Big Tobacco smoke and mirrors act

by
Hauke ​​Goos and Ann-Kathrin Nezik

Along the Rhodanie Avenue in Lausanne, Switzerland, the world's largest cigarette manufacturer, Philip Morris, is taking an unconventional step that might be described, by some, as an attempt by a reformed tobacco company to save the world's smokers. The cigarette maker, the story goes, does not want to make cigarettes anymore. Its hero is Andre Calantzopoulos, the Greek who, since 2013, has been the chief executive of Philip Morris International. Calantzopoulos says it's better and healthier, namely "heating".

Heating products do not burn tobacco but release nicotine by raising the temperature to about 300 degrees. According to the cigarette companies, this prevents the burning of carcinogens found in normal cigarette smoke. Calentzopoulos conveniently made the jump from the Philip Morris brand marketed under the brand Iqos. It is a minimalistic-looking, battery-powered device, similar in form to an e-cigarette, but containing a lithium-ionic battery, a temperature regulator and a hot plate made of gold, platinum and ceramic.

Iqos devices are available in Germany, Britain, Japan, Italy and 38 other countries. According to Philip Morris, they are an age-old dream of smokers and non-smokers alike: a way to smoke with smoke, smell and cancer. A guilt-free ticket to enjoyment.

The tobacco industry is in crisis, and has to redefine itself if it intends to survive. On the one hand, 1.1 billion people around the world still smoke about 5.7 trillion cigarettes a year. In 2017, the company grew to $ US27 billion ($ 38 billion) in profits.

On the other hand, they're losing customers in industrialized countries, where fewer people are picking up the clothes. Unlike their parents, young people today care about living (and looking) healthy. According to one survey, only one in 13 people between the ages of 12 and 17 in Germany smoke cigarettes. And among 18-to-25-year-olds, 40 percent never smoked, a historic low.

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Meanwhile, what is next generation of tobacco companies, which rely on heating (Philip Morris), steaming (Imperial Brands) or both (British American Tobacco).

Tobacco companies are not only trying to get rid of cigarettes, they're leading the charge. A strategic and strategic battle for market share is taking place, but does it make sense to bet everything on a radical disruption and industry realignment?

Promised for a new beginning

Calantzopoulos sure hopes so. Two years ago, he told the BBC he hoped cigarettes would soon be history. "The goal is to convince as many smokers as possible to give up cigarettes," Calantzopoulos says today. He hopes to turn to Iqos and other smoke-free alternatives instead. In early January, Philip Morris took out full-page ads in British newspapers. "Our new year's resolution," the ad read in large, capital letters. "We're trying to give up cigarettes."

It was a promise, nothing more. Now Calantzopoulos is sitting at a conference table in Lausanne with an Iqos device in hand, blowing smoke out his nose. The smoke does not smell like smoke, which is why Calantzopoulos prefers to avoid the word "smoke" altogether. He quoted a few figures: Iqos emits 95 per cent harmful harmful substances than conventional cigarettes. Between 70 per cent and 90 per cent of smokers who switch from cigarettes to Iqos stick with the new product. "Our goal is to have 30 per cent of our smokers switch to smoke-free alternatives by 2025, that's more than 40 million consumers," he says.

The company is also putting its money where its mouth is. Philip Morris has such high hopes for the world, the most successful cigarette brand in the world.

Calantzopoulos was born in Greece. He studied in Lausanne and later in Paris. His first job was in the automotive industry. He exhales has puff of smoky non-smoke and lets it rise in the air, as if he were on stage. When he was younger, Calantzopoulos smoked cigars. He switched to cigarettes when he was 27. He has the pleasantly raspy voice of a smoker and speaks softly, unlike the tobacco-company managers most people know from '90s short cases, when people took on Big Tobacco. Calantzopoulos manages to appear both self-confident and scrupulous.

In the past, the tobacco industry simply was not safe for you. The correlation between smoking and death could not be had, it insisted, the risks had not yet been studied. In 1994, in the US, seven tobacco company managers claimed that nicotine was not addictive.

These days, everyone knows how to reduce dramatically reduce life expectancy. The warnings are on every pack, every closet. Now the industry is trying to make tobacco cool and desirable again.

The new approach

As a part of its offensive, Big Tobacco needs public health officials in its corner. It needs politicians to confirm the new products are less dangerous than cigarettes. It needs them allies, not enemies. Hey, tobacco companies say, we can help smokers who want to quit but can not. In return, please help us with Iqos.

For this to work, the tobacco companies have started a campaign of radical sincerity. They are not bad for your health. Instead, they warn against the dangers of cigarettes, because they finally have alternative products to offer.

Executives like Caliantzopoulos and companies like Imperial Brands, BAT or Philip Morris are suddenly pledging honesty and transparency, dialogue not threats. They've learned from past mistakes, they say, and promised to publish. They argue it is their responsibility to win back the credibility they've lost.

This change of style and strategy – Philip Morris, BAT and Imperial Brands – makes it look like a big hit.

Philip Morris will be loosened. For instance, it would be more of a "smoking kills" banner that adorn every advertisement. And it has completed all the necessary studies and long-term investigations, it would like to introduce the regulation as to "safer".

Iqos supposedly cost € 3 billion ($ 4.9 billion) and took 10 years to develop. Calantzopoulos hired scientists, marketing experts and designers to make Iqos appealing and trendy, like an Apple product, if Apple were in the tobacco business. While e-cigarettes are simply inhaled, one insertable Iqos stick is enough to last six minutes or 14 puffs. The heating experience is meant to mimic the effect of smoking as closely as possible.

And because so much depends on the success of this new project, nearly everyone at Philip Morris is involved in rolling it out.

That performance begins at the Geneva airport, with two people from the company's press relations department. During the drive to Philip Morris' offices in Lausanne, the employees explain what a difficult decision it was to accept a job from such a large tobacco company, why it's so important for people to smoke cigarettes and how much they regret the mistakes the tobacco industry made in the past. They'd like to put it all behind them, they say.

As Calantzopoulos' assistant escorts to the CEO's office, he asks whether we are smokers. No? "Good," he says. "Do not start."

In an interview, Calantzopoulos explains how the company's new thoughtfulness will manifest itself. How quickly will Iqos be adopted? No idea, Calantzopoulos says. It could take no time, like in Japan, or it could be sluggish, like in Germany, where it has a market share of 0.4 per cent a year after being introduced. European smokers have been less likely than expected, and Calantzopoulos has indefinitely frozen the construction of an Iqos factory in Dresden, where Philip Morris intended to invest € 275 million ($ 446 million).

A controversial strategy

How long does Philip Morris plan to sell cigarettes when Iqos is the better alternative?

That's an impossible question to answer, Calantzopoulos says. It depends on the regulatory bodies, on the subject of health care, and on the subject of self-regulation. "If the regulators help, it'll go faster," Calantzopoulos says.

Philip Morris' new strategy is not uncontroversial in the tobacco industry. The company is making Jan Mucke, the head of the German Cigarette Association (DZV). Calantzopoulos' approach imperils the credibility of the entire cigarette industry, Mucke says. It's worth noting Philip Morris left the association years ago, while its German competitor, BAT Deutschland, which sells like Lucky Strike, Dunhill and Pall Mall, is still an active member.

If Philip Morris' announcement about getting out of the cigarette business is to be taken seriously, Mucke says, then the company would stop selling cigarettes immediately. "If we're going to be held responsible for Philip Morris's marketing slogans, that would be problematic." The last thing this industry needs is another problem with its credibility, "Mucke says.

But that's exactly what makes Philip Morris' new strategy so surprising, and so dangerous. It's based on a moral pretense and the high-minded notion of responsibility. Not to mention the company's promise to liberate the world from cigarettes.

The problem with moral advertising is really important they're true. As one tobacco industry insider put it: "I'll be curious to see how they clean up the mess things go south."

In practice, Philip Morris is not just trying to get rid of cigarettes.

In Africa, for instance, the tobacco company has a very different mission. There, Philip Morris does not have to worry as much as it does, say, Europe.

On one hand, Africa is regarded by the cigarette industry as one of its most important future markets. The number of smokers on the continent is still relatively low and is expected to double, if not triple, in the coming years.

On the other hand, many African countries have imposed stringent anti-smoking regulations in recent years. Minus has few exceptions, the guidelines of the World Health Organization (WHO) have been implemented virtually everywhere.

In Africa, there is the African Tobacco Control Alliance (ATCA), a consortium of more than 120 organizations with the shared goal of making the continent tobacco-free. In late February, ATCA published the results of a study conducted in the United States. Doing so makes smoking affordable for poor and young people, which is why the study was important.

Widely available

In the Kenyan capital, Nairobi, Kidiya Rodgers walks through a public park late one morning. Nairobi was one of the 10 cities studied by ATCA. Kidiya co-ordinated the research in Kenya. He was one of the people who visited corner stores and took photos as evidence.

A woman selling cigarettes has set up shop in a corner of the park. Her wares are kept in a metal orange box. Inside are cigarettes from BAT, including the Sportsman, Safari and Embassy brands. A filtered cigarette goes for 8 shillings (11 ¢), while an unfiltered one goes for only five.

Kidiya wants to know if she's aware that selling cigarettes is individually illegal.

The woman says she got the metal box from BAT, which does spot checks. If they ever catch their brands, they will be forced to return to the box. They never mentioned anything about cigarettes.

What about her? Does she smoke?

The woman shakes her head. The warning images on the packages leave to the imagination "It's just a job," she says.

In each of the 10 African cities, the findings of the ATCA investigation were the same: it's possible to buy individual cigarettes everywhere. This is just as true in Ouagadougou, Burkina Faso, as it is in Yaounde, Cameroon, or in N'Djamena (Chad), in Abidjan (Ivory Coast), in Accra (Ghana), and in Nairobi. Not to mention Lagos (Nigeria), Lome (Togo) and Kampala (Uganda).

The cigarettes come from the BAT manufacturers, Philip Morris and Imperial Brands, and from domestic companies. In other words, they are more likely to give cigarettes. According to the ATCA study, Benson & Hedges (BAT), Davidoff (Imperial Brands) and Marlboro (Philip Morris) were the most common brands of cigarettes.

The photos taken by Kidiya and his colleagues make clear that major cigarette companies continue to push for the sale of cigarettes. BAT, for instance, began a "buy one, get one free" ad campaign for its cigarettes, according to ATCA. BAT denies this.

The companies are pursuing a two-track strategy, says Lars Lusebrink, an analyst at Independent Research. In developing countries, tobacco companies are investing in alternatives to cigarettes, while they are advertising cigarettes as always. The companies are expanding in Africa and south-east Asia to compensate for declines in domestic markets.

Growth market

Close to a billion people live in Africa today, but by 2025 that number is expected to increase by 500 million. The World Health Organization estimates that it is about 10 percent of people over the age of 15, and it is expected to increase population, at least for tobacco companies, to a potential profit windfall. In the Republic of the Congo, about 47 per cent of the population will be smokers by 2025; in Cameroon, it will be 43 per cent; in Sierra Leone, 41 per cent. Asia, Africa and other emerging markets in general are a "very high priority" at BAT, the company says. These markets are "an integral part of the strategy".

Until a few years ago, Vincent Kimosop was the head of an organization that advised politicians about the implementation of laws. Kimosop has a small office in Nairobi. He recently started working as a freelance political adviser. We were able to explain why tobacco companies were selling cigarettes in Africa while in Europe, Australia, and the US they were pivoting to a strategy of risk mitigation and transparency.

There are three reasons why regulations in Africa are ineffective, Kimosop says. Many African nations rely on tobacco taxes to finance their budgets. The public interest, i.e., making sure people do not make themselves sick by smoking, is often weighed against the political interest of keeping tax revenues as high as possible. In other words, the government must regulate an industry on which it links for survival: an irreconcilable dilemma.

The second reason is many politicians have an overwhelmingly positive opinion of the tobacco industry. This may be because they are used by a company or because they own stock in one.

And the third reason? African countries, Kimosop says, are incredibly good at passing strong laws, "and very bad at implementing them".

In the Nairobi district of Buru Buru, Kidiya wants to show what this means in real life. In the shade of some trees, directly in front of the Bidii Primary School, merchants sell sodas, lollipops, candy or SIM cards, and cigarettes out of wooden boxes. Each of these mobile shops is adorned with an orange cartoon hand with its thumb up. "bei poa", the sign reads, or "best price". Wherever this is visible, customers can buy cigarettes for 7 shillings apiece.

One of the merchants reveals he got his sign directly from BAT. Once a week, he has been instructed to do so. This is followed by an unannounced visit by a team that checks the merchants are following instructions.

And what if he sells a cigarette for 8 shillings instead of seven?

"They come and threaten to stop the deliveries," he says. BAT denies it engages in such practices.

Nearly every customer buys one or two cigarettes at a time, at most three, the merchant says. When was the last time? "I can not remember," he says.

'A win-win situation'

ATCA published a similar study in late 2016. The association demonstrated, with the help of photographic evidence, that tobacco companies were selling cigarettes and other tobacco products in Cameroon, Burkina Faso, Benin, Nigeria and Uganda, in violation of bans. The minds? British American Tobacco and Philip Morris International.

Organizations like the Uganda National Health Consumers' Organization (UNHCO) – an NGO that advocates for public health in Uganda – have long been in the business of preventing tobacco abuse. One method is to bombard the government with lawsuits, another is to bribe cabinet-level ministers – or under them. Bribes and threats are hard to prove, since there is rarely any written evidence.

To corroborate this, we arrange to meet a manager from BAT Uganda. He insists we do not print his name out of fear for his career. He's wearing a dark blue suit, has an amiable face and is generally in good spirits. He's familiar with all the accusations of tobacco opponents, when he was on his payroll, he was responsible for coming up with all of them.

The man says the tobacco industry has always been under pressure. And it will do anything – truly, anything – to stay in business.

What does that mean, exactly?

The industry has a line of defense, the man says, smiling. It goes something like this: the product may be controversial, but it's legal. Besides, cigarettes are not only controversial product. And as controversial as cigarettes may be, consumers like them.

The tobacco industry, the man says, helps the state protect people who want to smoke. That's its mantra. "If we do not supply smokers, they're going to smoke whatever else they can get their hands on, and it's probably going to be more dangerous than cigarettes."

The strategy is to convince the government that industry and politics are in this together. And that, for instance, high taxes on tobacco only increase incentives to smuggle in inferior cigarettes. It's all about creating a "win-win situation" he says.

Are politicians bribed by the tobacco industry? Not officially, the man says. He's clearly amused. Unofficially – the man breaks down to find the right words – of course, lobbyists do what they can to make things easier for themselves.

How does that play out in real terms? It's simple, he says. The magic words are "social responsibility," meaning a commitment that they are more than happy to accept. Politicians mostly ask for money, because they want to be re-elected. A hospital needs renovating? No problem, the company pays for new beds. A school needs money? Sure thing, the company will pay teachers' salaries. It's a give-and-take relationship, the man says. "We deliver, and they thank us."

BAT Kenya, when asked for a statement, answered: "It is simply not true that we support the sale of individual cigarettes in Kenya and Uganda."

"We do not condone the brand," Imperial Brands says.

And what does Calantzopoulos have to say to Philip Morris? How does it reconcile pushing "reduced risk" products in industrialized countries, while still selling cigarettes in the world's poorest countries?

Calantzopoulos says, "Of course, its company would like to have some heating products beyond European and American markets. But I do not like it, I do not like it, I do not like it. Or that some countries would prefer to outright. In this case, he says, Philip Morris must continue to sell cigarettes.

In the end, Calantzopoulos says, it's the regulatory officials in these countries who are promoting the consumption of cigarettes through their rejective stance; surely unintentionally, he allows.

Asia and Africa are not ready for innovation in smoking. What's missing is a public awareness of smoke-free alternatives, the proper regulations and public pressure. Calantzopoulos says in such an environment, products like Iqos and the potential they hold for public health are not discussed.

Soon the US Food and Drug Administration, the country's consumer protection watchdog, will rule on whether it will be allowed on the American market. Philip Morris has a lot riding on that decision. So does Calantzopoulos.

The company feels the FDA has a thousand-page application, in which it asked for permission to market Iqos a "reduced risk" alternative to smoking. In the application, Philip Morris presented itself as sincere, remorseful, insightful and transparent.

It's the best card the company has to play. It's also the last.

Der Spiegel Magazine