CHICAGO -- The much-touted heat-not-burn technology making its way to the U.S. market from Philip Morris International (PMI) was met with a degree of skepticism from an analyst during a CSP-Swedish Match tobacco webinar on Nov. 9.
iQOS is a device that heats a compressed, tobacco-based stick to generate an aerosol that users inhale to receive nicotine. So far, it has seen strong market penetration overseas, especially in Japan. PMI is working with the U.S. Food and Drug Administration (FDA) to not only market the product here but to also claim it as less harmful to users than combustible cigarettes.
Saying that Japan is certainly a success story for the product, Nik Modi, managing director for RBC Capital Markets, New York, said that acceptance has been “spotty” in many of the other countries where the product has been introduced.
“If you didn’t take caution, you’d get stuck with inventory,” Modi said. “It’s like what retailers saw with [certain] e-cigarettes.”
Modi said it is a matter of consumer economics that sets the markets apart. In Japan, the smoking customer typically has a higher income, where in the United States, smokers skew toward a lower income bracket. “With the Japanese consumer, the core smoker is higher income and white collar; in the U.S., they’re low income, blue collar.”
Modi tempered his remarks by saying his opinions expressed about the U.S. market are not based on hard evidence, as the product has yet to become available here.
Officials with Richmond, Va.-based Altria Group Distribution Co., which has the rights to market and distribute iQOS in the United States, have publicly expressed their enthusiasm over the product, and other analysts have been optimistic about iQOS as well.
“We continue to remain bullish on the iQOS platform given its overwhelming success in Japan, impressive momentum in Korea, increasing mindshare in Europe and strong investment advantage given the product’s favorable tax profile,” said Bonnie Herzog, managing director of consumer equity research for Wells Fargo Securities LLC, New York, in a recent newsletter. “We anticipate iQOS has further potential to break the mold once again with [its upcoming] platforms 2-4 and look forward to its U.S. launch.”
In published documents, New York-based PMI said it will sell the iQOS device under the Marlboro brand name. Drafts of promotional materials refer to harm reduction as a key proposition of the new product. However, being able to claim a product is less harmful than traditional, combustible cigarettes is a part of the approval process PMI is going through with the FDA.
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