Altria Gives Insights on Noncombustible Strategy

Cigarette volumes expected to decline as consumers switch to reduced-risk products
Altria sign
Photograph: Shutterstock

NEW YORK — The U.S. nicotine pool is resilient, down only 1% in the last five years on an equivalized volume basis, Goldman Sachs Managing Director Bonnie Herzog said.

Cigarette volume declines will likely accelerate though as smokers continue to shift to reduced-risk products. Herzog wrote about these findings in a research note following the New York-based investment banking company’s virtual investor meetings with Altria Group’s management team on March 24 and 25.

Herzog said while she came away encouraged from the meetings, the key challenge for Altria will be to not only keep its existing smokers and consumers within its reduced risk portfolio but also to attract smokers from competitors.   

Altria’s finding about total nicotine volume declines over the past five years suggests adult smokers that leave the cigarette category are migrating to other forms of nicotine, Herzog said.

“[Altria] says just over 50% of conventional cigarette smokers say they are interested in noncombustible options to move to that have the potential to reduce harm or exposure and that is satisfying,” Herzog said.

Part of Altria’s 10-year plan includes moving consumers to noncombustible options by developing and expanding on U.S. Food and Drug Administration-authorized noncombustible products.

The Richmond, Va.-based tobacco company is known for its Marlboro cigarettes brand. It also has a stake in e-cigarette company Juul and is rolling out heat-not-burn device IQOS in the United States through an agreement with Philip Morris International, New York.

"With adult smoker demand for non-combustible alternatives, innovation and an appropriate regulatory framework, we have the opportunity to make more progress on reducing the harm caused by cigarettes in the next 10 years than we have in the past 50,” Altria Group’s CEO Billy Gifford said in a statement on the company’s website detailing the 10-year vision.

The plan also includes preventing youth tobacco use, balancing investments in Marlboro with funding growth behind noncombustibles and leadership on the policy and regulatory level.

“While we broadly believe this transformation is the right strategy over the long-term, we remain concerned about [Altria’s] near-term performance,” Herzog wrote, due to downtrading, increased regulation risk and stepped-up spending as Altria executes its 10-year plan.

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