Sabah Meddings | (TNS) Bloomberg News
Just a year after he became chief executive officer of Philip Morris International Inc., Jacek Olczak swooped on rival nicotine pouch maker Swedish Match in a $16 billion deal.
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Olczak wanted the company’s vast U.S. distribution network and popular Zyn nicotine pouches, which are about the size of a chiclet and meant to be placed between a user’s gum and upper lip. Hailed by some as a product that can give users “unstoppable force,” demand for Zyn is now so great that the company is on track to sell 580 million tins in the U.S. this year, up from 385 million a year earlier.
It’s all part of Olczak’s plan as he charts a way for the world’s largest tobacco company to generate two-thirds of its revenue from smoke-free alternatives to cigarettes by 2030.
The problem? It’s becoming increasingly clear that the huge wave in popularity for Zyn is also sweeping up kids. There are already an estimated half million underage users in the U.S. who are developing a taste for nicotine — a highly addictive, toxic chemical. Philip Morris was fined $1.2 million this month for sales in Washington, D.C., of pouches made with banned flavors, which are seen as more attractive to children.
Olczak is clear that the tobacco company may never be able to stop kids from trying its products. “The unfortunate thing is that with young people, there is an element of experimentation,” he said in an interview with Bloomberg at the company’s headquarters in Switzerland. “It doesn’t matter which country. This age is about experimentation, and they will experiment with the things the adults are doing.”
His own 16-year-old son is curious about nicotine, he said. “You have to understand that ‘zero’ will not exist.”
For Philip Morris, which reported $35.2 billion in net annual sales last year, the company is at a precipice: navigating the potential huge upside in the U.S. could depend on its ability to prove that it’s not hooking a new generation of young people on nicotine.
The cautionary example here is Juul, the high strength e-cigarette brand accused in multiple lawsuits of targeting underage users through stylishly-designed vaporizers and advertisements on youth-focused websites. The U.S. Food and Drug Administration banned Juul from marketing its products in 2022, and rescinded the order earlier this year.
Olczak, 59, insists the marketing of Zyn is “day and night” compared to Juul, pointing to his company’s focus on age verification. Still, a quick search on TikTok turns up a stream of videos promoting the pouches, including endorsements from Joe Rogan and Tucker Carlson.
The CEO maintains that Philip Morris has never paid for influencer promotion. The company is “very careful about which audiences we talk with,” he said.
“We don’t mind our consumers sharing their happiness,” he added, “but we would like them to watch who follows them.”
With sales climbing, the FDA has already begun to crack down, penalizing retailers caught selling to minors, and sending warning letters to online sellers offering unauthorized flavors of Zyn products. The regulator says that nicotine, which is addictive, can harm adolescent brain development and impact attention, learning and memory.
To Olczak’s frustration, Zyn and other nicotine pouches have not yet been authorized by the FDA — Swedish Match filed an application in March 2020 — but are permitted to stay on the market while the request is being considered. That hasn’t dampened demand: Zyn sales grew 41.4% in the third quarter in the U.S. compared to a year earlier, reaching 149.1 million cans.
Following reports of supply shortages in the U.S., Philip Morris made a fresh investment in its Owensboro, Kentucky plant, and announced plans to build a new factory in Colorado.
Other Philip Morris products are facing similar regulatory challenges. Sales of a heated tobacco stick called IQOS are expected to decline slightly this year as a result of what Stefan Volpetti, who oversees the company’s inhaled smoke-free products, calls “short-term turbulence” related to regulation. The EU has banned flavored heated tobacco products, and Taiwan has banned heated tobacco outright.
In the UK, Philip Morris has also come under fire for its ambitions to expand into health care. In September, it announced plans to sell British inhaler-maker Vectura Group Ltd. for roughly a third of the price it paid just three years ago.
The $1.2 billion deal was criticized by scientific organizations, health charities and anti-smoking campaigners who said that Big Tobacco should not benefit from a company whose products are used by Britain’s National Health Service, among others. Some even recommended that doctors stop proscribing Vectura-made inhalers.
Olczak believes that this response crossed a line. “The scientists of Vectura were cut off completely from any symposia or gathering,” he said. People were “obsessed with the fact Philip Morris was the shareholder.”
The controversy illustrates the challenges facing the company, as it attempts to leave cigarettes behind and push into new product areas.
Philip Morris still has a long way to go before it sells its last pack, Olczak sees the launch of IQOS in the U.S. and a surge in Zyn sales as an opportunity to step in the right direction. “The destination is a given,” he reflected. “It’s written on the wall.”
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