Philip Morris International today starts business as an independent company, no longer affiliated with Philip Morris USA or the parent company, Altria. Philip Morris USA will sell Marlboro and other cigarettes in the United States. Philip Morris International will trample over the rest of the world.
Public health advocates have worried and speculated over the past year about what this move may mean, but Philip Morris International has now removed all doubts.
The world is about to meet a Philip Morris International that will be even more predatory in pushing its toxic products worldwide.
The new Philip Morris International will be unconstrained by public opinion in the United States -- the home country and largest market of the old, unified Philip Morris -- and will no longer fear lawsuits in the United States.
As a result, Thomas Russo of the investment fund Gardner Russo & Gardner tells Bloomberg, the company "won't have to worry about getting pre-approval from the U.S. for things that are perfectly acceptable in foreign markets." Russo's firm owns 5.7 million shares of Altria and now Philip Morris International.
A commentator for The Motley Fool investment advice service writes, "the Marlboro Man is finally free to roam the globe unfettered by the legal and marketing shackles of the U.S. domestic market."
In February, the World Health Organization issued a new report on the global tobacco epidemic. WHO estimates the Big Tobacco-fueled epidemic now kills more than 5 million people every year.
Five million people.
By 2030, WHO estimates 8 million will die a year from tobacco-related disease, 80 percent in the developing world.
The WHO report emphasizes that known and proven public health policies can dramatically reduce smoking rates. These policies include indoor smoke-free policies; bans on tobacco advertising, promotion and sponsorship; heightened taxes; effective warnings; and cessation programs. These "strategies are within the reach of every country, rich or poor and, when combined as a package, offer us the best chance of reversing this growing epidemic," says WHO Director-General Margaret Chan.
Most countries have failed to adopt these policies, thanks in no small part to decades-long efforts by Philip Morris and the rest of Big Tobacco to deploy political power to block public health initiatives. Thanks to the momentum surrounding a global tobacco treaty, known as the Framework Convention on Tobacco Control, adopted in 2005, this is starting to change. There's a long way to go, but countries are increasingly adopting sound public health measures to combat Big Tobacco.
Now Philip Morris International has signaled its initial plans to subvert these policies.
The company has announced plans to inflict on the world an array of new products, packages and marketing efforts. These are designed to undermine smoke-free workplace rules, defeat tobacco taxes, segment markets with specially flavored products, offer flavored cigarettes sure to appeal to youth, and overcome marketing restrictions.
The Chief Operating Officer of Philip Morris International, Andre Calantzopoulos, detailed in a March investor presentation two new products, Marlboro Wides, "a shorter cigarette with a wider diameter," and Marlboro Intense, "a rich, flavorful, shorter cigarette."
Sounds innocent enough, as far as these things go.
That's only to the innocent mind.
The Wall Street Journal reported on Philip Morris International's underlying objective: "The idea behind Intense is to appeal to customers who, due to indoor smoking bans, want to dash outside for a quick nicotine hit but don't always finish a full-size cigarette."
Workplace and indoor smoke-free rules protect people from second-hand smoke, but also make it harder for smokers to smoke. The inconvenience (and stigma of needing to leave the office or restaurant to smoke) helps smokers smoke less and, often, quit. Subverting smoke-free bans will damage an important tool to reduce smoking.
Philip Morris International says it can adapt to high taxes. If applied per pack (or per cigarette), rather than as a percentage of price, high taxes more severely impact low-priced brands (and can help shift smokers to premium brands like Marlboro). But taxes based on price hurt Philip Morris International.
Philip Morris International's response? "Other Tobacco Products," which Calantzopoulos describes as "tax-driven substitutes for low-price cigarettes." These include, says Calantzopoulos, "the 'tobacco block,' which I would describe as the perfect make-your-own cigarette device." In Germany, roll-your-own cigarettes are taxed far less than manufactured cigarettes, and Philip Morris International's "tobacco block" is rapidly gaining market share.
One of the great industry deceptions over the last several decades is selling cigarettes called "lights" (as in Marlboro Lights), "low" or "mild" -- all designed to deceive smokers into thinking they are safer.
The Framework Convention on Tobacco Control says these inherently misleading terms should be barred. Like other companies in this regard, Philip Morris has been moving to replace the names with color coding -- aiming to convey the same ideas, without the now-controversial terms.
Calantzopoulos says Philip Morris International will work to more clearly differentiate Marlboro Gold (lights) from Marlboro Red (traditional) to "increase their appeal to consumer groups and segments that Marlboro has not traditionally addressed."
Another, related initiative is Marlboro Filter Plus, which claims to reduce tar levels. First launched in Korea, in 2006, Calantzopoulos says it has recorded "an impressive 22 percent share" among what the company designates as "Young Adult Smokers."
Philip Morris International also is unrolling a range of new Marlboro products with obvious attraction for youth. These include Marlboro Ice Mint, Marlboro Crisp Mint and Marlboro Fresh Mint, introduced into Japan and Hong Kong last year. It is exporting clove products from Indonesia.
Responding to increasing advertising restrictions and large, pictorial warnings required on packs, Marlboro is focusing increased attention on packaging. Fancy slide packs make the package more of a marketing device than ever before, and may be able to obscure warning labels.
Most worrisome of all may be the company's forays into China, the biggest cigarette market in the world, which has largely been closed to foreign multinationals. Philip Morris International has hooked up with the China National Tobacco Company, which controls sales in China. Philip Morris International will sell Chinese brands in Europe. Much more importantly, licensed versions of Marlboro are expected to be available in China starting this summer. The Chinese aren't letting Philip Morris International in quickly -- Calantzopoulos says "we do not foresee a material impact on our volume and profitability in the near future." But, he adds, "we believe this long-term strategic cooperation will prove to be mutually beneficial and form the foundation for strong long-term growth."
What does long-term growth mean? In part, it means gaining market share among China's 350 million smokers. But it also means expanding the market, by selling to girls and women. About 60 percent of men in China smoke; only 2 or 3 percent of women do so.
The global vilification of Big Tobacco over the last decade and a half is one of the world's great public health stories. Directly connected to that vilification has been a reduction in smoking, and adoption of life-saving policies that will avert millions of deaths.
Yet here comes Philip Morris International, now the world's largest nongovernmental tobacco company. It is permitted to break off from Altria with no regulatory restraint. It proceeds to announce plans to subvert the public health policies that offer the best hope for reducing the toll of tobacco-related death and disease. The markets applaud, governments are mute.
What an extraordinary commentary on the political and ideological potency of the multinational corporation -- and the idea that corporations should presumptively be free to do what they want, with only the most minimal of restraints.
Note: Essential Action, a group I direct, works to curb the global tobacco epidemic, and helped organize a public health call for government action in advance of the Philip Morris breakup.
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