Philip Morris International is Big Tobacco’s biggest tobacco company, worth some $130 billion. In the first quarter of 2019 alone, the Switzerland-based behemoth sold about 60 billion Marlboros—the world’s most popular cigarettes, which represent less than one-fifth of PMI’s cigarette sales overall. And yet, Philip Morris executives claim the company is on a mission to “unsmoke the world.” How? By converting its countless consumers to electronic alternatives like its new IQOS device, which heats small rolls of tobacco (refills called “Heetsticks” that resemble miniature cigarettes) and creates vapor containing nicotine to be inhaled. The IQOS is already available in more than 40 countries and launching in the US this month.
Quartz sat down with Philip Morris International chief operating officer Jacek Olczak at the Cannes Lions advertising festival in June, where PMI was promoting its new message and meeting with creative agencies who might help communicate it. The following interview has been edited and condensed from that conversation, and includes additional questions from a follow-up phone call in August.
QZ: I’m confused. If everyone smokes less, then what’s your business going forward?
JO: First of all, there’s quite a lot of people who smoke; they don’t quit. So I don’t think there is a problem that we have to solve today or tomorrow. But let’s be serious. If we convert them to the better alternatives it’s already—from the sustainability of the business—a better path.
Second thing, is what we are learning when we’re doing all of this transformation and we are staying longer with a consumer: that quitting smoking is an important decision, an important achievement for a smoker, right? They are getting immediately a lot of pride in themselves. So they start thinking, Hold on a second. If I finally could address the problem of smoking, are there other things in my life which I also can tackle? Am I eating well? How do I manage my stress? Do I exercise more? So we are learning more and more things which I think can create further avenues for product services for the company.
QZ: So Philip Morris eventually will be like a wellness company?
Maybe one day you will have Philip Morris help people get out of smoking, but also assisting them in a journey to a better life. And initially we didn’t think that way about this whole thing, but just by the conversations with consumers we realize that the one good achievement prompts them to take on other challenges.
I think IQOS, the brand which we use can—if I assist smokers with quitting smoking or changing to an alternative, I am building a credibility. I hope they will trust me because I assisted you in one important change; maybe trust me and I can help you with another change in your life.
I know when Philip Morris says it today everyone is like: Ohhh Jesus. How can Big Tobacco say things like this? But I mean it. Look, we’re not improving the product in the fringes, we’re improving the product in the core. We know that nicotine is not really the main cause of harm—it’s dependence, addiction, underage people, etc.
QZ: Is there an app component to IQOS?
JO: There are the apps, but they are only available on Android systems because Apple has an anti-tobacco policy. And we tried a number of attempts with Apple to explain: Okay we’re not trying to use your platform to support smoking, we’re trying to actually use your platform to move people out of smoking. Knowledge about the alternative is still not penetrating board rooms of whoever decides at Apple. But there is an app so you can plug your progress, but we’re doing a lot of 1:1 marketing, physically 1:1 marketing.
QZ: What does 1:1 marketing mean?
JO: I have coaches—direct coaches, people, okay? Not the bots. If you come to my store or to my website, and you say I want to try IQOS, I will assign you automatically a coach—a person that can text you, call you, can meet with you, and can stay with you for 10-14 days to assist you with quitting smoking.
QZ: So it’s people.
JO: It’s people. Humans. Not artificial humans. Humans.
QZ: What kind of people are they? Are they counselors?
JO: Many of them were smokers who themselves went through the experience of going out of smoking to alternatives. They know that the ritual is different. They know how to use the device. This is a behavioral change. The way you take up smoking … you take a cigarette out of the pack, you light it up, and off you go. That’s it. This is the whole ritual of smoking. If I go to this thing, this is electronics, we need to explain. People need to understand how to use it, what happens if things don’t work. Our experience is that if I assist smokers for these first 10-14 days of this journey of moving into this product, I will have a conversion rate at a level of 70-80%, depending on the market.
QZ: It seems PMI is saying that quitting smoking altogether would be better than even switching from cigarettes to a heat-not-burn device, right?
QZ: Is that something you could see PMI in the future actively trying to foster?
JO: You mean trying quitting from IQOS altogether? Frankly speaking, this is in the hands of the consumer. We have no proof that IQOS could work as a cessation device, so it would be irresponsible for me to inform or advise consumers that if they switch to IQOS then IQOS will facilitate your quitting altogether…maybe in the future, I don’t know.
The way we have designed IQOS is to ensure that people will use it, from the perspective of “I am a current smoker, and I will switch to alternative products as long as I have some resemblance in terms of the ritual or taste, etc.” Otherwise I am not giving up, essentially, the pleasure of smoking.
QZ: Right now you say PMI is trying to eliminate smoke and replace it with vapor. Could you see a future in 10 years where PMI is delivering a vapor-free future, tobacco-free future, or nicotine-free future? Is that where we’re going?
JO: I can say, as we make the first step going beyond combustion, I think we can make a step going beyond tobacco, and one day we can make a step going beyond nicotine. When you talk about nicotine you have in mind, I presume, addiction and I think the issue of addiction is more complicated than just nicotine. We know that nicotine is a very potent substance when it comes to addiction, but addiction also has the behavioral layer. This might be rituals, this might be hand-to-mouth movements. So I need to understand this better. I may one day end up with a product that people will continue using because they’re so much more inclined into having this movement, this gesture, etc., while they don’t necessarily need the nicotine—and that would also be a good solution.
QZ: So why not just stop selling cigarettes?
JO: I am essentially in the process of stopping selling cigarettes—because four years ago 100% of my volume was combustible cigarettes. Today it’s only 92-93%. I am already everyday continuing to sell less cigarettes and replacing them with alternatives. And I want to drive it down to zero in the combustibles. The shift of my focus is completely disproportionate in favor of alternatives rather than a combustible product.
QZ: Do you have a projection for when you think [IQOS] could replace combustible cigs altogether in PMI’s portfolio?
JO: Before my retirement. Presumably +/- 10 years.
And I’ll tell you where I am coming from. You have to go back in the history of the tobacco industry to the 50s or 60s. Cigarettes were non-filtered … Then came the filtered cigarette. Filtered cigarettes at that time were a very big innovation. Now, you’re talking 50s-60s. You have one radio set or TV set per village in most of the countries. No internet and a very fragmented tobacco industry. In some countries, in less than 20 years, all non-filtered cigarettes were converted to filtered cigarettes by the choice of consumers. This is the only data point which I have for innovation in the tobacco industry. But if I fast-forward to the second decade of the 21st century, where we are today, when I have the internet, I have news traveling fast, when I have science behind the product, when I have a consolidated industry, regulators will step in, I think that my assumption that within 10 years, if all stars are aligned, we can unsmoke, essentially, most of the countries, if not all of the countries. It is a little bit visionary or dream, but it is not unrealistic.
QZ: Can you take me through a timeline of PMI’s development of smoke-free technology?
JO: The first clumsy, completely big type of devices—I’m talking big like the size of your conference table—you would have to go back to the 90s. The current modules, you are talking about the last 10 years.
QZ: What inspired the beginning of that development? What was the reasoning behind doing that when cigarettes were still selling well, presumably?
JO: At that time, the way we were phrasing it internally was that the new product is based on two of what we called meta-trends. These meta-trends, one is: People like smoking, but they are not willing to live with the consequences of smoking, which is the risk for your health. And the second is: People didn’t like while using the product, to bother others. The new product, if you deliver the pleasure but you remove the risk, or drastically reduce the risk, and also designed a product which doesn’t impact others with secondhand smoke, etc., you might have a perfect product. This is how we defined the first, very broad, brief of what this product has to be.
QZ: Will this compete with Juul in the US?
(Author’s note: Altria, the former parent company of PMI which will also distribute IQOS in the US, owns a 35% stake in Juul. PMI and Altria have confirmed that they are in talks about a re-merger.)
JO: Our thinking is along the lines of harm reduction. Obviously none of the products is risk-free, this product is not risk-free, but it’s vastly better, or has a much lower risk than an existing cigarette. Now, if I change too many parameters in a consumer’s experience, the consumer will go back to cigarettes because they like cigarettes. So I need to provide them with so many bridges.
E-cigarettes, I haven’t come across any—to my knowledge at least, including Juul—that have the power of a high conversion of [existing] smokers. So smokers will take this product and will use it in a situation which is an occasional usage. If you have an occasional usage it means I have my, I don’t know—five, 10,15 cigarettes—and 10-15 equivalent of Juul. You haven’t really solved the problem; you’re just adding consumption rather than materially reducing use.
From 100 people buying IQOS, 70-80 people out of the 100 who were fully staying with IQOS have completely abandoned cigarettes. From a harm-reduction perspective then you really make a significant change. That doesn’t mean that they may not have a moment or occasions they would like to have something smaller in their pocket, so then the products like Juul or others can come as a complementary type of a product. This is at least our thinking.
QZ: So Juul you call an e-cigarette. And this?
JO: It is an e-cigarette but it’s based on tobacco. I don’t have a liquid, I have tobacco material. This tobacco will generate for you the equivalent of the vape and the nicotine as you have in a normal cigarette.
QZ: It looks like a baby cigarette.
JO: The rest of the material here is just to resemble what consumers used to put into their mouths, which have a filter, but practically speaking there is nothing to filter out.
QZ: So this [filter] is completely unnecessary?
JO: No, it is necessary because you resemble to the consumer the cigarette they used to have, so the construction of a cigarette would be very similar, like this. So I put it into my mouth—so it’s a familiar feeling.
QZ: I understand that if I wanted a cigarette this might satisfy me, but what about the idea that somebody might start smoking with this?
JO: When we started launching this product a few years ago, up front we put out what we call the good conversion practices, which set the rules for all our personal brand retail, etc., on whom this product is for. We have a hard age verification, and actually we are going one step further because if you would come to my shop and you say that you are not a smoker, my person would resist selling you the product. So we are working with trying not to trigger initiation, definitely for those who are underage, but also don’t trigger the initiation for people who are not smokers.
Now the reality is the product also goes into [non-PMI] retailers—age verifications, they should do. You might have…an issue of compliance. But our position is very clear: This is not a product for initiation, regardless of your age.
QZ: What about in countries like India?
JO: Ah that’s a very good one. Communication about this product is not allowed because the tobacco regulation developed at a time when you didn’t have any alternatives. So they put everything into one basket and said promotion of nicotine and tobacco products is not allowed. Okay, if you take a cigarette maybe it makes sense because all cigarettes are equally bad for you. But nobody at the time thought that you could have a tobacco-based product which is better for you.
So in many countries, the issues which we have, working with the government helps to solve the problem.
QZ: How concerned are you about the regulatory landscape? You mentioned San Francisco when we first met—now the city has banned the sale of e-cigarettes.
JO: The consequences will be that some other regulators will jump and say, “Oh you know San Francisco banned electronic cigarettes? I’ll do the same.” And really, as a tobacco executive, I will be sitting in the middle of this whole thing saying, “Guys, you’ve lost your minds. You are supposed to get people out of the combustible cigarettes, either to quitting, or to alternatives. And what you have achieved? You sent people back to where they were 10 years ago.”
The situation is partially driven by the fact that there is no room for the normal dialogue, because the World Health Organization designed protocols for the tobacco control with the exclusion of the tobacco industry. They say they are not allowed to meet with me. So how in the heck can you have a dialogue? This is a joke.
QZ: Are you being punished for the success of Juul? It’s so popular, even with people who were previously non-smokers.
JO: I am very unhappy with what has happened around Juul. What has happened with regards to the youth, to the underage people using the product, shouldn’t have happened. But we cannot kill the entire campaign.
If somebody gets poisoned by a roll of bread, because the flour used by the baker was contaminated, would you ban bread? Why is it not like this with alcohol? How many teenage people experiment and get drunk? Why don’t we ban alcohol? This is crazy, what’s going on. When you don’t have facts on the table, and a proper dialogue, emotions will prevail.
Slowly we are getting in the right direction. The FDA is a very responsible regulator—okay, speed is a different dimension—but its quality seems to be okay. I have other regulators where I have speed, not quality.
But you cannot have the regulations before the products are on the marketplace. The world is organized like this. Uber comes and creates a new regulatory frame because nobody ever thought that private people could drive passengers in their free time and replace the taxi service. It’s always when you are at the forefront of the changes, and building the model, that we have to go through this whole thing. Because I cannot wait for the regulation. I need to launch the product. And then once we have the product, we have the consumers, we have opinions, we have the scientists, a regulatory environment will start evolving—as long as I have on the other side, some open-minded people. But if I have morons, excuse my language, who are stuck in the past….I don’t know what you want me to do.