An important annual event for investor analysts is the Consumer Analyst Group of New York (CAGNY) conference, which takes place every February. Over the past week this conference has received presentations from 3 large tobacco companies - British American Tobacco, Philip Morris International and Altria.
Analysts are often given information that is helpful to regulators too. This post spotlights a handful of slides that give us a peek under the hood of these companies.
Age verification systems are a marketing tool (Altria, Slide 11)
Government-issuesd ID may help establish whether a customer has reached the minimum age for legal sale, but it does not help tobacco companies keep track of their customers or gain insights into purchasing patterns. ALTRIA is incentivizing retailers to implement digital age verification systems which the company can then use to direct promotions to customers. (PMI has piloted a system in New Zealand for VEEV vaping products).
Billy Gifford, Altria's new CEO, described this system to investors this week as a "unified and real-time consumer identity that ties their purchase data and interactions with our brands to our marketing communications."
Smokers are not much more successful at switching than they are at quitting. (Altria, Slide 5)
Altria has used its consumer tracking systems to follow the purchasing behaviour of smokers. Although almost one-third have tried a reduced risk/smoke-free product, most who try such products stop buying them after a few weeks. Altria did not identify whether they relapse back to cigarettes or stop tobacco use altogether. Either way, the company wants to ensure these products are sold with government support ("clear, authorized information about the benefits of switching)" and that they provide "enjoyable sensory experiences and nicotine satisfaction".
Altria's depiction of the trajectory of switchers is a reminder of the effort that is required to "convert" smokers to alternative nicotine use.
Reducing risk is not the main reason people start vaping (BAT, Slide 22)
Although it is its VUSE vaping product that BAT focuses on in Canada, in other parts of the world it also sells nicotine pouches (modern oral) and heated tobacco (HTP). This week investors were told that consumers are drawn to use these products by differing factors.
BAT's consumer research found that reducing risk was less important in recruiting vapers that product imagery (identity), nicotine (satisfaction) and taste (flavour exploration) can be encouraged to use these in eastern Europe and Asia.
Nicotine use in the USA has dropped very little over the pat 5 years (Altria, slide 25)
Although sales of combustible tobacco have fallen by 14% over the 5 years period 2016 to 2021, the U.S. tobacco industry has been able to recoup most of those losses by increasing the markets for smokeless tobacco and vapour products. The overall fall in nicotine sales is about 4% (from 16.3 to 15.7 billion units)
Cigarettes will remain the bedrock of profits (and the problem) for the foreseeable future. (PMI, Slide 15)
Under Philip Morris' enthusiasm for "smoke-free success" are numbers which show that conventional tobacco products remains the foundation of their business. Last year, for every dollar spent in the global nicotine market, 92 cents was spent on combustible tobacco, with two cents spent on vaping products and NRT combined.
Over the next four years, the company expects that alternative nicotine products will replace 7/8ths of lost combustible tobacco sales. The result? the total nicotine market is here for the long run: "declining at an underlying rate of around -1%".
New drug products are key to "growing" sales and profit (BAT, Slide 50 )
This week BAT repeated its assurance to investors that it could overcome the loss of cigarette customers by providing alternative nicotine and other drug products. The drugs they are interested in are thoses that cause "boost", "focus" and "calm" (slide 15). Cannabis-based products are one of their first areas of investment, and the CAGNY audience was reminded of BAT's investment in Canada's Organigram
"Lifestyle drugs" will provide PMI with long-term growth. (PMI, slide 25)
PMI is also seeking to become a diversified consumer drug manufacturer. Its controversial acquisition last year of companies with expertise in inhalation drug delivery (Vectura) and oral drug delivery (Fertin) are just the beginning, CEO Jacek Olczak told investors this week.
PMI is also exploring providing approved medical treatments for heart attacks, migraine and pain management, and OTC products that provide psychotropic effects ("focus, sleep, energy, pain and calm.") (slide 26). Although they are interested in CBD and medical marijuana, the company says it is not at this time intending to sell recreational cannabis.
- Altria: February 22, 2022
- Philip Morris: February 23, 2022
- British American Tobacco: February 23, 2022
