to bombard the government with lawsuits, another is to bribe cabinet-level ministers — or to threaten them. Bribes and threats are hard to prove, since there’s rarely ever any written evidence.
To corroborate this, we arrange to meet a former manager from BAT Uganda. He insists we don’t print his name out of fear for his career. He’s wearing a dark blue suit, has an amiable face and is generally in good spirits. He’s familiar with all the accusations from tobacco opponents because he, back when he was on BAT’s payroll, was responsible for coming up with answers to all of them.
The man says the tobacco industry has always been under pressure. And it will do anything — truly, anything — to stay in business.
What does that mean, exactly?
The industry has a line of defense, the man says, smiling. It goes something like this: The product may be controversial, but it’s legal. Besides, cigarettes aren’t the only controversial product. And as controversial as cigarettes may be, consumers like them.
The tobacco industry, the man says, helps the state protect people who want to smoke. That’s its mantra. “If we don’t supply smokers, they’re going to smoke whatever else they can get their hands on, and it’s probably going to be far more dangerous than cigarettes.”
The strategy is to convince the government that industry and politics are in this together. And that, for instance, high taxes on tobacco only increase incentives to smuggle in inferior cigarettes. It’s all about creating a “win-win situation,” he says.
Are politicians bribed by the tobacco industry? Not officially, the man says. He’s clearly amused. Unofficially — the man pauses to find the right words — of course, lobbyists do what they can to make things easier for themselves.
How does that play out in real terms? It’s simple, he says. The magic words are “social responsibility,” meaning a commitment that tobacco companies are more than happy to accept. Politicians mostly ask for money, because they want to be re-elected. A hospital needs renovating? No problem, the company pays for new beds. A school needs money? Sure thing, the company will pay teachers’ salaries. It’s a give-and-take relationship, the man says. “We deliver, and they thank us.”
BAT Kenya, when asked for a statement, answered: “It’s simply not true that we support the sale of individual cigarettes in Kenya and Uganda.”
“We neither promote nor condone the individual sale of our products through merchants,” says Imperial Brands.
And what does André Calantzopoulos have to say, the very man leading the charge toward transparency at Philip Morris? How does he reconcile pushing “reduced risk” products in industrialized countries, while still selling cigarettes in the world’s poorest countries?
Of course, his company would like to one day offer its heating products beyond European and American markets, Calantzopoulos says. But one must not forget that there are opponents of tobacco out there who reject Iqos and other smoke-free products like it. Or that some countries would prefer to simply ban the products outright. In countries like this, he says, Philip Morris must continue to sell cigarettes.
In the end, Calantzopoulos says, it’s the regulatory officials in these countries who are promoting the consumption of cigarettes through their rejective stance — surely unintentionally, he allows.
On top of that, the markets in Southeast Asia and in Africa unfortunately aren’t ready for the innovation in smoking. What’s missing is a public awareness of smoke-free alternatives, the proper regulations and public pressure. Calantzopoulos says that in such an environment, products like Iqos and the potential they hold for public health are not sufficiently discussed.
Soon the U.S. Food and Drug Administration, the country’s consumer protection watchdog, will rule on whether Iqos will be allowed on the American market. Philip Morris has a lot riding on that decision. So does Calantzopoulos.
The company sent the FDA a thousand-page application, in which it asked for permission to market Iqos as a “reduced risk” alternative to smoking. In the application, Philip Morris presented itself as sincere, remorseful, insightful and transparent.
It’s the best card the company has to play. It’s also the last.